The Eurozone debt crisis has stimulated lively debate on mechanisms for sovereign
debt restructuring. The immediate threat of exit and the breakup of the currency union
may have abated; but the problem of dealing with significant debt overhang
remains. After considering two broad approaches - institutional versus contractual –
we look at a hybrid solution that combines the best of both. In addition to debt
contracts with Collective Action Clauses, this includes a key amendment to the Treaty
establishing the European Stability Mechanism, together with innovative state-
contingent contracts and a Special Purpose Vehicle to market them
