Feeling the blues Moral hazard and debt dilution in Eurobonds before 1914

Esteves, Rui; Tunçer, Ali Coşkun

doi:10.1016/j.jimonfin.2016.03.004

Cited by 11 publications

(11 citation statements)

References 31 publications

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“…Among the priorities of the British administration was restoring the solvency of the Egyptian state, which was achieved with the issue of a new loan in 1885 under the guarantee of Britain and five other European governments (Esteves and Tunçer 2016). Under British rule, public revenues increased by 50 percent between 1882 and 1904.…”

Section: Box 1 Egypt's Debt History In the 19 Th Centurymentioning

confidence: 99%

Public Debt Through the Ages

Eichengreen¹,

El-Ganainy²,

Esteves³

et al. 2019

IMF Working Papers

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We consider public debt from a long-term historical perspective, showing how the purposes for which governments borrow have evolved over time. Periods when debt-to-GDP ratios rose explosively as a result of wars, depressions and financial crises also have a long history. Many of these episodes resulted in debt-management problems resolved through debasements and restructurings. Less widely appreciated are successful debt consolidation episodes, instances in which governments inheriting heavy debts ran primary surpluses for long periods in order to reduce those burdens to sustainable levels. We analyze the economic and political circumstances that made these successful debt consolidation episodes possible.

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Section: Box 1 Egypt's Debt History In the 19 Th Centurymentioning

confidence: 99%

Public Debt Through the Ages

Eichengreen¹,

El-Ganainy²,

Esteves³

et al. 2019

IMF Working Papers

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“…As shown by Flandreau (2013) the failure to list at the LSE involved a significant liquidity penalty, which the author estimates in the order of 150 to 200 basis points. Esteves and Tuncer (2016). Note: The average cost of funding is established from the secondary yields of the following loans (when applicable): the 3 % British consols, the 3 % French Rentes, the 4 % Russian Nicholas Railway, the 4 % Prussian consolidated, the 4 % Austrian Gold Rentes and the 5 % Italian Rendita (4.6 %).…”

Section: Debt Mutualization and Guaranteed Bonds Before 1914mentioning

confidence: 99%

“…After the first Greek loan, there were four other guaranteed loans issued before 1914for Turkey (Ottoman Empire) in 1855, Egypt in 1885, China in 1895, and Greece again in 1898. Elsewhere, we use the long historical record of these loans to address three main questionshow the introduction of guaranteed bonds impacted existing creditors, how they were initially received by the markets, and how markets priced guaranteed debt relative to the other financial liabilities of the nations involved (Esteves and Tuncer, 2016).…”

Section: Introductionmentioning

confidence: 99%

Eurobonds Past and Present: A Comparative Review on Debt Mutualization in Europe

Esteves

Tunçer

2016

Review of Law &Amp; Economics

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This paper reviews the economic and historical literature on debt mutualization in Europe with reference to pre-1914 guaranteed bonds and the current Eurobonds debate. We argue that, notwithstanding the differences in scale and nature, debt mutualization solutions similar to Eurobonds were tried before, and the closest historical examples to the present debate are the pre-1914 guaranteed bonds. We highlight three key characteristics of debt mutualization, which are apparent both in the current debate and in history: moral hazard, debt dilution and conditionality. We show that the fears about short-run dilution and moral hazard were not unknown to pre-1914 market participants. These problems were partly addressed by mechanisms of conditionality such as international financial control. The historical evidence suggests that the dilution of outstanding obligations may be overplayed in the current debate. On the contrary, creditors’ moral hazard (ignored in current debt mutualization proposals) was as problematic as the usual debtor’s moral hazard –especially when the groups of countries guaranteeing the bonds and the creditor nations did not overlap entirely.

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“…And, of course, lenders could find ways to protect themselves notwithstanding the doctrine. Famously, in the 1870s, the Khedive of Egypt put up his personal lands as surety for foreign borrowers and even set up special courts to hear creditor claims (Esteves and Tuncer, 2013).…”

Section: A (Brief) Review Of the Literaturementioning

confidence: 99%

The Relevance of Law to Sovereign Debt

Weidemaier

Gulati

2015

Annu. Rev. Law. Soc. Sci.

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The literature on sovereign debt treats law as of marginal significance, largely because the doctrine of sovereign immunity leaves creditors few potent legal remedies against sovereign borrowers. Although sovereign debts can indeed by hard to enforce, the goal of this Essay is to demonstrate that law plays a central, and constantly evolving, role in structuring sovereign debt markets. To list just a few examples, legal rules and institutions (i) decide when a borrower is sovereign, (ii) define the consequences of sovereignty by drawing (or refusing to draw) artificial boundaries between the sovereign and other legal entities, (iii) play some role in cases of state and government succession, and (iv) determine the extent to which the rules of sovereign immunity can be changed by contract. These legal rules and institutions are not set in stone; they evolve in response to the political, economic, and social forces that shape the market for sovereign debt.

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Feeling the blues Moral hazard and debt dilution in Eurobonds before 1914

Cited by 11 publications

References 31 publications

Public Debt Through the Ages

Public Debt Through the Ages

Eurobonds Past and Present: A Comparative Review on Debt Mutualization in Europe

The Relevance of Law to Sovereign Debt

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