The first sovereign debt crisis in the EU
Jon Danielsson, Hermann Oskarsson 11 September 2012
The current EZ crisis is not Europe’s first sovereign-debt crisis. This column shows parallels can be drawn from an all-but-forgotten episode, i.e. the 1990 Faroese crisis. Just like Greece, the Faroes got into difficulty because of excess borrowing facilitated by a currency union with an AAA-rated partner undeterred as the sovereign debt spiralled upwards. In the Faroese case, the crisis was eventually resolved when political necessities outweighed the cost of the bailout.
Today is not the first time Europe has suffered a sovereign-debt crisis. Twenty years ago another crisis happened, passing without notice except amongst those affected, i.e. the Faroe Islands. The islands accumulated too much sovereign debt, eventually getting hit by a crisis much larger in magnitude than even the worst in the ongoing European crisis. Little analysis has been published on the crisis, and almost none in English. We mostly rely on Gørtz et al. (1994) and Hansen and Joensen (2008).
International finance Politics and economics
eurozone, sovereign debt crisis, Faroes