Sovereign Debt in the 21st Century: Looking Backward, Looking Forward

Kris Mitchener and Christoph Trebesch

No 15935, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: How will sovereign debt markets evolve in the 21st century? We survey how the literature has responded to the eurozone debt crisis, placing “lessons learned†in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies; (ii) a bank-sovereign “doom-loop†and the propagation of sovereign risk to households and firms; (iii) roll-over problems and self-fulfilling crisis dynamics; (iv) severe debt distress without outright sovereign defaults; (v) large-scale “sovereign bailouts†from abroad; and (vi) creditor threats to litigate and hold out in a debt restructuring. Many of these characteristics were already present in historical debt crises and are likely to remain relevant in the future. Looking forward, our survey points to a growing role of sovereign-bank linkages, legal risks, domestic debt and default, and of official creditors, due to new lenders such as China as well as the increasing dominance of central banks in global debt markets. Questions of debt sustainability and default will remain acute in both developing and advanced economies.

Keywords: Sovereign debt; Eurozone debt crisis; Bank-sovereign doom loops; Bailouts; Self-fulfilling crisis dynamics; Official creditors (search for similar items in EconPapers)
JEL-codes: F30 F34 G12 G15 N10 N20 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cba and nep-his
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Citations: View citations in EconPapers (13)

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