Working Paper: CEPR ID: DP10898
Authors: Carmen M. Reinhart; Christoph Trebesch
Abstract: Two centuries of Greek debt crises highlight the pitfalls of relying on external financing. Since its independence in 1829, the Greek government has defaulted four times on its external creditors ? with striking historical parallels. Each crisis is preceded by a period of heavy borrowing from foreign private creditors. As repayment difficulties arise, foreign governments step in, help to repay the private creditors, and demand budget cuts and adjustment programs as a condition for the official bailout loans. Political interference from abroad mounts and a prolonged episode of debt overhang and financial autarky follows. We conclude that these cycles of external debt and dependence are a perennial theme of Greek history, as well as in other countries that have been ?addicted? to foreign savings.
Keywords: bailouts; crisis resolution; external debt; sovereign default
JEL Codes: E6; F3; H6; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| external debt accumulation (F34) | sovereign default (F34) |
| sovereign default (F34) | foreign interference in domestic policy (F52) |
| external debt accumulation (F34) | foreign interference in domestic policy (F52) |
| external debt accumulation (F34) | long duration of crisis resolutions (H12) |
| sovereign default (F34) | long duration of crisis resolutions (H12) |