Sovereign debt, government myopia, and the financial sector

Raghuram Rajan, Viral Acharya 24 November 2011

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Why do governments repay external sovereign borrowing? Models where countries service their external debt for fear of being excluded from capital markets for a sustained period (or some other form of harsh punishment such as trade sanctions or invasion) seem very persuasive, yet are at odds with the fact that defaulters seem to be able to return to borrowing in international capital markets after a short while.

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Topics:  Taxation

Tags:  Government default, debt

Was the euro a mistake?

Barry Eichengreen 20 January 2009

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What started as the Subprime Crisis in 2007 and morphed in the Global Credit Crisis in 2008 has become the Euro Crisis in 2009. Sober people are now contemplating whether a euro area member such as Greece might default on its debt. In addition to directly damaging bank balance sheets, this would destroy confidence in its banking and financial system. Unable to borrow and facing horrific bank recapitalisation costs, the country would have to print money. To do so it would have to abandon the euro and reinstate its old national currency.

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Topics:  Global economy

Tags:  ECB, global crisis, Government default, Eurozone breakup