Working Paper: NBER ID: w21664
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: External Dependence; Sovereign Debt; Greece; Historical Analysis
JEL Codes: F3; G01; H6; N10; N13; N14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| external borrowing (F34) | economic crises (G01) |
| external borrowing (F34) | sovereign defaults (F34) |
| external borrowing (F34) | sudden stops (F32) |
| sovereign defaults (F34) | economic crises (G01) |
| external debt composition (F34) | financial instability (F65) |
| external debt composition (F34) | prolonged recovery periods (C41) |