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| Causes | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2>
According to financial historian Edward Chancellor past instances of sovereign default have tended to occur under some or all of the following circumstances:[7]
A reversal of global capital flows
Unwise lending
Fraudulent lending
Excessive foreign debts
A poor credit history
Unproductive lending
Rollover risk
Weak revenues
Rising interest rates
Terminal debt
A significant factor in sovereign default is the presence of significant debts owed to foreign investors who are unable to counter such actions in another nation's political processes or otherwise (e.g., via support from their own government(s) or supranational courts); the enforcement of creditor's rights against sovereign states is frequently difficult. Such willful defaults (the equivalent of strategic bankruptcy by a company or strategic default by a mortgager, except without the possibility of the exercise of normal creditor's rights such as asset seizure and sale) can be considered a variety of sovereign theft; this is similar to expropriation (including inadequate repayment for the exercise of eminent domain).[8][9]
[edit] Tags:Default,Government,Sovereign State,Debt,Insolvency,Inflation,Devaluate,Compensation For The Risk,Maturity Mismatch,Currency Mismatch,Original Sin,Sovereign,Creditor's Rights,Invading Egypt In 1882,Gunboat Diplomacy,United States Occupation Of Haiti,Debt Restructuring,Haircut,The Case Of Greece,International Monetary Fund,Conditional,Austerity Measures,Public Sector,Edward Chancellor,Terminal Debt,Strategic Bankruptcy,Strategic Default,Theft,Expropriation,Eminent Domain,Austerity,Budget,Overspending,Regime Change,Odious Debt,Bourbon,French Revolution,Denmark,Holstein,German Confederation,Russian Empire,Soviet,Confederate States Of America,United States,Civil War,Fourteenth Amendment,Decline,Successor States,Second World War,Government Debt,Compound Interest,Debt Cancellation,London Agreement On German External Debts,Brady Bonds,Argentine Economic Crisis (1999–2002),Monetary Sovereignty,Government Bonds,Banking Crisis,Economic Crisis,Currency Crisis,Monetarily Sovereign,Plano Real,Philip Ii Of Spain,Mercantile Empire,Fuggers,Defaults,Hyperinflation In Zimbabwe,1982, 1989,Argentine Debt Restructuring,1980, 1986, 1989,1983,1981, 1983, 1984,Latin American Debt Crisis,1989,1981,1982,1983, 1987,1986,1980, 1984,Continental Dollar,Executive Order 6102,Nixon Shock,Danish State Bankruptcy Of 1813,1998,Asset Liability Mismatch,Sovereign Bond,External Debt, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Insolvency/over-indebtedness of the state | 3>
This section overlaps with other sections too much. It should be combined with the rest of the article.
Please improve this article if you can.
If a state for economic reasons defaults on its treasury obligations/is not any longer able or willing to handle its debt/liabilities or to pay the interest on this debt, it faces sovereign default. To declare insolvency, it is sufficient if the state is only able (or willing[8]) to pay part of its due interest or to clear off only part of the debt.
Reasons for this include:[citation needed]
massive increases in public debt
declines in employment and therefore tax receipts
government regulation or perceived threats of regulation of financial markets
popular unrest at austerity measures to repay debt fully
Sovereign default caused by insolvency historically has always appeared at the end of long years or decades of budget emergency (overspending[10]), in which the state has spent more money than it received. This budget balance/margin was covered through new indebtedness with national and foreign citizens, banks and states.
[edit] | Tags: Change of government | 3>
While normally the change of government does not change the responsibility of the state to handle treasury obligations created by earlier governments, nevertheless it can be observed that in revolutionary situations and after a regime change the new government may question the legitimacy of the earlier one, and thus default on those treasury obligations considered odious debt.
Important examples are:
default of debts of the Bourbon France after the French Revolution.
default of bonds through Denmark in 1850, which were issued by the government of Holstein instated by the German Confederation.
default of debts of the Russian Empire after the Soviet government came to power in 1917.
repudiation of debts of the Confederate States of America by the United States after the Civil War through the ratification of Section 4 of the Fourteenth Amendment.
[edit] | Tags: Decline of the state | 3>
With the decline of the state,[clarification needed] its obligations are turned over to one or several successor states.
Lost wars significantly accelerate sovereign default. Nevertheless, especially after the Second World War the government debt has increased significantly in many countries even during long lasting times of peace. While in the beginning debt was quite small, due to compound interest and continued overspending[10] it has increased substantially.
[edit] | Tags: Consequences | 2>
Creditors of the state as well the economy and the citizens of the state are affected by the sovereign default.
[edit] | Tags: Consequences for creditors | 3>
The most visible effects of sovereign default are the complete or partial loss of lent money and/or interests upon.
In this case very often there are international negotiations which end in a partial debt cancellation (London Agreement on German External Debts 1953) or debt restructuring (e.g. Brady Bonds in the 1980s). This kind of agreement assures the partial repayment when a renunciation / surrender of a big part of the debt is accepted by the creditor. In the case of the Argentine economic crisis (1999–2002) the creditors had to accept the renunciation (loss) of up to 75% of the outstanding debts.
For the purpose of debts regulation debts can be distinguished by nationality of creditor (national or international), or by the currency of the debts (own currency or foreign currency) as well as whether the foreign creditors are private or state owned. States are frequently more willing to cancel debts owed to foreign private creditors, unless those creditors have means of retaliation against the state.[8]
[edit] | Tags: Consequences for state | 3>
When a state defaults on a debt, the state disposes of (or ignores, depending on the viewpoint) its financial obligations/debts towards certain creditors.[citation needed] The immediate effect for the state is a reduction in its total debt and a reduction in payments on the interest of that debt. On the other hand, a default can damage the reputation of the state among creditors, which can restrict the ability of the state to obtain credit from the capital market.[8] In some cases foreign lenders may attempt to undermine the monetary sovereignty of the debtor state or even declare war (see above).
[edit] | Tags: Consequences for the citizen | 3>
If the individual citizen or corporate citizen is a creditor of the state (eg. government bonds), then a default by the state can mean a devaluation of their monetary wealth.
In addition, the following crises can result from a sovereign default:
a banking crisis, as banks have to make write downs on credits given to the state.
an economic crisis, as the interior demand will fall and investors withdraw their money
a currency crisis as foreign investors avoid this national economy
The citizen might feel the impact indirectly through high unemployment and the decrease of state services and benefits. However, a monetarily sovereign state can take steps to minimize negative consequences, rebalance the economy and foster social/economic progress (eg. Plano Real).[11]
[edit] | Tags: Examples of sovereign default | 2>
A failure of a nation to meet bond repayments has been seen on many occasions. In 1557 Philip II of Spain defaulted on debt several times[citation needed] and had to declare sovereign default four times - in 1557, 1560, 1575 and 1596 - becoming the first nation in history to declare sovereign default, due to rising military costs, and the declining value of gold, as it had become increasingly dependent on the revenues flowing in from its mercantile empire in the Americas.[12][13] This sovereign default threw the German banking houses into chaos and ended the reign of the Fuggers as Spanish financiers. Genoese bankers provided the unwieldy Habsburg system with fluid credit and a dependably regular income. In return the less dependable shipments of American silver were rapidly transferred from Seville to Genoa, to provide capital for further ventures.
In the 1820s, several Latin American countries which had recently entered the bond market in London defaulted. These same countries frequently defaulted during the nineteenth century, but the situation was typically rapidly resolved with a renegotiation of loans, including the writing off of some debts.[14]
A failure to meet payments became common again in the late 1920s and 1930s; as protectionism rose and international trade fell, countries possessing debts denominated in other currencies found it increasingly difficult to meet terms agreed under more favourable economic conditions. For example, in 1932, Chile's scheduled repayments exceeded the nation's total exports (or, at least, its exports under current pricing; whether reductions in prices - forced sales - would have enabled fulfilling creditor's rights is unknown).[14]
[edit] | Tags: List of sovereign debt defaults or debt restructuring | 2>
The following list includes actual sovereign defaults and debt restructuring of independent countries from 1300 till 2012:[15]
Africa
Algeria (1991)
Angola (1976,[16] 1985, 1992-2002[16])
Cameroon (2004)[16]
Central African Republic (1981, 1983)
Congo (Kinshasa) (1979)[16]
Cote d'Ivoire (1983, 2000)
Gabon (1999–2005)[16]
Ghana (1979, 1982)[16]
Liberia (1989–2006)[16]
Madagascar (2002)[16]
Mozambique (1980)[16]
Rwanda (1995)[16]
Sierra Leone (1997–1998)[16]
Sudan (1991)[16]
Tunisia (1867)
Egypt (1876, 1984)
Kenya (1994, 2000)
Morocco (1983, 1994, 2000)
Nigeria (1982, 1986, 1992, 2001, 2004)
South Africa (1985, 1989, 1993)
Zambia (1983)
Zimbabwe (1965, 2000, 2006[16] (see Hyperinflation in Zimbabwe)
Americas
Antigua and Barbuda (1998–2005)[16]
Argentina (1827, 1890, 1951, 1956, 1982, 1989, 2002-2005[16] (see Argentine debt restructuring))
Bolivia (1875, 1927,[16] 1931, 1980, 1986, 1989)
Brazil (1898, 1902, 1914, 1931, 1937, 1961, 1964, 1983, 1986-1987,[16] 1990[16])
Canada (Alberta) (1935)[16]
Chile (1826, 1880, 1931, 1961, 1963, 1966, 1972, 1974, 1983)
Colombia (1826, 1850, 1873, 1880, 1900, 1932, 1935)
Costa Rica (1828, 1874, 1895, 1901, 1932, 1962, 1981, 1983, 1984)
Dominica (2003–2005)[16]
Dominican Republic (1872, 1892, 1897, 1899, 1931, 1975-2001[16] (see Latin American debt crisis), 2005)
Ecuador (1826, 1868, 1894, 1906, 1909, 1914, 1929, 1982, 1984, 2000, 2008)
El Salvador (1828, 1876, 1894, 1899, 1921, 1932, 1938, 1981-1996[16])
Grenada (2004–2005)[16]
Guatemala (1933, 1986, 1989)
Guyana (1982)
Honduras (1828, 1873, 1981)
Jamaica (1978)
Mexico (1827, 1833, 1844, 1850,[16] 1866, 1898, 1914, 1928-1930s, 1982)
Nicaragua (1828, 1894, 1911, 1915, 1932, 1979)
Panama (1932, 1983, 1983, 1987, 1988-1989[16])
Paraguay (1874, 1892, 1920, 1932, 1986, 2003)
Peru (1826, 1850,[16] 1876, 1931, 1969, 1976, 1978, 1980, 1984)
Surinam (2001–2002)[16]
Trinidad and Tobago (1989)
United States (1779 (devaluation of Continental Dollar), 1790, 1862,[17] 1933 (see Executive Order 6102),[16] 1971 (Nixon Shock)
9 states (1841–1842)[16]
10 states and many local governments (1873-83 or 1884)[16]
Uruguay (1876, 1891, 1915, 1933, 1937,[16] 1983, 1987, 1990, 2003)
Venezuela (1826, 1848, 1860, 1865, 1892, 1898, 1982, 1990, 1995-1997,[16] 1998,[16] 2004)
Asia
China (1921, 1932,[16] 1939)
Japan (1942, 1946-1952[16])
India (1958, 1969[citation needed], 1972)
Indonesia (1966, 1998, 2000, 2002)
Iran (1992)
Iraq (1990)
Jordan (1989)
Kuwait (1990–1991)[16]
Myanmar (1984,[16] 1987,[16] 2002)
Mongolia (1997–2000)[16]
The Philippines (1983)
Solomon Islands (1995–2004)[16]
Sri Lanka (1980, 1982, 1996[16])
Vietnam (1975)[16]
Europe
Albania (1990)
Austria-Hungary (1796, 1802, 1805, 1811, 1816, 1868)
Austria (1938, 1940, 1945[16])
Bulgaria (1932[citation needed], 1990)
Croatia (1993–1996)[16]
Denmark (1813)[16] (see Danish state bankruptcy of 1813)
England (1340, 1472, 1596)
France (1558, 1624, 1648, 1661, 1701, 1715, 1770, 1788, 1812)
Germany (1932, 1939, 1948[16])
Hesse (1814)
Prussia (1683, 1807, 1813)
Schleswig-Holstein (1850)
Westphalia (1812)
Greece (1826, 1843, 1860, 1893, 1932)
Hungary (1932, 1941)
The Netherlands (1814)
Poland (1936, 1940, 1981)
Portugal (1560, 1828, 1837, 1841, 1845, 1852, 1890)
Romania (1933)
Russia (1839, 1885, 1918, 1947,[16] 1957,[16] 1991, 1998)
Spain (1557, 1575, 1596, 1607, 1627, 1647, 1809, 1820, 1831, 1834, 1851, 1867, 1872, 1882, 1936-1939[16])
Sweden (1812)
Turkey (1876, 1915, 1931, 1940, 1978, 1982)
Ukraine (1998–2000)[16]
United Kingdom (1749, 1822, 1834, 1888–89, 1932)[16]
Yugoslavia (1983)
[edit] | Tags: See also | 2>
Asset liability mismatch
Debt
Default
Sovereign bond
Government debt
External debt
Currency crisis
Financial crisis
Balance of payments
[edit] | Tags: References | 2>
Jean Tirole (2002), Financial Crises, Liquidity, and the International Monetary System.
Guillermo Calvo (2005), Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?
Barry Eichengreen (2002), Financial Crises: And What to Do about Them.
Barry Eichengreen and Ricardo Hausmann, eds., (2005), Other People's Money: Debt Denomination and Financial Instability in Emerging Market Economies.
Barry Eichengreen and Peter Lindert, eds., (1992), The International Debt Crisis in Historical Perspective.
M. Nicolas J. Firzli (2010), Greece and the Roots the EU Debt Crisis.
Charles Calomiris (1998), 'Blueprints for a new global financial architecture'.
Carmen M. Reinhart and Kenneth S. Rogoff (2009), This time is different: Eight Centuries of Financial Folly.
[edit] | Tags: Citations | 2>
^ Eichengreen, B.; Hausmann, R. (2005). Other People's Money: Debt Denomination and Financial Instability in Emerging Economies. Chicago: Univ. of Chicago Press. ISBN 0-226-19455-8.
^ Borensztein, E.; Panizza, U. (Nov. 10, 2010). "The Costs of Sovereign Default: Theory and Reality". VOXLACEA. http://vox.lacea.org/fckeditor.html?q=node/25.
^ a b Reinhart, Carmen M.; Rogoff, Kenneth S. (2009). This time is different: Eight Centuries of Financial Folly (p. 54ff). Princeton University Press. ISBN 0-691-14216-5.
^ Firzli, M. Nicolas J. (March 2010). "Greece and the Roots the EU Debt Crisis". The Vienna Review.
^ Roubini, Nouriel (June 28, 2010). "Greece’s best option is an orderly default". Financial Times.
^ Louise Armitstead, "EU accused of 'head in sand' attitude to Greek debt crisis" The Telegraph, 23 June 2011
^ Reflections on the sovereign debt crisis, Edward Chancellor, GMO White Paper, Juli 2010.
^ a b c d Wright, Mark; Tomz, Mike (2010). "Sovereign Theft: Theory and Evidence about Sovereign Default and Expropriation". In Hogan, William; Sturzenegger, Federico. The Natural Resources Trap: Private Investment without Public Commitment. Cambridge, MA, USA: MIT Press. pp. 69–110. http://www.econ.ucla.edu/mlwright/research/workingpapers/TomzWrightExpropriationDefault.pdf. Retrieved 6 November 2011.
^ Hagerty, James R. (2009-12-17), "Is Walking Away From Your Mortgage Immoral?", The Wall Street Journal, http://blogs.wsj.com/developments/2009/12/17/is-walking-away-from-your-mortgage-immoral/
^ a b Baqir, Reza (30 September 1999), Districts, spillovers, and government overspending, World Bank, http://ideas.repec.org/p/wbk/wbrwps/2192.html
^ Brazil's Battle Against Inflation
^ Gold and Silver: Spain and the New World University of California
^ Washington Blog--September 11, 2010--"United States Joint Forces Command Warns That Huge U.S. Debt Might Lead to Military Impotence, Default or Revolution" (Example of default by the Spanish Empire is cited):
^ a b Erika Jorgensen and Jeffrey Sachs, "Default and Renegotiation of Latin American Foreign Bonds in the Interwar Period" In: Barry J. Eichengreen and Peter H. Lindert, The International Debt Crisis in Historical Perspective
^ Reinhart, Carmen M.; Rogoff, Kenneth S. (2009). This time is different: Eight Centuries of Financial Folly (p. 23, 87, 91, 95, 96). Princeton University Press. ISBN 0-691-14216-5.
^ a b c d e f g h i j k l m n o p q r s t u v w x y z aa ab ac ad ae af ag ah ai aj ak al am an ao ap aq ar as at au av aw ax ay The Forgotten History of Domestic Debt, Carmen M. Reinhart and Kenneth S. Rogoff, 17. April 2008, NBER, p.41ff
^ A Short History of US Credit Defaults, Ludwig von Mises Institute, 15 July 2011
[edit] | Tags: External links | 2>
List of Credit Default Swap premiums of various countries.
v
t
e
Debt
Debt instruments
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Debenture
Government bond
Municipal bond
Loan
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Loan shark
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Usury
Managing debt
Bankruptcy
Consolidation
Debt management plan
Debt relief
Debt restructuring
Debt-snowball method
DIP financing
Debt collection and evasion
Bad debt
Charge-off
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Debt compliance
Debtors' prison
Garnishment
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Strategic default
Tax refund interception
Debt markets
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Deposit account
Debt buyer
Fixed income
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Money market
Municipal debt
Securitization
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Debt in economics
Consumer leverage ratio
Debt levels and flows
External debt
Internal debt
Default
Insolvency
Interest
Interest rate
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| Tags: Default,Government,Websites related to: Debt Crisis |