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Sovereign Debt Relief and Its Aftermath
Report

Sovereign Debt Relief and Its Aftermath

Carmen M. Reinhart and Christoph Trebesch
CESifo Group Munich, 2015
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Editorial Rating

9

Qualities

  • Analytical
  • Innovative
  • Background

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.

Take-Aways

  • Two periods of debt crisis – the 1920s to the 1930s and the 1980s to the early 1990s – provide some ideas about the long-term implications of sovereign debt relief.
  • In 1934, 17 advanced countries defaulted and wrote off their billions in postwar debt owed to the United States and the United Kingdom.
  • Renegotiations on emerging market debt in the 1980s centered on private creditors such as foreign banks and bondholders. The 1986 Baker Plan cut interest rates and extended loan maturities, while the 1990 Brady Plan initiated debt reductions.

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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