Political support to public debt repudiation in a Monetary Union - the role of the geographical allocation of debt

Debora Di Gioacchino, Sergio Ginebri () and Laura Sabani

Economics & Statistics Discussion Papers from University of Molise, Department of Economics

Abstract: The main arguments for the Stability and Growth Pact turn on the need to protect the European Central Bank against inflationary pressures from the fiscally prodigal countries (repudiation through inflation). Taking a political economy approach, in this paper we inquire into the conditions under which national governments may reach the decision for a partial or total repudiation of their debt. The main result produced by our model is that a debt management policy of lowering effective yields might be the dominant option for a self-interested government whose creditors consist in part of non-residents. On the basis of such result we argue that the impact of the fiscal position of the various member countries on the stability of EMU does not depend on the stock of debt but on the proportion of it that is held abroad.

Keywords: Monetary union; Public debt; Government default; Political economy; Political support; Special interests; Common agency. (search for similar items in EconPapers)
JEL-codes: D72 E58 E62 H63 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2004-08-02
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mol:ecsdps:esdp04019

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