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Sovereign Debt Relief and Its Aftermath

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Sovereign Debt Relief and Its Aftermath

CESifo Group Munich,

5 min read
5 take-aways
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Noted economists explain the effect sovereign debt relief has on a country's long-term economic health.

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Editorial Rating

9

Qualities

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  • Innovative
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Recommendation

While Greece’s sovereign debt issues have brought the subject of debt relief to the forefront, the topic is not new. During the 1920s and 1930s, countries suffering the lingering effects of World War I struggled to repay loans. More recently, the 1986 Baker Plan and the 1990 Brady Plan responded to debt crises in emerging markets. Economists Carmen M. Reinhart and Christoph Trebesch analyze those experiences and their results to determine what did and didn’t work then, and to argue in favor of debt forgiveness as a potential way of resolving modern-day Europe’s ongoing issues. getAbstract recommends their astute report to economists and policy makers.

Summary

As both public and private debtors climb out of the financial wreckage of the Great Recession, the question remains whether or not sovereign debt relief has a positive, lasting impact on a country’s economic health. Despite the topic’s current bearing, experts know very little about the long-term implications of debt relief. Some economists point to advantages for both debtors and creditors of even partial debt forgiveness, while others suggest that defaults or restructurings impose reputational costs on debtors, which incur productivity losses and face less incentive to change. New research...

About the Authors

Carmen M. Reinhart is a professor of the international financial system at Harvard University. Christoph Trebesch is an assistant professor in the department of economics at the University of Munich.

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