Moreover, fiscal and sovereign debt strains are becoming worse as interest rate spreads for Spain and Italy have returned to their unsustainable peak levels.

Finally, GDP indexed bonds and other tools for dealing sensibly with unsustainable debt could be applied exclusively to member states debt not covered by the program and in line with international best practices for sovereign debt management.

Equally worrying is Africa's unsustainable debt burden.

Sovereign Debt at Square One

Unsustainable private debt problems must be resolved by defaults, debt reductions, and conversion of debt into equity.

How to Default on Sovereign Debt

Sovereign debt no longer looks stable.

Sovereign debt restructurings with private creditors

Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy s chronically large sovereign debt.

Private and public debt levels are high and possibly unsustainable.

A New Approach to Eurozone Sovereign Debt

The sovereign debt crisis is well known.

The Root of All Sovereign Debt Crises

The sovereign debt and banking crises have become even more closely interlinked as banks bought greater amounts of their home countries sovereign debt.

And, without a return to growth, its debt burden will remain unsustainable.

This means no cross border sovereign debt (or esoteric instruments, such as collateralized debt obligations).

Emphasizes that creditors and debtors must share responsibility for preventing unsustainable debt situations

The country s sovereign debt should have been restructured without delay.

The link between sovereign debt and bank debt has to be broken once and for all.

4. Emphasizes that creditors and debtors must share responsibility for preventing unsustainable debt situations

Investors naturally respond to unsustainable debt by selling bonds until interest rates become ridiculous.

If heavily indebted countries have to pay heavy risk premiums, their debt becomes unsustainable.

As a result, large and potentially unsustainable stocks of private and public debt remain.

Sovereign debt was eventually restructured through the creation of Brady bonds.

Greek sovereign debt has been downgraded to below that of Egypt.

Table 3 Recent sovereign debt restructurings with private creditors main features

With the onset of the European sovereign debt crisis in 2010, banks appetite for public debt fell again.

And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.

3. Also emphasizes that creditors and debtors must share responsibility for preventing unsustainable debt situations

3. Also emphasizes that creditors and debtors must share responsibility for preventing unsustainable debt situations

The dysfunctional system of European fiscal governance should be dismantled fiscal responsibility should be returned to member states and, to minimize the risk of excessive future lending, private lenders should be required to bear the losses implied by unsustainable sovereign debt.

Currently, they are wrestling with widening sovereign debt problems and high unemployment.

Interest rate spreads on Italian sovereign debt have widened, but not sharply.

In Europe, risks spreads are rising on Italian and Spanish sovereign debt.

So governments bailed out banks and economies, producing a sovereign debt crisis.

And, to stabilize debt GDP ratios, the denominator must start rising otherwise, debt levels will become unsustainable, despite all efforts to reduce deficits.

Of course, this may not be the breaking point beyond which the debt burden becomes unsustainable.

Latin America experienced this dilemma in the 1980 s, when its debt arithmetic had become unsustainable.

However, the general improvement masks exceptions, as individual countries are still facing large unsustainable debt burdens.

A sovereign default () is the failure or refusal of the government of a sovereign state to pay back its debt in full.

But if market nervousness persists and interest rates remain high relative to rates for secure German debt, the debt burden will rapidly become unsustainable.

Indeed, increased debt servicing obligations resulting from higher interest rates, along with weakening export prospects, ran the risk of reproducing an unsustainable debt burden.

Nonetheless, Argentina s latest debt trauma shows that the global system for sovereign debt workouts remains badly in need of repair.

And debt and deficit concerns will remain, with the virtual certainty of at least one sovereign debt restructuring in Europe.

What Europe and the IMF have essentially done is to convert a private debt problem into a sovereign debt problem.