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Some clear policy prescriptions
One speaker who focused on that nexus was UBS
Center Advisory Board member Harald Uhlig from
the University of Chicago.
In his talk, he argued that regulators in risky coun-
tries – like Greece – have an incentive to allow their
banks to hold home risky bonds and risk defaults,
while regulators in safe countries – like Germany –
will impose tighter regulation. As a result,
When asked by conference attendee Swiss TV (SRF),
what he would advise Europe’s leaders for the
then-ongoing negotiations with the Tsipras govern-
ment, Uhlig’s position was clear: For the sake of the
system, they should take a hard line, force Greece
to comply with the rules, and should not allow for
a debt write-down before reforms. Clearly a view
that his compatriot in the German finance ministry
seemed to have shared wholeheartedly.
"governments in risky countries get
to borrow more cheaply, effectively
shifting the risk of some of the po-
tential sovereign default losses on
the European Central Bank."
Dialogue and Events
Academic Conference
Academic Conference on "The Eco-
nomics of Sovereign Debt"
In the midst of this summer’s Greek debt
crisis, the UBS Center organized a two-day
conference on "The Economics of Sovereign
Debt" on its own premises in Zurich. The
conference took place on June 23−24 and
was attended by over 60 specialists from
universities, central banks, and other institu-
tions (such as the IMF and UBS).
The numerous presentations by researchers and pol-
icymakers featured their latest findings, which both
in terms of methodologies and focus themes covered
a lot of ground. Ranging from theory papers to
purely empirical contributions, presentation topics
included debt restructuring options, the effect of
financial liberalization, a history of haircuts, or the
nexus between sovereign, bank, and private debt.
Shared insights
Amidst this diversity, a set of common themes and
general insights emerged. Rather unexpectedly,
there was widespread agreement on the detrimental
effects of very high levels of sovereign debt (for a
dissenting view, please refer to the research feature
on Hans-Joachim Voth in this newsletter, which
discusses positive effects of high debt levels). Also, it
was widely acknowledged that there is much room
for improvement, both in terms of how sovereign
debt problems are modelled in economic theory as
well as in terms of the existing databases for ana-
lyzing these problems. Finally, as far as Europe is
concerned, one unifying theme was the key impor-
tance of the nexus between the monetary union and
government debt.
At one of the presentations in the UBS Center’s seminar room
Harald Uhlig who spoke on "Sovereign Default Risk and Banks in a
Monetary Union"