Government Debt Crises: Politics, Economics, and History
The fourth annual conference of the Fondation Pierre du Bois pour l’histoire du temps présent and the Graduate Institute of International and Development Studies took place in Geneva from December 14-15, 2012. Organized by Professor Marc Flandreau and Trevin Stratton from the Graduate Institute, the conference was entitled “Government Debt Crises: Politics, Economics, and History.” Marking the 30th anniversary of the Latin American debt crisis, the relevant parallels between previous debt crises and recent developments in Europe were examined. Eminent historians, social scientists, and legal scholars from institutions in Switzerland, France, Germany, England, Cyprus, Canada, and the United States presented their contributions.
Several sessions investigated government debt crises from different national perspectives throughout history. The first session focused on Germany during the interwar period. The contributions addressed the financing of German debt. It was argued that during the interwar period Germany had an incentive to drive out reparations through foreign borrowing, and attempts to reverse this flow proved futile with the onset of an international financial crisis. Nazi use of collective action clauses in a 1937 German bond registration sparked a discussion on contractual innovations in sovereign borrowing. Discussions of French debt crises focused on the French Revolution and interwar periods. It was debated whether the Ancien Régime fell due
Parallels were also drawn between the government debt crises of nations outside of continental Europe and recent developments therein. Moving across the Atlantic, the numerous American debt crises of the 19th Century were addressed. It was discussed whether the mid-century creation of hard budget constraints by states in the wake of debt crises could provide a lesson for contemporary Europe. Looking at Civil War debt in the postbellum era, the potential for politicians to use debt crises to achieve political gains was considered. The 1929-1933 debt crisis in Cyprus was later examined. The discussion compared a situation where a small deficit fomented incitements of violence absent a lender of last resort in Cyprus with the current Eurozone system.
Other sessions touched upon more thematic issues with government debt crises. One focused on litigious issues. The origins of the Corporation of Foreign Bondholders in the 19th Century were discussed. It was debated whether the availability of the London Stock Exchange fostered bondholder coordination, or whether coordination occurred organically due to a collective action problem. The analysis of creditor coordination was also applied to the past 35 years. The rise of creditor litigation due to sovereign default during this period was investigated, where the factors that impact the likelihood of litigation were debated.
Another thematic session looked at the role of gatekeepers in debt crises. The gatekeeping role of the media was analysed by examining the clandestine contracts for favourable financial publicity between sovereign borrowers and the Havas news agency in France between 1889 and 1921. Further discussion on gatekeeping addressed the role that reputation played in the underwriting decisions of New York intermediaries during the interwar period. Vigorous debate surrounded the gatekeeping role of lawyers: whether they play a certification role in the sovereign debt market, or whether hiring outside law firms sends a negative signal to the market regarding a pending issue.
An important takeaway of this conference was that, while Europe has developed its own brand of problems, its experience is not unique. The comparison of government debt crises in different countries throughout history in tandem with the investigation of cross-border thematic issues gave the conference a truly transnational and trans-disciplinary approach. The conference highlighted the ability of such an approach to contribute to a better understanding of government debt crises worldwide.