The Root of All Sovereign Debt Crises

After the Argentine crisis, President George W. Bush s administration vetoed proposals to create a mechanism for sovereign debt restructuring.

Alternatives to a debt restructuring are fast disappearing.

The Lethal Deferral of Greek Debt Restructuring

But the ongoing legal saga of Argentina s fight with holdout creditors shows that the international system for orderly sovereign debt restructuring may be broken.

A country drowning in debt needs debt restructuring.

In the aftermath of the global financial crisis, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System urged that we design an efficient and fair system for the restructuring of sovereign debt.

In the case of sovereign debt, however, there is no binding international law that permits bankruptcy.

Virtually every emerging market country has experienced recurrent sovereign debt problems.

NEW YORK Nothing illustrates better the political crosscurrents, special interests, and shortsighted economics now at play in Europe than the debate over the restructuring of Greece s sovereign debt.

The international community has, so far, failed to develop effective and equitable arrangements for restructuring sovereign debt, despite the clearly dysfunctional and problematic consequences of past international public debt crises.

If creditors now believe that holding out makes it more likely that they will receive full value at a later date, restructuring sovereign debt and restoring a debtor economy s normal functioning will be more difficult.

And how often do we hear about sovereign restructurings of local currency debt?

No debt restructuring took place and, small surprise, Russia's economy collapsed.

And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.

The very mention of debt restructuring was considered inadmissible and a cause for ridiculing those of us who dared suggest its inevitability.

Currently, they are wrestling with widening sovereign debt problems and high unemployment.

Much is being made of high levels of sovereign debt on both sides of the Atlantic, and in Japan.

But, this time, the default has been triggered by a significant shift in the international sovereign debt regime.

The whole point of restructuring was to discharge debt and make the remainder more manageable.

Otherwise, China might already have experienced its own localized sovereign debt crisis and, perhaps, hyper inflation.

But the proposition that the ongoing sovereign debt crisis on Europe s periphery is a reason to appoint a European is wrong.

On the verge of civil war, Iraq just announced a restructuring of its foreign debt.

With the onset of the European sovereign debt crisis in 2010, banks appetite for public debt fell again.

Greek officials have repeatedly tried to discuss the need to restructure the debt by slashing interest rates, extending maturities, and perhaps cutting the face value of the debt as well.

The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.

Unfortunately, however, ideas for debt restructuring mechanisms remain just that purely theoretical constructs.

ATHENS The point of restructuring debt is to reduce the volume of new loans needed to salvage an insolvent entity.

Indeed, by putting a floor on the price of sovereign debt and any accompanying inflation, central bank intervention would reduce the real value of the debt and facilitate repayment.

The economists Carmen Reinhart and Kenneth Rogoff have studied centuries of sovereign debt crises, and remind us that today s developed world has a forgotten history of sovereign default.

Fifth, debt burdens that cannot be eased by growth, savings, or inflation must be rendered sustainable through orderly debt restructuring, debt reduction, and conversion of debt into equity.

NEW YORK A recent decision by a United States appeals court threatens to upend global sovereign debt markets.

In a debt restructuring, the northern eurozone countries (including France) will see hundreds of billions of euros go up in smoke.

They restrict governments even from placing temporary controls on the kind of destabilizing short term capital flows that have so often wrought havoc in financial markets and fueled crises in developing countries. Indeed, the agreements have been used to challenge government actions ranging from debt restructuring to affirmative action.

Overcoming Puerto Rico s crisis will require restoring growth, implementing a sustainable fiscal policy, and debt restructuring.

Greece has also once again reminded us of how badly the world needs a debt restructuring framework.

Indeed, the agreements have been used to challenge government actions ranging from debt restructuring to affirmative action.

Critics have complained that it would reduce liquidity in important markets, such as those for non US sovereign debt.

Indeed, Italy boasted the lowest deficit to GDP ratio in the eurozone, and the Italian government had no problem refinancing at attractive interest rates.

And the US is clearly not alone in its malaise, with the eurozone fighting a far more urgent sovereign debt crisis.

Nonetheless, Argentina s latest debt trauma shows that the global system for sovereign debt workouts remains badly in need of repair.

Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy s chronically large sovereign debt.

NEW HAVEN It might not seem that Europe s sovereign debt crisis and growing concern about the United States debt position should shake basic economic confidence.

One would need a sophisticated capability for monitoring and enforcing fiscal policy and sovereign debt or else end up with a repeat of the current situation.

BERKELEY Fiscal profligacy did not cause the sovereign debt crisis engulfing Europe, and fiscal austerity will not solve it.