International market segmentation and Eurodebt issues

Implications of capital market segmentation for international capital structure (ICS)—capital structure consisting of equity issued in one country and debt issued in another—are examined. Necessary conditions for the emergence of ICS are analyzed under two options for debt issues (foreign debt and Eurodebt) and comparisons are made. It is shown that in cases where the project cannot support an ICS including foreign debt Eurobonds can be issued and would be profitable.     

Fairness and reflexivity in the Cyprus bail-in

The Cyprus debt crisis provides some unique lessons. By the time an assistance program was agreed with the Troika of international lenders, the problem had become so complex that a depositor bail-in was implemented to safeguard financial stability. The bail-in was an ad hoc solution applied for the first time in the eurozone but is now the blueprint for dealing with future banking crises. This paper examines the events for the 18-month period before the two eurogroup meetings on Cyprus in March 2013, and the resolution and restructuring of the two systemic banks of the country with depositor bail-in. We show how delays in dealing with the crisis exacerbated the problem but also how the tools brought into solve the problem had significant unintended consequences that fit the reflexivity principle. Available evidence questions the validity of confidential studies guiding the policy decisions on depositor haircut and supports the argument that the bail-in, as implemented in Cyprus, violated international principles of fairness. We use the analysis to draw some lessons on the use of bail-in for future crises.     

Towards an Austrian Perspective on the Firm

The Review of Austrian Economics -