Default Deja Vu
Between its independence in 1829 and 2006, Greece has had 5 defaults or debt reschedulings that occupied a total of 50.6 years. Described by Rogoff and Reinhart in their 2008 paper and book, This Time It’s Different, few nations break out of a serial default pattern.
Here are the total number of defaults and/or reschedulings for selected euro zone countries, 1800-2006:
- Spain: 13
- Germany: 8
- France: 8
- Austria: 7
- Portugal: 6
- Greece: 5
- Italy: 1
- the Netherlands: 1
And here is a thought-provoking discussion of the politics and economics behind the beginning and potential end of the euro.
The Economic Lesson
Alexander Hamilton surely knew about sovereign debt defaults and wanted to avoid them. Reading about his plan to fund and refinance the United States’ revolutionary war debt reveals his commitment to establishing our good credit. His approach was varied, including issuing new bonds to pay for those outstanding and servicing the interest promptly on the foreign debt. It worked.
Even those in Holland, then the financial capital of the world, displayed confidence in our public credit. Adhering to the Hamiltonian philosophy, the United States has never defaulted on its debt.
An Economic Question: How do countries borrow money?