Managing High Public Debt in Euro-Area Countries: Financial Repression as Fiscal Insurance?

Abstract

This article gives a narrative account of the main standard and nonstandard public-debt management tactics that euro-area governments applied during the sovereign-debt crisis. To secure market liquidity, they inter alia targeted public-debt supply more at residents and often also sought to create a captive domestic demand for sovereign bonds. Where fiscal solvency was impaired, they arranged a "voluntary" debt restructuring, pressed official creditors for debt forgiveness, or considered imposing a haircut on official-sector claims. This cross-country analysis indicates the return of financial repression as fiscal insurance against government funding stress and a public-debt overhang.