The European Redemption Pact: An illustrative guide

The European Redemption Pact (ERP), a proposal of the German Council of Economic Experts, describes an exit strategy from the debt crisis which currently plagues the Euro-Area. The pact includes a binding commitment of all participating countries to bring public debt ratios below the reference value of 60 % within the next 20 to 25 years. To ensure that this objective can be reached with realistic primary balances, participating countries can transfer their excessive debt exceeding the 60 % threshold at a certain date, into a redemption fund for which participating member countries are jointly and severally liable. In this technical paper, we describe in detail one possible way of implementing the ERP and the primary balances each country would need to achieve under the proposal.