In this paper, we study the role of law for squaring democracy with a market-based financial order. We approach this issue on the basis of Jürgen Habermas’ discourse theoretical understanding of the role of law in the welfare state. Accordingly, law needs to be enforceable; law-making and...

This paper studies whether IMF programs and their size affect borrowing costs by comparing the coupon of bonds issued around an IMF arrangement. By comparing bonds issued immediately before the inset of the program with bonds issued immediately after the program, we show that, on average, the...

Official lenders provide financial assistance to countries that face sovereign debt crisis. The availability of financial assistance has counteracting effects on the default incentives of governments. On the one hand, financial assistance can help to avoid defaults by bridging times of...

An important source of inefficiency in long-term debt contracts is the debt dilution problem, wherein a borrower ignores the adverse impact of new borrowing on the market value of outstanding debt and, therefore, borrows too much and defaults too frequently. A commonly proposed remedy to the...

An important ineffciency in sovereign debt markets is debt dilution, wherein sovereigns ignore the adverse impact of new debt on the value of existing debt and, consequently, borrow too much and default too frequently. A widely proposed remedy is the inclusion of seniority clause in sovereign...