However, it does not follow from this that market forces necessarily have to work only ex post and continue to be “too slow and weak or too sudden and disruptive”. We must strengthen “gradual” market pressure. For that, I believe having pre-defined procedures for debt-restructuring and a well-designed crisis management framework would help greatly.
Defaults are certainly “unnecessary, undesirable, and unlikely”, as Cottarelli et al. (2010) assert. But we should not only be ready in case they take place but also have institutions capable of conveying to the market the message that they are in fact possible.