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Sovereign debt and sovereign
default:
Theory and Reality
Ugo Panizza
These are my own views
Bertrand Russell
• If a man is offered a fact which goes against his
instincts, he will scrutinize it closely, and unless the
evidence is overwhelming, he will refuse to believe
it. If, on the other hand, he is offered something
which affords a reason for acting in accordance to
his instincts, he will accept it even on the slightest
evidence. The origin of myths is explained in this
way.
• In all affairs it's a healthy thing now and then to hang
a question mark on the things you have long taken
for granted
• The most savage controversies are those about
matters as to which there is no good evidence either
way
• I would never die for my beliefs because I might be
wrong
The standard view
• Facts
– Countries get into debt problems because of
lax fiscal policies
– Countries have an incentive to default on their
external debt obligations
• Policies
– Debt crises should always be followed by a
fiscal retrenchment
– We need to implement policies that reduce a
country's incentive to default
Background
• U. Panizza, F. Sturzenegger, and J. Zettelmeyer (2009) "The
Economics and Law of Sovereign Debt and Sovereign Default"
Journal of Economic Literature
• B. Eichengreen, R. Hausmann, and U. Panizza (2003) “The Pain of
Original Sin” University of Chicago Press
• E. Borensztein, and U. Panizza (2009)"The Costs of Sovereign
Default" IMF Staff Papers
• E. Levy Yeyati and U. Panizza (2010) "The Elusive Cost of Sovereign
Default," Journal of Development Economics
• E. Borensztein, E. Levy Yeyati, and U. Panizza (2006) Living with
Debt, Harvard University Press and IDB
• C. Campos, D. Jaimovich, and U. Panizza (2006) “The Unexplained
Part of Public Debt,” Emerging Markets Review
• U. Panizza and A. Presbitero (2012) "Public Debt and Economic
Growth: Is There a Causal Effect?," Mo.Fi.R. Working Papers 65.
Outline
• Facts
– How debt grows
– When do countries borrow and default
• Policies
– What to do during debt crises
– How to deal with defaults
Debt and Politics in Tranquil Times
• Politics and deficit (debt) bias
– Because of excessive optimism
• Not enough savings in good times
– Remember the official reason for Greenspan’s support of
tax cuts during the Bush administration
– Because issuing debt allows to postpone
difficult decisions
– Because of strategic considerations
• Why would Ronald Reagan run a large budget
deficit?
Solutions
• Budgetary institutions
– Smart budgetary rules
– Transparency rules
– Hierarchical rules
• Like motherhood and apple pie, these are
great things…
…but they may not be enough
• The relationship between deficit and debt
is not as tight as you may think
• Low debt is not enough
How Debt Grows?
• The economics 101 debt accumulation equation
states that:
– CHANGE IN DEBT = DEFICIT
• Practitioners use:
– CHANGE IN DEBT = DEFICIT+SF
– SF=Stock-flow reconciliation, or the unexplained part
of public debt
• The stock-flow reconciliation is often considered
a residual entity of small importance
• Is it?
If we estimate: Di ,t   i  d i ,t   i ,t
We expect:  and R2 to be close to 1 and  = 0
R-Squared
0.55
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
All
SSA
Countries
LAC
SAS
EAP
MNA
Source: Campos, Jaimovich and Panizza (2006)
ECA
IND
The Unexplained Part of Public
Debt
Stock-flow reconciliation
% of GDP
7
6
5
4
3
2
1
0
IND
MNA
EAP
ECA
LAC
Source: Campos, Jaimovich and Panizza (2006)
SSA
The Unexplained Part of Public
Debt
• The growth rate of the debt-to-GDP ratio is
equal to:
– Primary deficit/GDP + interest payments/GDP+
– GDP growth – inflation
• The last two variables are multiplied by the debt-toGDP ratio
• If you like math:
Dt 1
Dt 1 SFt
 D  Dt Dt 1 PDt
  


i
 (g   )

Yt
Yt
Yt
Yt
 Y  Yt Yt 1
The Unexplained Part of Public
Debt
15
10
5
INFLATION
GDP GROWTH
UNEXPLAINED PART
INTEREST EXPENDITURE
PRIMARY DEFICIT
0
-5
-10
-15
IND
SAS
CAR
EAP
ECA
MNA
LAC
SSA
Source: Campos, Jaimovich and Panizza (2006)
The Unexplained Part of Public
Debt
• What explains the “Unexplained” part of
debt
– Skeletons
• Fiscal policy matters!
• Transparent fiscal accounts are important
– Banking Crises
– Balance Sheet Effects due to debt
composition
Much more about this in a while
The Unexplained Part of Public
Debt
• There are also things that we can explain
but may not have anything to do with fiscal
policy
– Output collapses
– Sudden jumps in borrowing costs
– Natural disasters
Example: Argentina
Argentina: Federal Govt. Balance over GDP
3
FG balance over GDP (%)
2
1
0
-1
-2
-3
1991-2000 average: -1.2% of GDP
-4
1991
1992
1993
1994
1995
1996
Source: JP Morgan (post 1998) and ECLAC (pre 1998)
1997
1998
1999
2000
2001
2002
2003
2004
2005
Argentina: Public Debt/GDP
160
140
Cumulative deficit over 2000-2002: 5.4% of GDP
(3% in 2001 and 2.4% in 2002)
Debt over GDP (%)
120
100
Change in the debt to GDP ratio
between 2001 and 2002: 98% of GDP
80
60
40
20
0
1991
1992
1993
1994
1995
Source: JP Morgan (post 1998) and CLYPS
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Incidentally
Budget Balance as % of GDP
(average 2000-2007)
2
1
0
-1
-2
-3
Euro Area average
-4
-5
-6
Greece
Source: Eurostat
Portugal
Italy
France
Germany
United
Kingdom
Spain
Ireland
Primary Budget Balance as % of GDP
(average 2000-2007)
3
2.5
2
Euro area average
1.5
1
0.5
0
-0.5
-1
-1.5
-2
Portugal
Source: Eurostat
Greece
France
United
Kingdom
Germany
Italy
Spain
Ireland
What really went wrong in Europe
1)
Inflation
Divergence ininEM
U
Inflation Divergence
EMU
135
Southern Europe
Index 1999 = 100
130
ECB‘s Inflation Target
125
120
France
EMU
115
110
Germany
105
100
95
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Years
Inflation=GDP deflator 1999 = 100; SE=Greece, Italy, Portugal, and Spain; ECB IT= 2%; EMU=EMU12 average
Source: Heiner Flassbeck
So, how debt grows?
• IMF?
–Its Mostly Fiscal
• or
• INAF
–It’s Not Always Fiscal
… but they may not be enough
• The relationship between deficit and debt
is not as tight as you may think
• Low debt is not enough
– Example: UK versus Spain
– (with thanks to Paul De Grauwe)
Low debt can’t buy you
love
Debt …
Total Gross Public Debt/GDP
(Spain versus UK)
100.0
90.0
80.0
Debt/GDP (%)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2002
Source: Eurostat
2003
2004
2005
2006
Spain
2007
2008
United Kingdom
2009
2010
2011
2012
0.0
Source: Bloomberg
Spain
United Kingdom
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
(%)
…and yields
10Yr Govt. Bond Yields
(Spain versus UK)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
The importance of debt structure
• Debt denominated in foreign currency or
short-maturity debt is associated with:
– Lower Credit Ratings
– Sudden Stops
– Higher volatility
– Limited ability of conducting monetary policy
– Contractionary devaluations
• An appropriate debt structure can reduce
risk
How to make debt safer
• New and safer instruments
– Local currency
– Contingent debt instruments
• GDP index bonds
• Commodity linked bonds
• Catastrophe bonds
• Dedollarize official lending
Why do we need official
intervention?
• Market failures
– Critical mass
– Standards
– Instruments cannot be patented
• Political economy
– Shortsighted politicians may underinsure
Outline
• Facts
– How debt grows
– When do countries borrow and default
• Policies
– What to do during debt crises
– How to deal with defaults
Why is sovereign debt special?
• Creditor rights are not as well defined for
sovereign debt as is the case for private debts.
• If a private firm becomes insolvent, creditors
have a claim on the company’s assets.
• In the case of a sovereign debt, in contrast, the
legal recourse available to creditors has limited
applicability and uncertain effectiveness.
– Sovereign immunity
– Little to attach
• So, why do countries repay and why do lenders
lend?
Theory
The Economic Theory of Sovereign
Debt
• The literature started with (and it's still tied to) an
influential theoretical paper by Eaton and Gersovitz
(Review of Economic Studies, 1981)
• The story of the paper was:
– Countries borrow in bad times (low economic growth) and repay
in good times (high economic growth)
– Since there are no repayments in bad times, there cannot be
defaults either
– As a consequence, defaults can only happen in good times
– Defaults are thus strategic (countries can pay but they decide not
to pay)
– The only reason that prevents countries from defaulting is that
defaults are costly
The Economic Theory of Sovereign
Debt
• So, what are the costs of default?
– The traditional economic literature has
emphasized
– Reputational costs
• Countries that default will no longer be able to
access the international capital market
– Trade costs
• Default will lead to sanctions which, in turn, will
have a negative effect on trade
From the theory to the
data
In theory, there is no difference between
theory and practice. In practice, there is
Do countries borrow in bad
times?
What he really said:
What do the data say?
Net private transfer to the
sovereing as a % of GDP
"Why did I rob banks? Because I enjoyed it. I
4.5
loved it. I 4.0
was more alive when I was inside a
3.5
3.0
2.5
bank, robbing
it, than at any other time in my
2.0
1.5
1.0
life. I enjoyed
everything about it so much
0.5
0.0
-0.5
that one or
two weeks later I'd be Good
out times
looking
-1.0
-1.5
Bad times
-2.0
for the next
job. But to me the money was the
-2.5
-3.0
-3.5
chips, that's
all."
-4.0
-4.5
Private
Official
Total
Flows
Flows
Flows
• Government external borrowing is procyclical and not countercyclical
(probably because countries borrow when they can)
• This confirms the idea that the seeds of debt crises are
planted during good times
Do countries default in good
times?
What do the data say?
•
•
•
•
•
•
•
•
Default Happen in Waves….
1824-1840. 19 events (14 in Latin America: recent
independence, civil wars). Long restructuring periods
1840-1860. 6 events. Credit boom
1861-1920. 58 events. Much faster restructuring
1921-1940. 39 events. Great Depression and WWII.
1941-1970. 6 events (but little lending)
1971-1981. 15 events. Boom in syndicated bank loans
1982-1990. 70 events. The “Debt Crisis”
1991-2004. 40 events. Lending booms and Sudden
Stops
Do defaulter pay a high cost?
What do the data say?
Sovereing Spread
(basis points)
700
600
500
400
300
200
100
0
-100
1
2
3
4
Years after the default episode
• 3 years after the resolution of a default episode, there is no statistically
significant difference between the spreads paid by defaulters and non defaulters
• We find similar results if we look at access
• Global factors (risk aversion and US interest rate) appear to be more
important than default history
What do the data say?
• There is some evidence that defaults have
a negative effect on trade
• But this is still controversial and the
channel is not clear
– No evidence that defaults have a direct
impact on trade credit
– No evidence (at least in recent years) of
explicit sanctions
What do the data say?
• Anyway, who cares?
– We do know that defaults are bad because they lead
to deep recessions
• Econometric estimates found that, on average, default
episodes are associated with a 2 percentage points drop in
GDP growth
• But do we really know what we think we know?
– Are default episodes bad for growth or is it low growth
that causes default?
– That is, do defaults happen in bad times?
What do the data say?
• Causality is always very hard to assess
• But, if we look at high frequency data, we
find that:
– Growth collapses anticipate defaults
– Default episodes are often followed by a rapid
rebound of the economy
What do the data say?
115
110
105
100
95
90
85
-12
-8
-4
0
Event time
4
8
12
Do countries default too early or
too late?
• Hell, the last thing I should be doing is tell a
country we should give up our claims. But there
comes a time when you have to face reality.
– Unnamed financial industry official. Both are taken
(Source: Bluestein, 2005, p 163)
• The problem historically has not been that
countries have been too eager to renege on
their financial obligations, but often too reluctant.
– Memo prepared by the Central Banks of England and
Canada (Source: Bluestein, 2005, p 102)
Political costs of default
• There is a (small) literature of political costs of currency
devaluations (Cooper 1971).
• Frankel (2005) finds that a devaluation increases
turnover of finance ministers from 36 to 58 percent.
– Applying Frankel’s approach, bond defaults increase minister
turnover from 19 to 40 percent. But bank defaults increase it only
to 24 percent.
– Governments lose votes after defaults
• The high political cost of default may affect the timing of
the decision by the government. It could cause “gambles
for redemption”
– Mickey Mouse model (Borensztein and Panizza, 2009)
The politics of sovereign default
• Policymakers (domestic and international) have strong
incentives to gamble for redemption and delay the
moment of reckoning
• Borensztein and Panizza (2009), Levy Yeyati and Panizza (2010)
– The problem historically has not been that countries have been
too eager to renege on their financial obligations, but often too
reluctant.
• Memo prepared by the Central Banks of England and Canada
(Source: Bluestein, 2005, p 102)
• And this is bad because it prolongs the economic crisis
and reduces recovery value
– For both economic and political reasons
• Everybody is worse off
Summing up: Theory versus Reality
• Theory
– Countries get into trouble because of lax fiscal policy
– Countries borrow in bad times
– If ever, countries default in good times (strategic defaults)
• So, if anything, they default too much
– Defaults are very bad for the economy, with long lasting negative
consequences
• Reality
– Many debt explosions have nothing to do with fiscal policy
– Countries borrow in good times
– Countries default in bad times (justified defaults)
• And sometimes too late
– Defaults do not seem to have long lasting negative
consequences
Outline
• Facts
– How debt grows
– When do countries borrow and default
• Policies
– What to do during debt crises
– How to deal with defaults
The politics of crisis packages
• Packages often come with:
– Requests for fiscal consolidation
– Not “too much” money
– Interest rates which are above the opportunity
cost of funds
• Does this approach make sense from an
economic point of view?
• I will argue that it does not
Fiscal consolidation
• Rationale (1)
– They need to put their house in order
• But…
– Was the crisis caused by fiscal misbehavior?
• We saw that in many cases, fiscal policy was not
the problem
Fiscal consolidation
• Standard answer:
– Yes, but now the debt is high and things have
changed!
– Think about the math:
d=-ps+(i-g)d
• Assume LT growth 2% and LT interest rate 3%. Then, if debt
increases by 50% of GDP, ps needs to increase by 0.5% of
GDP
– Also, multiple equilibria (high i and low i)
• Should "bailouts" have punitive interest rates?
– More on this in a minute
Fiscal consolidation
• Moreover
– Even when the source of the problem was fiscal
misbehavior, sustainable fiscal policy is a long-term
concept
– Short-term restrictive policies may be
counterproductive because
• They may worsen the crisis
• They may be reversed as soon as the situation improves and
the country no longer needs international assistance
– Success requires addressing the political distortions
that led to the unsustainable long-term policy stance
The dark side of the fiscal
adjustment
The adjustment variable is
often public investment
The adjustment variable is
public investment
Source: Martner and Tromben (2005)
…and this is very bad for growth,
and for the fiscal adjustment
When growth-promoting spending is cut
so much that the present value of future
government revenues falls by more than
the immediate improvement in the cash
deficit, fiscal adjustment becomes like
walking up the down escalator.
(Easterly, Irwin, Serven, 2008)
Fiscal consolidation
• Rationale (2)
– High public debt is bad for growth
• But…
– No evidence on the causal effect of public
debt on growth
Excursus on debt and Growth in
LIC, MIC, and HIC
What the Heck!
Which debt?
• Total external debt
– Public and private
• External public debt
• Total public debt
– External and domestic
• What is external debt?
– Panizza (2008)
Theory
• Debt is BAD for growth
– Debt overhang
• Relevant for external debt
– Macro instability and uncertainty
• Relevant for all types of debt
– Higher interest rates through crowding out
• Relevant for domestic debt
– Higher interest rates through country risk
• Relevant for external debt
• Debt is GOOD for growth
– Keynesian effects in bad times and hysteresis
– Possibility to finance projects with high economic returns
• Debt is IRRELEVANT for growth
– Ricardian Equivalence
Debt and Growth in Developing
Countries
• Growth and total external debt
– Pattillo, Poirson, Ricci (2002)
Debt Laffer curve
Growth
15%-20%
35%-40%
Debt (NPV)/Y
Debt and Growth in Developing
Countries
• Growth and total external debt
– Cordella, Ricci and Ruiz-Arranz (2005)
Debt overhang
threshold (30%)
Debt overhang
threshold (20%)
Debt overhang
threshold (15%)
Debt irrelevance
threshold (40%)
Debt irrelevance
threshold (60%)
Debt and Growth in Developing
Countries
• Growth and total external debt
– Presbitero (2007)
Debt and Growth in Developing
Countries
• Growth and total public debt
– Presbitero (2010)
Debt and Growth in High-Income
Countries
• Reinhart and Rogoff (2010)
– Public debt is bad for growth when it surpasses 90% of GDP
• Kumar and Woo (2010)
– Public debt (above 30% of GDP) is bad for growth and it may
become worse when it surpasses 90% of GDP
– Also includes EMs
• Cecchetti, Mohanty and Zampolli (2011)
– Public debt is bad for growth and it becomes worse when it
surpasses 90% of GDP
• Minea and Parent (2012)
– Public debt is bad for growth in the 90-130% of GDP range
• Padoan, Sila, van den Noord (2012)
– Public debt is bad for growth and it becomes worse when it
surpasses 90% of GDP
Growth Implosions, Debt
Explosions, and My Aunt Marylin:
Do Growth Slowdonws Cause
Public Debt Crises?
William Easterly (2001)
Causality
• Why are there so many sick people in
hospitals?
• Debt has an effect on growth: G=g(D)
• Growth has an effect on debt: D=d(G)
G=g(D)
We run a regression
and get:
Growth
D=d(G)
G=g(D)
But we were trying to
estimate this
D=d(G)
Debt
Growth
G=g(D)
D=d(G)
Debt
How does the existing literature
address causality?
• Reinhart and Rogoff
– No attempt
• Cecchetti et al.
– Lagged debt
• Pattillo et al.; Cordella et al.; Kumar and
Woo; Presbitero; Padoan et al.
– System GMM with lagged debt as instrument
What we find:
• The correlation between debt and growth:
Source: Panizza and Presbitero (2012)
What we find:
• The causal effect of debt on growth:
Source: Panizza and Presbitero (2012)
Challenges
• Identification, Identification, Identification
• Data
– Better data on the level and composition of
debt
• Channels
• Heterogeneity
– The relationship between debt and growth is
likely to depend on many different things
Some conclusions
• Donald Rumsfeld
– There are known knowns
• Things we know that we know
– There are known unknowns
• Things that we now know we don't know
– There are also unknown unknowns
• Things we do not know, we don't know
• Mark Twain
– It ain't what you don't know that gets you into
trouble. It's what you know for sure that just
ain't so
Some conclusions
• Known knowns
– There is a negative correlation between debts and growth
– Debt has a causal negative effect on growth
– This negative effect becomes especially important when the debtto-GDP ratio reaches a certain threshold
• 90% in advanced economies
• 15-40% in developing countries
• Known unknowns
– Is there a negative effect of debt and growth?
– The threshold
• Unknown unknowns
• Bertrand Russell
– The whole problem with the world is that fools and fanatics are
always so certain of themselves, but wiser people are so full of
doubts
end of
excursus on debt and growth
Interest rates above opportunity
cost and not “too much” money
• Rationale (1)
– Need to protect our own taxpayers
• But…
– The smaller the size of the package and the
higher the interest rate, the less likely the
success of the package
• (higher risk for the taxpayer)
Interest rates above opportunity
cost and not “too much” money
• Rationale (2)
– Avoid moral hazard
• But…
– Do you really believe that politicians are so
farsighted?
– Bagehot was right for banking crises, but he
may be wrong for sovereign debt crises
– Moral hazard is often overstated (Meltzer versus
Krugman)
Why do we observe actions that go
against economic logic?
• Wrong economic model
– Some countries and economists still live in the
shadow of the Treasury view
• Politics
– In this case, not politics in the crisis country,
but politics in the “strong” countries
– Electors want a pound of flesh
What can the international
community do?
• Don’t ask for fiscal contractions if fiscal
profligacy was not the problem
• If a fiscal contractions is needed, don’t frontload it
(Blanchard and Cottarelli, 2010)
• Think about fiscal targets that protect
investment (Blanchard and Giavazzi,
2004, Buiter, 198?)
• Also think about the quality of public investment
(Pritchett, 2000, Dabla-Norris et al., 2011,)
Outline
• Facts
– How debt grows
– When do countries borrow and default
• Policies
– What to do during debt crises
– How to deal with defaults
From earlier this morning
• Theory
– Countries borrow in bad times
– If ever, countries default in good times (strategic
defaults)
• So, if anything, they default too much
– Defaults are very bad for the economy, with long
lasting negative consequences
• Reality
– Countries borrow in good times
– Countries default in bad times (justified defaults)
• And sometimes too late
– Defaults do not seem to have long lasting negative
consequences
Pfuel.. had a science--the theory of oblique movements.. and all
he came across in the history of more recent warfare seemed to
him absurd.. so many blunders were committed … that these
wars could not be called wars, they did not accord with the
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Ludwig
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(or
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(6 November
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– 25
April 1826) was a German general in the service of the
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served as Chief of the General Staff of King Frederick
War and Peace,
9, chapter
X of Jena-Auerstedt.
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in the Battle
Is the world wrong?
• In a well working system, countries should be
able to borrow when they need funds (i.e., in
bad times)
– But during bad times, the international capital markets
are not willing to provide credit at a reasonable
interest rate
– Therefore, countries borrow in good times because
this is when they have access to credit
• Same reason why Willie Sutton robbed banks
– Unfortunately, sometimes they borrow too much in
good times and this behavior sows the seeds of future
crises
• We need to fix the political economy of debt
– The real reason why Willie Sutton robbed banks
Strategic or justified?
• Most of the defaults we observe are
justified (or unavoidable, at least ex-post)
episodes
• Strategic defaults are very very very rare
– So, we cannot use econometric methods to
assess the cost of these very rare events
– What we are actually assessing is the cost of
non-strategic defaults
• But why are they rare?
• Probably because they are costly
• But what is the cost?
The current system is inefficient:
It brings some pain…
Length of Debt-Restructuring Delays
10
8
6
Years
4
2
0
Low income
(n=26)
Source: Wright (2010)
Low middle income
(n=31)
Upper middle income
(n=31)
…but little gain
Change in Indebtedness to Private Creditors following Debt Restructuring
2
1.5
Ratio of
Debt/GNI
Post-Default to
Pre-Default
1
0.5
0
Source: Wright (2010)
Low income
(n=20)
Low middle income
(n=26)
Upper middle
income (n=31)
Is this inefficient system efficient?
• Some pain and no gain might be inefficient expost, but could be efficient ex-ante
• High costs of defaults are necessary to create
willingness to pay, establish credibility, and lower
borrowing cost
– Dooley (2000), Shleifer (2003)
• This is why countries suboptimally delay default
• This is why some borrowing countries are
opposed to the creation of a mechanism that
may eliminate these inefficiencies
From second best to first best
• This is clearly a second best solution
– Countries suffer
– They destroy value and decrease recovery
rates
From second best to first best
• An alternative story
– The international community and financial markets
implicitly forgive countries that default out of necessity
but would impose a harsh punishment on countries
that default strategically (Grossman and van Huyk,
AER 1988)
– If this is the case, policymakers need to signal that the
default is indeed unavoidable and not strategic
– A way of doing this is to go through considerable pain
in order to delay the default as long as possible
• Also second best, but in this case there is a
solution
From second best to first best
• Solution:
– The first best could be achieved with the
creation of a body with the ability to assess
whether a default was indeed unavoidable
• A bankruptcy court for sovereigns
• By increasing potential recovery rates, it could be
efficient both ex-ante and ex-post
• Everybody (lenders and borrowers) is better off
Sovereign debt and sovereign
default:
Theory and Reality
Ugo Panizza
These are my own views