Abstract
The laggards of the Eurozone pose a novel economic and legal issue. Whereas the Eurozone sorely needs growth in the PIRGS, neither conventional Keynesian stimulus nor devaluations are likely to be productive. This essay proposes that growth be rekindled by forced over-recapitalization of the laggards’ private banks. This will generate local growth while circumventing inefficient national governments and without starting an inflation spiral or additional bureaucracy. The proposal is sensitive to the Eurozone’s attitudes about federalism of financial regulation, to help which the paper juxtaposes the development of US bank regulation.
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Notes
Preferred stock is junior to debt, i.e., is repaid after debt in a liquidation, but senior to common stock, i.e., must be repaid before common stockholders receive any capital. Being junior to debt implies that this preferred stock is more exposed to insolvency risk and should compensate by offering a higher return. The preferred’s seniority over common stock means that preferred need not provide as high an expected return as common stock.
Hepburn v. Griswold, 75 US (8 Wall.) 603 (1870) (invalidating the requirement that payees accept paper currency for obligations incurred before the civil war); Pollock v. Farmers' Loan and Trust Co., 157 U.S. 429, 15 S. Ct. 673, 39 L. Ed. 759 (1895) (income tax); United States v. E. C. Knight Co., 156 U.S. 1, 15 S. Ct. 249, 39 L. Ed. 325 (1895) (antitrust); Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S. Ct. 854, 79 L. Ed. 1593 (1935) (bankrupt farm repossessions).
See, e.g., Commission v. Belgium, Case C-65/03, [2004] E.C.R. I-6427; Commission v. Austria, Case C-147/03, [2005] E.C.R. I-5969 (about admission standards in Universities that discriminate against members of other states).
See, e.g., Garcia Avello v. Belgium, Case C-148/02, [2003] E.C.R. I-11,613 (Ruling that Belgian rules forcing a single surname must not prevent Spanish national in Belgium from giving child two surnames according to Spanish law and custom; Belgian court referred issue to the ECJ). Similarly, see also Grunkin-Paul v. Standesamt Niebüll, Case C-353/06, [2008] E.C.R. I-7639.
See, e.g., Joined Cases C-402 and 415/05P, Kadi and Al Barakaat Int'l Found. v. Council and Comm'n, 2008 E.C.R I-6351 (private litigants challenging EU rules implementing asset-freezes). See, generally, Tridimas and Gutierrez-Fons (2009) (“skeptik[al] as to whether the Community has competence to adopt economic sanctions against non-state actors” at p. 727).
An example of such maneuvering appears in Epstein v. MCA, 50 F.3d 644 (9th Cir. 1995) rev'd sub nom. Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 116 S. Ct. 873, 134 L. Ed. 2d 6 (1996) (avoiding to follow US Supreme Court direction to give full faith and credit to state law settlement of federal securities claims; deciding on new issue of adequacy of representation); see also Allen (1998), Kahan and Silberman (1998).
See, e.g., German High Court OKs Permanent Bailout Fund with Reservations, Spiegel Online, Sep. 12 2012, available at http://www.spiegel.de/international/germany/ger-man-high-court-oks-permanent-bailout-fund-with-reservations-a-855338.html, last visited Oct 23, 2012.
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Acknowledgments
I wish to thank an anonymous referee, Christos Hadjiemmanuil, Rob Katz, Gerard Magliocca, Emily Michiko Morris, Florence Roisman, and Vasilis Tountopoulos as well as the truly extraordinary librarian assistance of Susan deMaine.
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Georgakopoulos, N.L. PIRG doldrums: exit via overrecapitalization. Eur J Law Econ 43, 317–332 (2017). https://doi.org/10.1007/s10657-014-9447-y
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DOI: https://doi.org/10.1007/s10657-014-9447-y