The Group of Twenty (G20) has expanded the global financial safety net, but failed to align access criteria and sovereign debt restructuring requirements across its various players and layers. International crisis lending is now fragmented and lacks a consistent and credible regime for sovereign debt restructuring. This may result in weakened incentives for sound policies, overborrowing at the front end, and procrastination and restructuring “too little, too late” at the back end. The International Monetary Fund (IMF) has gradually hardened access criteria and debt restructuring requirements for exceptional access lending, while the other arrangements mostly do not have clear frameworks or remain untested. This may set up an inherent conflict between international crisis lenders, with the IMF playing tough and regional lenders ending up offering (too much) concessional financing. The inconsistencies can be eliminated by either fully aligning the various decentralized parts with the centre (the IMF), thus reunifying the global safety net, or by implementing decentralized policies across all players with binding access policies and restructuring criteria that are at least as strict as those of the IMF. In the case of the euro zone, there is the additional option to “do it yourself” as a step toward completing the monetary union: this would involve dismantling the “Troika,” implementing hard restructuring requirements for ESM access while simultaneously clearing the debt overhang. The German G20 presidency is uniquely positioned to address all of these issues.
Beatrice Weder di Mauro is a CIGI senior fellow, president of the Centre for Economic Policy Research and professor of economics at the Graduate Institute of International and Development Studies in Geneva. She specializes in financial crises, international capital flows, financial governance and sovereign debt restructuring.