Round 2 — Do the Euro CACs Have to be Used if There is a Need to Restructure a Euro Area Sovereign's Debt?

The intriguing question raised by Mark Weidemaier’s superb new paper posted a few weeks ago (here) was whether, if a Euro area country hits a debt crisis, it would be mandatory for it to use the Euro CACs that are now part of the majority of Euro area sovereign bonds.  Mark’s paper says no (for more, see also Tyler Zellinger, here; and Buchta, Shan, Plambeck & Shufro, here). About ten days ago, this question came up at a conference at the EUI organized by Franklin Allen, Elena Carletti and Jeromin Zettelmeyer. The plan for the conference hadn’t been to discuss this particular topic, but CACs and restructurings in the Euro area more broadly. But Mark’s paper had just come out and it turned out that almost everyone there had strong views about it; particularly in the context of thinking about Italian sovereign debt. The panel of CAC/sovereign debt experts was: Yannis Manuelidis, Anna Gelpern, Aitor Erce and Giampaolo Galli.  And the…

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