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Why Not Default?: The Political Economy of Sovereign Debt
How creditors came to wield unprecedented power over heavily indebted countries―and the dangers this poses to democracy
The European debt crisis has rekindled long-standing debates about the power of finance and the fraught relationship between capitalism and democracy in a globalized world. Why Not Default? unravels a striking puzzle at the heart of these debates―why, despite frequent crises and the immense costs of repayment, do so many heavily indebted countries continue to service their international debts?
In this compelling and incisive book, Jerome Roos provides a sweeping investigation of the political economy of sovereign debt and international crisis management. He takes readers from the rise of public borrowing in the Italian city-states to the gunboat diplomacy of the imperialist era and the wave of sovereign defaults during the Great Depression. He vividly describes the debt crises of developing countries in the 1980s and 1990s and sheds new light on the recent turmoil inside the Eurozone―including the dramatic capitulation of Greece’s short-lived anti-austerity government to its European creditors in 2015.
Drawing on in-depth case studies of contemporary debt crises in Mexico, Argentina, and Greece, Why Not Default? paints a disconcerting picture of the ascendancy of global finance. This important book shows how the profound transformation of the capitalist world economy over the past four decades has endowed private and official creditors with unprecedented structural power over heavily indebted borrowers, enabling them to impose painful austerity measures and enforce uninterrupted debt service during times of crisis―with devastating social consequences and far-reaching implications for democracy.
The European debt crisis has rekindled long-standing debates about the power of finance and the fraught relationship between capitalism and democracy in a globalized world. Why Not Default? unravels a striking puzzle at the heart of these debates―why, despite frequent crises and the immense costs of repayment, do so many heavily indebted countries continue to service their international debts?
In this compelling and incisive book, Jerome Roos provides a sweeping investigation of the political economy of sovereign debt and international crisis management. He takes readers from the rise of public borrowing in the Italian city-states to the gunboat diplomacy of the imperialist era and the wave of sovereign defaults during the Great Depression. He vividly describes the debt crises of developing countries in the 1980s and 1990s and sheds new light on the recent turmoil inside the Eurozone―including the dramatic capitulation of Greece’s short-lived anti-austerity government to its European creditors in 2015.
Drawing on in-depth case studies of contemporary debt crises in Mexico, Argentina, and Greece, Why Not Default? paints a disconcerting picture of the ascendancy of global finance. This important book shows how the profound transformation of the capitalist world economy over the past four decades has endowed private and official creditors with unprecedented structural power over heavily indebted borrowers, enabling them to impose painful austerity measures and enforce uninterrupted debt service during times of crisis―with devastating social consequences and far-reaching implications for democracy.
416 pages, Hardcover
Published February 12, 2019
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May 27, 2020
This is an astounding piece of scholarship. The kind of thing that you read and say ‘of course this is how things are, how could this not be more obvious?’; except the obviousness is retroactive, and an effect of Roos’ unparalleled articulation of the problem and of the the ways in which to think about it. And the ‘problem’ of course, is in the title: Why not default? Why don’t states default on their sovereign debt? Especially since we know that debt, and the trappings of ‘austerity’ that follow in its wake have been nothing less than absolutely crippling for nations crushed under its burden. Need one utter anything more than the name, ‘Greece’?
As a sign of the puzzling nature of book’s question, consider just how weird the question might even sound to contemporary ears - Why not default? Because one pays one’s debts! But this obscures the fact that 1) cross-state debt obligations have been notoriously hard to enforce (short of all-out war, exactly how is one state supposed force another to pay them back?); and 2) all through history, states have regularly defaulted, to the point where it was considered almost something of a norm in times of crisis. Consider that as late as the 1930s, Roosevelt is on record apologising to Latin American debtor nations for Wall Street’s ‘super-salesmanship’, remarking that ‘of course’ they wouldn’t be able to pay their debts back.
That this kind of thing is almost unthinkable today prompts the investigation that drives Roos’ book: what changed? How is it that default has become taboo, even at the cost of enormous suffering to the populations of debater nations? Divided into three parts - theoretical, historical, and a set of case studies - Roos’ book tracks the rise of three specific mechanisms that have made default almost impossible: (1) the consolidation of international ‘creditor cartels’ able to close ranks and decimate the short-term financing of debtor states in the event of default; (2) the role of ‘lenders of last resort’ (the IMF in particular), able to impose stringent conditional loans on already struggling states; and (3) the complicity of domestic elites, with stakes in the prevention of default, and more importantly, the power to get their way.
Put this way, it all sounds somewhat academic and detached, but the end result is simply this: states don’t default because defaulting - sometimes even the mere threat of default - brings about social and economic disaster. Not 'naturally', but as a result of explicit political engineering. Taken together, the three mechanisms above effectively ensure that any default is met by capital flight, financial asphyxiation, banking crises, and all round economic contraction, with all the attendant social devastation that follows. Indeed, the case studies at the end of the book - of Mexico, Argentina, and Greece - double as tales of outright tragedy, with the poor and the powerless - as ever - bearing the brunt of the social costs involved.
Beyond mere diagnosis however, Roos’ book also functions as a guide and a warning to the decade to come. With the inability - or rather, incapacity - to default now more firmly entrenched than ever, so too have the repercussions for democracy and sovereignty become dire: beholden to creditors both domestic and international, and with no way out, states have been forced to abdicate their responsibilities toward their own citizens so as to better shore up their claims to 'fiscal responsibility'. Sound familiar? It's the story of global democracy - or what's left of it - writ large, and illuminated incredibly by this absolute feat of research and writing. Indispensable.
As a sign of the puzzling nature of book’s question, consider just how weird the question might even sound to contemporary ears - Why not default? Because one pays one’s debts! But this obscures the fact that 1) cross-state debt obligations have been notoriously hard to enforce (short of all-out war, exactly how is one state supposed force another to pay them back?); and 2) all through history, states have regularly defaulted, to the point where it was considered almost something of a norm in times of crisis. Consider that as late as the 1930s, Roosevelt is on record apologising to Latin American debtor nations for Wall Street’s ‘super-salesmanship’, remarking that ‘of course’ they wouldn’t be able to pay their debts back.
That this kind of thing is almost unthinkable today prompts the investigation that drives Roos’ book: what changed? How is it that default has become taboo, even at the cost of enormous suffering to the populations of debater nations? Divided into three parts - theoretical, historical, and a set of case studies - Roos’ book tracks the rise of three specific mechanisms that have made default almost impossible: (1) the consolidation of international ‘creditor cartels’ able to close ranks and decimate the short-term financing of debtor states in the event of default; (2) the role of ‘lenders of last resort’ (the IMF in particular), able to impose stringent conditional loans on already struggling states; and (3) the complicity of domestic elites, with stakes in the prevention of default, and more importantly, the power to get their way.
Put this way, it all sounds somewhat academic and detached, but the end result is simply this: states don’t default because defaulting - sometimes even the mere threat of default - brings about social and economic disaster. Not 'naturally', but as a result of explicit political engineering. Taken together, the three mechanisms above effectively ensure that any default is met by capital flight, financial asphyxiation, banking crises, and all round economic contraction, with all the attendant social devastation that follows. Indeed, the case studies at the end of the book - of Mexico, Argentina, and Greece - double as tales of outright tragedy, with the poor and the powerless - as ever - bearing the brunt of the social costs involved.
Beyond mere diagnosis however, Roos’ book also functions as a guide and a warning to the decade to come. With the inability - or rather, incapacity - to default now more firmly entrenched than ever, so too have the repercussions for democracy and sovereignty become dire: beholden to creditors both domestic and international, and with no way out, states have been forced to abdicate their responsibilities toward their own citizens so as to better shore up their claims to 'fiscal responsibility'. Sound familiar? It's the story of global democracy - or what's left of it - writ large, and illuminated incredibly by this absolute feat of research and writing. Indispensable.
April 20, 2019
Really great overview of the political economy of debt and international relations. Jerome makes several important claims:
1. He shows how the neoliberal order/globalized capital has created a concentrated cabal of creditors that has constrained the ability for debtors to write down or default on debt. There is restructuring, but since many of the creditors (especially in the case of Argentina) bought the bonds at a few cents on the dollar, they don't take a haircut.
2. He shows that historically there were periods where debtors did default--and the norm was that creditors would just take that risk.
3. He then analyzes Greece, Argentina, Venezuela and a few countries to show both the internal dynamic in the debtor country (i.e. populists vs. elites) and the external dynamics between creditors (whether holdouts would be disciplined or not).
I found this book super helpful in understanding the current politics of sovereign debt.
1. He shows how the neoliberal order/globalized capital has created a concentrated cabal of creditors that has constrained the ability for debtors to write down or default on debt. There is restructuring, but since many of the creditors (especially in the case of Argentina) bought the bonds at a few cents on the dollar, they don't take a haircut.
2. He shows that historically there were periods where debtors did default--and the norm was that creditors would just take that risk.
3. He then analyzes Greece, Argentina, Venezuela and a few countries to show both the internal dynamic in the debtor country (i.e. populists vs. elites) and the external dynamics between creditors (whether holdouts would be disciplined or not).
I found this book super helpful in understanding the current politics of sovereign debt.
May 3, 2019
Heilbroner’s chef d’oeuvre, “The Worldly Philosophers,” was based on his PhD thesis. Not to raise expectations too much, but author Jerome Roos may also have struck gold with this very timely adaptation of his doctoral thesis into “Why Not Default.”
Let’s get the negatives out of the way quickly: it’s a lot longer than the advertised 310 pages. I don’t think I’ve read type this little in quite some time. In real money this is a 500 page brick of a book. And it’s not going to warm many academics’ hearts, of the kind that might be inclined to offer the author employment in an orthodox economics department: exactly how can a currency lose 300 percent of its value? This miracle happens twice in the book. I presume the author means 75%. That first job would entail lecturing kids in introductory economics, no?
But I’m quibbling here, because (after taking a second to debunk all previous theories of why countries don’t default) “Why Not Default”
• first lays out a convincing, transferable and normative three-part model to help us analyze whether a poor country will pay back its debts to investors from rich countries,
• next follows it up with a brief history of sovereign default
• and finally demonstrates how to use the model in the case of three sovereign crises from the past half-century: the recycled-petrodollar Latin American sovereign default crisis of the early eighties (with Mexico’s model compliance as the prime example), the 2001 crisis (with the Argentinian default as the prime example) and the 2008-10 great financial crisis (with the Greece as the prime example.)
So here goes:
1. Concentration of Finance / Lenders’ Cartel
If the loans come from a small number of sources, If these sources are in a position to coordinate with one another, if these sources exhaust the borrower’s ability to borrow, if the borrower does not have other means to generate income (for example strong exports or high currency reserves or liquid assets) then the buck stops with the lenders. Conversely, if a bunch of anonymous, dispersed lenders cannot coordinate to put the screws on the borrower, he might be able to play them off against one another. Similarly, if a new lender materializes or if the world economy jumps in to save the lender (like the Chinese boom did for resource-rich Argentina and the Arab spring did for Greece as a vacation destination), then the borrower can successfully play for time or refuse to pay outright.
2. Large, sophisticated Lender of Last Resort
Over the past century, technocratic supranational lending institutions have come to the fore (IMF, World Bank, the “Troika”) which have developed the know-how to impose and monitor remedies that will help troubled borrowers meet their obligations to their lenders in the long term, in exchange for the very loans that will allow those obligations to be met in the short term. These loans are disbursed in a drip-feed, with each tranche conditional on periodic reviews of the borrower’s compliance to the conditions set by the technocrats.
Involvement of such an institution, provided it can count on the full support of the lenders and provided it has the financial firepower to credibly keep supplying the necessary loans to prevent a suspension of payments, can make the difference between a borrower honoring its obligations or defaulting on them. The key here is that these institutions bring both the expertise in drafting and monitoring a regime for the borrower to follow and the funds to reward a compliant borrower.
In short, an organized institution that can always dangle in front of a government the means to kick the can down the road and pass on the default bomb to the next administration has a big role to play here, but its interests and motivations lie with those of the lenders. Twice in the examples set here the role of such institutions has been to postpone a default until the time when it causes less damage to the banking sector in the lending countries.
3. The interests of the elites in the debtor nation
The interests of the governing elites in the debtor nation may be better aligned with those of the lenders than they are to the majority of the citizens they are meant to represent.
In particular, a messy default may spell disaster for the setup under which these elites operate: the banks that support the businesses they own might go bust. The convertibility of the currency, which allows them to ship their wealth to the rich world could suffer. The elites face the prospect of immediate ruin in the event of a default. Finally, the country’s very narrow banking elite itself often takes the entire process over when bankruptcy looms.
This is often in sharp contrast with the majority of the people, who might temporarily face the very real threat of unemployment or worse (for example the supply of corn to Mexico or drugs to Greece), but would benefit from the speedy recover that would follow. This is potentially more attractive than the “lost decades” entire economies have faced from the bloodletting that has often been necessary to service the debt of the state, often odious debt accumulated by greedy dictators.
Often, then, the decision on whether to default has come from the politics of the debtor nation itself. If the poor are destitute enough and desperate enough, the elites find themselves unable to contain the anger of the people, as happened in Argentina in 2001. Compare and contrast with the kolotoumba in Greece, when the people was happy to vent in the 2015 referendum, only to subsequently fall behind Tsipras’ acceptance of a very tough deal.
And there you have it!
Jerome Roos then takes you step-by-step through the three examples and provides wonderful schematic tables that summarise the interplay of the three “forces” he describes in determining the eventual outcome.
With all that said, we should not lose sight of the fact that an economic model is just that: even the best model cannot hope to be 100% applicable to all situations.
Indeed, in the case of my country, while every single point the author makes is 100% relevant, I’d go as far as to say the author misses out on other, more important, domestic actual drivers behind our national adventure since 2009.
But that takes nothing away from this tremendous book.
-----------------------------------------------
(read on only if you care to know about the specifics of my country; none of this takes anything away from what is a first-rate model of why countries sometimes default and sometimes don’t)
The 3-step analysis of concentrated vs. diffuse lending / existence of a supranational conditional lender / existence of a banking elite does indeed apply to Greece, but two more important issues come into play.
First, Greece has since 1828 engaged in a historical quid pro quo with a mix of western powers: in exchange for its freedom from the Ottoman Empire initially, its freedom from communism later (not some funky make-believe threat, communist militias controlled 97% of the territory in 1948) and protection from Turkey since the 1974 Cyprus invasion (from which NATO failed to provide protection, signaling the need to switch to EU protection), the Greek state has been more than happy to be part of the western economic realm, with all this entails for the occasional financial extortion.
If the price of freedom from the Ottoman Empire in the 19th century was a bunch of extortionate loans from the Crown, that was mostly fine with us. That the Americans made us the biggest per capita Marshall Plan recipients was also understood to come with an obligation to (undemocratically) suppress the left. And these days, if we can plant the blue flag with the gold stars on our little Islands right off the Turkish side of the Aegean coast, well, we’ll look the other way when a bailout saves French and German banks.
We’re not alone in this. It’s how come the three Baltic republics where A-OK with the idea of “internal devaluation” post 2008. The last thing they want is the Russian bear hug. I’d go as far as to say that Irish compliance with Trichet’s financial fascism was also colored by the strong desire to never have to answer to the British again.
Second, the author pans the wrong Greek elites. Yes, the bankers were the big bandits. As soon as they realized the lending institutions they commanded could magic out of thin air hard EUR, they were off to the races, perhaps only second to the Spanish in terms of supplying to cronies the funds to move previously non-existing, overnight fortunes to the “North,” leading to an NPL disaster that was created literally overnight.
Corrupt and base as they are, they ain’t the “elites” of our story. That would be the political establishment of my country, whose main aim for the past 200 years has been to carry on being able to exercise patronage. The Greek state has always gotten its tentacles deep into all aspects of life, but it first became a true “leviathan” in the 1980’s, with the number of state employees doubling (or even quadrupling depending on how you count) between 1980 and 2005.
Political clientelism costs money. Support has two sources:
(i) the private sector faces unfeasibly high taxes, which are channeled toward supporting the public sector; it costs A BOMB to hire privately, so nobody does, with all the repercussions one expects on business
(ii) borrowing, from any source willing to lend
The taxes are set at astronomical levels (so, for example, of the 28.2k I spend per month here in London some 16.5k reaches my three employees, but to get 16.5k to them in Greece I’d have to spend 39.2k), indeed high enough that every single private business in Greece is avoiding tax in one way or another. The state tolerates this tax avoidance, only going after egregious tax dodgers, precisely because to enforce it would amount to shutting down all business.
The crisis response, therefore, went as follows: a gargantuan (and not very productive) public sector will always be favored by Greek politicians over the private sector, and that is exactly what happened as a response to the 2008 crisis: three governments in a row (Papandreou, even reformer Papadimos and Samaras) all paid lip service to the demands of the much-hated “Troika” but refused to fire public employees and put the main weight of the necessary adjustment on enforcing truly unenforceable tax regulations on the private sector and not firing a single public employee (thereby shutting down the private sector, and making things worse…)
When the Socialists signed the memorandum with the Troika, much as they never ended up firing any public employees, they agreed to do so. The surge in Syriza support, therefore, was rooted in the fact that Syriza was deemed the last refuge of the 900,000 public employees and their families. (N.B. the USA has fewer than 2 million Federal employees), the sole guarantor of the existing social pact.
This clearly demonstrates that Syriza was elected TO PRESERVE, rather than upend a system that has been in existence for two centuries (and vastly augmented in the past 40 years)
In office it has indeed lived up to this promise.
Ergo, anybody who presents Syriza as different from the three previous governments confuses the rhetoric employed to get into office (which spilled over into the first six months Syriza was in power and the theatre of the absurd involving the non-Syriza economics minister) with the centuries old reality of conducting policy in Greece: our entire political class is 100% against default. Consequently, any and all avenues to comply will always be fully explored by the Greek political class. The converse would make them surplus to requirements in a pact whereby their chief role it to hand out favors.
Going back to the book, even here the author does a fantastic job of reading Tsipras’ true intentions and hinting that it was poor handing of the situation that led him to the referendum, rather than a genuine desire to default.
Let’s get the negatives out of the way quickly: it’s a lot longer than the advertised 310 pages. I don’t think I’ve read type this little in quite some time. In real money this is a 500 page brick of a book. And it’s not going to warm many academics’ hearts, of the kind that might be inclined to offer the author employment in an orthodox economics department: exactly how can a currency lose 300 percent of its value? This miracle happens twice in the book. I presume the author means 75%. That first job would entail lecturing kids in introductory economics, no?
But I’m quibbling here, because (after taking a second to debunk all previous theories of why countries don’t default) “Why Not Default”
• first lays out a convincing, transferable and normative three-part model to help us analyze whether a poor country will pay back its debts to investors from rich countries,
• next follows it up with a brief history of sovereign default
• and finally demonstrates how to use the model in the case of three sovereign crises from the past half-century: the recycled-petrodollar Latin American sovereign default crisis of the early eighties (with Mexico’s model compliance as the prime example), the 2001 crisis (with the Argentinian default as the prime example) and the 2008-10 great financial crisis (with the Greece as the prime example.)
So here goes:
1. Concentration of Finance / Lenders’ Cartel
If the loans come from a small number of sources, If these sources are in a position to coordinate with one another, if these sources exhaust the borrower’s ability to borrow, if the borrower does not have other means to generate income (for example strong exports or high currency reserves or liquid assets) then the buck stops with the lenders. Conversely, if a bunch of anonymous, dispersed lenders cannot coordinate to put the screws on the borrower, he might be able to play them off against one another. Similarly, if a new lender materializes or if the world economy jumps in to save the lender (like the Chinese boom did for resource-rich Argentina and the Arab spring did for Greece as a vacation destination), then the borrower can successfully play for time or refuse to pay outright.
2. Large, sophisticated Lender of Last Resort
Over the past century, technocratic supranational lending institutions have come to the fore (IMF, World Bank, the “Troika”) which have developed the know-how to impose and monitor remedies that will help troubled borrowers meet their obligations to their lenders in the long term, in exchange for the very loans that will allow those obligations to be met in the short term. These loans are disbursed in a drip-feed, with each tranche conditional on periodic reviews of the borrower’s compliance to the conditions set by the technocrats.
Involvement of such an institution, provided it can count on the full support of the lenders and provided it has the financial firepower to credibly keep supplying the necessary loans to prevent a suspension of payments, can make the difference between a borrower honoring its obligations or defaulting on them. The key here is that these institutions bring both the expertise in drafting and monitoring a regime for the borrower to follow and the funds to reward a compliant borrower.
In short, an organized institution that can always dangle in front of a government the means to kick the can down the road and pass on the default bomb to the next administration has a big role to play here, but its interests and motivations lie with those of the lenders. Twice in the examples set here the role of such institutions has been to postpone a default until the time when it causes less damage to the banking sector in the lending countries.
3. The interests of the elites in the debtor nation
The interests of the governing elites in the debtor nation may be better aligned with those of the lenders than they are to the majority of the citizens they are meant to represent.
In particular, a messy default may spell disaster for the setup under which these elites operate: the banks that support the businesses they own might go bust. The convertibility of the currency, which allows them to ship their wealth to the rich world could suffer. The elites face the prospect of immediate ruin in the event of a default. Finally, the country’s very narrow banking elite itself often takes the entire process over when bankruptcy looms.
This is often in sharp contrast with the majority of the people, who might temporarily face the very real threat of unemployment or worse (for example the supply of corn to Mexico or drugs to Greece), but would benefit from the speedy recover that would follow. This is potentially more attractive than the “lost decades” entire economies have faced from the bloodletting that has often been necessary to service the debt of the state, often odious debt accumulated by greedy dictators.
Often, then, the decision on whether to default has come from the politics of the debtor nation itself. If the poor are destitute enough and desperate enough, the elites find themselves unable to contain the anger of the people, as happened in Argentina in 2001. Compare and contrast with the kolotoumba in Greece, when the people was happy to vent in the 2015 referendum, only to subsequently fall behind Tsipras’ acceptance of a very tough deal.
And there you have it!
Jerome Roos then takes you step-by-step through the three examples and provides wonderful schematic tables that summarise the interplay of the three “forces” he describes in determining the eventual outcome.
With all that said, we should not lose sight of the fact that an economic model is just that: even the best model cannot hope to be 100% applicable to all situations.
Indeed, in the case of my country, while every single point the author makes is 100% relevant, I’d go as far as to say the author misses out on other, more important, domestic actual drivers behind our national adventure since 2009.
But that takes nothing away from this tremendous book.
-----------------------------------------------
(read on only if you care to know about the specifics of my country; none of this takes anything away from what is a first-rate model of why countries sometimes default and sometimes don’t)
The 3-step analysis of concentrated vs. diffuse lending / existence of a supranational conditional lender / existence of a banking elite does indeed apply to Greece, but two more important issues come into play.
First, Greece has since 1828 engaged in a historical quid pro quo with a mix of western powers: in exchange for its freedom from the Ottoman Empire initially, its freedom from communism later (not some funky make-believe threat, communist militias controlled 97% of the territory in 1948) and protection from Turkey since the 1974 Cyprus invasion (from which NATO failed to provide protection, signaling the need to switch to EU protection), the Greek state has been more than happy to be part of the western economic realm, with all this entails for the occasional financial extortion.
If the price of freedom from the Ottoman Empire in the 19th century was a bunch of extortionate loans from the Crown, that was mostly fine with us. That the Americans made us the biggest per capita Marshall Plan recipients was also understood to come with an obligation to (undemocratically) suppress the left. And these days, if we can plant the blue flag with the gold stars on our little Islands right off the Turkish side of the Aegean coast, well, we’ll look the other way when a bailout saves French and German banks.
We’re not alone in this. It’s how come the three Baltic republics where A-OK with the idea of “internal devaluation” post 2008. The last thing they want is the Russian bear hug. I’d go as far as to say that Irish compliance with Trichet’s financial fascism was also colored by the strong desire to never have to answer to the British again.
Second, the author pans the wrong Greek elites. Yes, the bankers were the big bandits. As soon as they realized the lending institutions they commanded could magic out of thin air hard EUR, they were off to the races, perhaps only second to the Spanish in terms of supplying to cronies the funds to move previously non-existing, overnight fortunes to the “North,” leading to an NPL disaster that was created literally overnight.
Corrupt and base as they are, they ain’t the “elites” of our story. That would be the political establishment of my country, whose main aim for the past 200 years has been to carry on being able to exercise patronage. The Greek state has always gotten its tentacles deep into all aspects of life, but it first became a true “leviathan” in the 1980’s, with the number of state employees doubling (or even quadrupling depending on how you count) between 1980 and 2005.
Political clientelism costs money. Support has two sources:
(i) the private sector faces unfeasibly high taxes, which are channeled toward supporting the public sector; it costs A BOMB to hire privately, so nobody does, with all the repercussions one expects on business
(ii) borrowing, from any source willing to lend
The taxes are set at astronomical levels (so, for example, of the 28.2k I spend per month here in London some 16.5k reaches my three employees, but to get 16.5k to them in Greece I’d have to spend 39.2k), indeed high enough that every single private business in Greece is avoiding tax in one way or another. The state tolerates this tax avoidance, only going after egregious tax dodgers, precisely because to enforce it would amount to shutting down all business.
The crisis response, therefore, went as follows: a gargantuan (and not very productive) public sector will always be favored by Greek politicians over the private sector, and that is exactly what happened as a response to the 2008 crisis: three governments in a row (Papandreou, even reformer Papadimos and Samaras) all paid lip service to the demands of the much-hated “Troika” but refused to fire public employees and put the main weight of the necessary adjustment on enforcing truly unenforceable tax regulations on the private sector and not firing a single public employee (thereby shutting down the private sector, and making things worse…)
When the Socialists signed the memorandum with the Troika, much as they never ended up firing any public employees, they agreed to do so. The surge in Syriza support, therefore, was rooted in the fact that Syriza was deemed the last refuge of the 900,000 public employees and their families. (N.B. the USA has fewer than 2 million Federal employees), the sole guarantor of the existing social pact.
This clearly demonstrates that Syriza was elected TO PRESERVE, rather than upend a system that has been in existence for two centuries (and vastly augmented in the past 40 years)
In office it has indeed lived up to this promise.
Ergo, anybody who presents Syriza as different from the three previous governments confuses the rhetoric employed to get into office (which spilled over into the first six months Syriza was in power and the theatre of the absurd involving the non-Syriza economics minister) with the centuries old reality of conducting policy in Greece: our entire political class is 100% against default. Consequently, any and all avenues to comply will always be fully explored by the Greek political class. The converse would make them surplus to requirements in a pact whereby their chief role it to hand out favors.
Going back to the book, even here the author does a fantastic job of reading Tsipras’ true intentions and hinting that it was poor handing of the situation that led him to the referendum, rather than a genuine desire to default.
February 9, 2021
Aus Erinnerung bewertet, Review folgt evtl. noch.
June 27, 2025
Recommended to me by Dr. Dean Dettloff.
Excellent book on the nature of global sovereign debt and why we don't see defaults in the last 40 years like we used to in the past. The author's theory revolves around three pillars: unified creditors and the power they hold, lenders of last resort a debtor can fall back on, and internal compliance (e.g., forces inside the debtor country pushing for repayment over default).
It is the third pillar that I, at least, find most interesting and new; looking at how three different debt crises over the last 40 years revolved around that pillar was eye-opening and enlightening, for the class-based struggles within. In some ways, this book is a roadmap for a more powerful working class through unionization (both in the 'have unions' sense and in the banding together sense); in others, it is an argument toward scrapping the entire international debt system and rebuilding and strengthening our democratic societies.
Excellent book on the nature of global sovereign debt and why we don't see defaults in the last 40 years like we used to in the past. The author's theory revolves around three pillars: unified creditors and the power they hold, lenders of last resort a debtor can fall back on, and internal compliance (e.g., forces inside the debtor country pushing for repayment over default).
It is the third pillar that I, at least, find most interesting and new; looking at how three different debt crises over the last 40 years revolved around that pillar was eye-opening and enlightening, for the class-based struggles within. In some ways, this book is a roadmap for a more powerful working class through unionization (both in the 'have unions' sense and in the banding together sense); in others, it is an argument toward scrapping the entire international debt system and rebuilding and strengthening our democratic societies.
August 8, 2021
Excellent book!
January 5, 2025
Fanatics work. Every argument is well substantiated. Every figure is correctly sourced.
Here’s a summary:
The sovereign debt puzzle
The book starts off with a simple question: Why don’t countries today chose to default on their sovereign debt if this used to be a regular occurrence for centuries, accepted by the creditors as normal risk on their investment?
Why is it that even populist left wing parties that come in to power on anti-austerity platforms end up capitulating to the creditors?
Since the late 70s, we see skyrocketing of sovereign debt, reaching 80 percent of the world GDP or 60 trillion US dollars. This period has also been one of constant financial crises which have increased in their frequency, giving rise to a highly unstable economic environment and yet, countries constantly fight to service their debt by any means necessary, even starving out their own populations and politicians ruining their own approval ratings.
The movement of debt however isn’t homogeneous but has a clear direction from the borrowing periphery towards the centre. Since 1982, developing countries have paid an astonishing 4.2 trillion US dollars in interest payments alone to creditors in Europe and USA.
The author proposes that since the late 70s there have developed 3 key enforcement mechanisms which make default on sovereign debt a rare occurrence. These mechanisms are:
The formation of a creditors cartel (market discipline)
The establishment of the IMF as a lender of last resort (The conditional loans)
The rise of domestic elites into the various critical points of state finance whose interests align with those of the creditors ( the bridging role).
Conditions under which Enforcement Mechanisms Are Effective
1. Market discipline depends on:
a. The ability of private creditors to maintain a coherent creditors’ cartel: the cartel tends to be at its strongest when the debt is highly concentrated and creditor interests are structurally interlocked.
b. The debtor’s dependence on the creditors’ cartel: this dependence tends to be at its greatest when the debtor does not have an outside option for external financing and when its financial and commercial self- sufficiency is low.
2. Conditional lending depends on:
a. The ability of official creditors to present a unified front: official creditors tend to be most unified and determined to avoid default when the risk of contagion is high and the creditors’ internal opposition to further emergency lending is low.
b. The debtor’s dependence on the lender of last resort: this dependence tends to be at its greatest when the debtor does not have an outside option for external financing and when its financial and commercial self-sufficiency is low (same as 1b).
3. The bridging role depends on:
a. The capacity of domestic elites to attract foreign credit: this capacity tends to be high when elites’ preferences are aligned with those of foreign creditors, and when the institutional capacity to carry out fiscally “responsible” policies is in place.
b. The ability of elites to retain control over financial policymaking: this tends to be high when the domestic legitimation crisis can be contained and economic policymaking is effectively shielded from popular pressures.
Market discipline tends to break down when:
a. Private lenders fail to hold together a creditors’ cartel: the debt is highly dispersed, and the lending structure incentivizes freeriding by individual lenders;
Or when:
b. The debtor no longer depends on the creditors’ cartel: the debtor has an outside option or is very self- sufficient in financial and commercial terms.
2. Conditional lending breaks down when:
a. Official creditors pull the plug on further financing: more likely when the risk of contagion is low and domestic opposition to bailouts in creditor countries is high.
Or when:
b. The debtor no longer depends on the lender of last resort: the debtor has an outside option or is very self- sufficient in financial and commercial terms.
3. The bridging role breaks down when:
a. Domestic elites are no longer capable of attracting foreign credit: creditors lose trust and cut the debtor loose, especially if there is an ideological misalignment and/or a failure to satisfy bailout conditions (this point is connected to point 2a).
Or when:
b. Elites are ousted or forced to make concessions: the state loses the loyalty of its citizens as they revolt against further austerity amidst a deep legitimation crisis.
Central hypothesis: a heavily indebted peripheral borrower will only pursue a unilateral payment suspension on its external obligations when all three enforcement mechanisms have broken down as a result of a combination of the conditions and/or countervailing mechanisms spelled out above.
Here’s a summary:
The sovereign debt puzzle
The book starts off with a simple question: Why don’t countries today chose to default on their sovereign debt if this used to be a regular occurrence for centuries, accepted by the creditors as normal risk on their investment?
Why is it that even populist left wing parties that come in to power on anti-austerity platforms end up capitulating to the creditors?
Since the late 70s, we see skyrocketing of sovereign debt, reaching 80 percent of the world GDP or 60 trillion US dollars. This period has also been one of constant financial crises which have increased in their frequency, giving rise to a highly unstable economic environment and yet, countries constantly fight to service their debt by any means necessary, even starving out their own populations and politicians ruining their own approval ratings.
The movement of debt however isn’t homogeneous but has a clear direction from the borrowing periphery towards the centre. Since 1982, developing countries have paid an astonishing 4.2 trillion US dollars in interest payments alone to creditors in Europe and USA.
The author proposes that since the late 70s there have developed 3 key enforcement mechanisms which make default on sovereign debt a rare occurrence. These mechanisms are:
The formation of a creditors cartel (market discipline)
The establishment of the IMF as a lender of last resort (The conditional loans)
The rise of domestic elites into the various critical points of state finance whose interests align with those of the creditors ( the bridging role).
Conditions under which Enforcement Mechanisms Are Effective
1. Market discipline depends on:
a. The ability of private creditors to maintain a coherent creditors’ cartel: the cartel tends to be at its strongest when the debt is highly concentrated and creditor interests are structurally interlocked.
b. The debtor’s dependence on the creditors’ cartel: this dependence tends to be at its greatest when the debtor does not have an outside option for external financing and when its financial and commercial self- sufficiency is low.
2. Conditional lending depends on:
a. The ability of official creditors to present a unified front: official creditors tend to be most unified and determined to avoid default when the risk of contagion is high and the creditors’ internal opposition to further emergency lending is low.
b. The debtor’s dependence on the lender of last resort: this dependence tends to be at its greatest when the debtor does not have an outside option for external financing and when its financial and commercial self-sufficiency is low (same as 1b).
3. The bridging role depends on:
a. The capacity of domestic elites to attract foreign credit: this capacity tends to be high when elites’ preferences are aligned with those of foreign creditors, and when the institutional capacity to carry out fiscally “responsible” policies is in place.
b. The ability of elites to retain control over financial policymaking: this tends to be high when the domestic legitimation crisis can be contained and economic policymaking is effectively shielded from popular pressures.
Market discipline tends to break down when:
a. Private lenders fail to hold together a creditors’ cartel: the debt is highly dispersed, and the lending structure incentivizes freeriding by individual lenders;
Or when:
b. The debtor no longer depends on the creditors’ cartel: the debtor has an outside option or is very self- sufficient in financial and commercial terms.
2. Conditional lending breaks down when:
a. Official creditors pull the plug on further financing: more likely when the risk of contagion is low and domestic opposition to bailouts in creditor countries is high.
Or when:
b. The debtor no longer depends on the lender of last resort: the debtor has an outside option or is very self- sufficient in financial and commercial terms.
3. The bridging role breaks down when:
a. Domestic elites are no longer capable of attracting foreign credit: creditors lose trust and cut the debtor loose, especially if there is an ideological misalignment and/or a failure to satisfy bailout conditions (this point is connected to point 2a).
Or when:
b. Elites are ousted or forced to make concessions: the state loses the loyalty of its citizens as they revolt against further austerity amidst a deep legitimation crisis.
Central hypothesis: a heavily indebted peripheral borrower will only pursue a unilateral payment suspension on its external obligations when all three enforcement mechanisms have broken down as a result of a combination of the conditions and/or countervailing mechanisms spelled out above.
June 16, 2022
Jerome Roos attempts to unpack a phenomenon in international finance: Why do countries default on their sovereign debt far less than they used to?
In the heyday of finance, which was the 19th century, private banks and rich countries started lending to poorer countries, most notably, the newly independent nations of Latin America. Prior to this, loans or credit were always between entities in Europe and the USA. The first set of sovereign defaults occurred when these Latin American countries in the 1830s did not repay their loans in a speculative craze in the London stock market.
What is interesting is that from the 19th century till WWII, the various sanctions regimes that existed to ensure that debt repayment happened, took into consideration, the responsibilities of both parties in the case of international transactions, namely, the debtor and the creditor. Roos presents archival evidence from those of the legendary British foreign secretary, Lord Palmerston, to FDR to statements from Moody's, the credit rating agency, which shows that if debt is excessive to the point of default, then both lender and borrower are to blame.
Between WWII and the 1980s, it is easy to forget that there were no defaults until the Latin American crisis of the 1980s. Here, we see the emergence of the International Monetary Fund (IMF) as a lender of last resort. Over the years, with the internationalisation of finance, the IMF developed a conditional loans system which is reminiscent of the Rothschild Bank in the 19th century, that was known for its ability to get their money back.
Roos's biggest contribution in this book is the typology of sanctions regimes developed by creditors to enforce repayment of debts which allows us to understand how much the “moral economy” of debt repayment has changed in 2-3 centuries. Historically, there have been three kinds of sanctions regimes:
(1) Market Discipline
There is literature in international political economy which suggests that when markets are dispersed and decentralised, as was the case in the 1930s, it is easier for countries to default on their debt. But modern day lending is very concentrated among 'creditor cartels' who can dictate terms to borrowers. Since the 1980s, we have had fewer creditors and bondholders. In the Greek case, the creditors were a bunch of European banks. So, it was easier for these banks to act as a creditor cartel unlike the bondholders of the 1930s.
However, Roos is not convinced that this is sufficient grounds for a country to not default. If a borrower country does not have foreign exchange or has liquidity issues, then even if the creditors and borrowers don’t want a default, it will still happen. This leads us to the second sanctions regime.
(2) Conditional Lending
The IMF has become synonymous with conditional loans in the modern international economy. The key difference of these kinds of lending from market-based lending is that there are hard conditions imposed on debtor countries so that they free their domestic resources to service foreign debt. These policies can involve wage cuts, reducing the bargaining power of labour, and other factors which can improve the competitiveness of the debtor country’s economy in the long run. The US government played a major role in the crises of the 1980s and 90s. The European banks, along with the IMF did do so in the case of the Eurozone crisis in the 2010s. It is during this time period that the IMF became the international lender of last resort with the ability to withhold credit if there is non-compliance. However, Roos argues that even this may not be sufficient grounds to ensure debt repayment. So, he develops his most favoured explanation.
(3) Bridging Position of Domestic Financial Elites
In this form of enforcement mechanism, many of the debtor countries with technocratic policymakers use their relationships with international creditors in order to borrow on better terms than their democratically elected counterparts. If the political establishment in the debtor country feels that they ought not to pay back the debt either as defiance or simply because they lack the capability to do so, foreign creditors and domestic technocratic elites would work together to encourage institutional changes in debtor countries. Policy changes such as central bank independence, growth in the finance ministry’s power or constitutional pledges are meant to ensure that the debt is paid back.
In practice, this results in insulation of governments in debtor countries from domestic political pressures. Financial policymakers start to gain power, and the influence of cartelised foreign creditors becomes much more. Roos identifies this mechanism in operation in Latin American countries in the 1980s, and the Euro Crisis.
The last puzzle which is now left unanswered is how Argentina managed to default in 2002 while Greece did not in 2010 during the Euro Crisis. The above mentioned sanctions regimes were in operation. Did they break down?
Both countries faced serious backlash from protestors who were unhappy with the deals thrown at them from international financial players. In Greece’s case, even a new government was elected, Syriza, that publicly proclaimed that they will default on the debt. But it did not come to pass. In Argentina’s case, the government fell and in 2002, there was a default. Roos argues that this is not a case of successful defiance on the part of Argentina, but of them being over-compliant. The patria financiera (financial elite) had reached its influential peak in Argentina under the Carlos Menem-Domingo Cavallo government. After Menem gave way for the Presidency of De la Rúa, him and the all-powerful Economy Minister, Cavallo were insistent that the debt be repaid throughout the crisis. However, the creditors realised that the default was inevitable and had begun to divest. So, American institutional investors who held Argentinian bonds had sold off the bonds packaging them into complex financial products with the toxic underlying assets to European pension funds and Japanese investors. The enforcement mechanism breaks down in the sense that there is no credit cartel anymore.
The second mechanism, which is in operation through the IMF, also breaks down because of political changes from the Clinton to the Bush Jr administration in the USA. The Clinton administration had massive bailout programmes in the 90s and early 2000s, starting with East Asia, then Russia, Brazil, Turkey and Argentina. The Bush Jr regime had the Meltzer Commission which called for the abolition of the IMF. While that advocacy was not successful, they do manage to cut IMF funding from the Congress. This means that the IMF is now overexposed to Turkey, Brazil and Argentina. Weeks before protests erupted in Argentina in November 2001, Cavallo was still talking about debt repayment. With the withholding of the IMF credit line on top of which, there were protests in December 2001, Argentina is forced into a default.
The same did not happen in Greece’s case because according to Roos, the international context did not change. The Bush regime was focused on the War on Terror. In Greece’s case, the enforcement mechanisms were still in place. So, a political regime change, along with protests in Greece could not challenge the structural power of international finance. Greek debt was still concentrated, not dispersed. To make matters worse, the bailout programmes meant that the debt ownership transferred from a creditors’ cartel to European taxpayers. So, if Greece defaults, the average citizen bears the brunt.
All this is not to say that the structure prevails even if there is agency in the form of civil resistance. Roos argues that knowing the structure of international finance is crucial to finding solutions. Solutions have to entail:
(a) More democratic control over credit circulation;
(b) Distributing the costs of adjustment in the event of a default between lender and borrower; and
(c) Development of broad-based international alliances in creditor and debtor countries.
Overall, this is a fantastic overview of the international political economy of sovereign debt and much more accessible than the average academic output in this field.
In the heyday of finance, which was the 19th century, private banks and rich countries started lending to poorer countries, most notably, the newly independent nations of Latin America. Prior to this, loans or credit were always between entities in Europe and the USA. The first set of sovereign defaults occurred when these Latin American countries in the 1830s did not repay their loans in a speculative craze in the London stock market.
What is interesting is that from the 19th century till WWII, the various sanctions regimes that existed to ensure that debt repayment happened, took into consideration, the responsibilities of both parties in the case of international transactions, namely, the debtor and the creditor. Roos presents archival evidence from those of the legendary British foreign secretary, Lord Palmerston, to FDR to statements from Moody's, the credit rating agency, which shows that if debt is excessive to the point of default, then both lender and borrower are to blame.
Between WWII and the 1980s, it is easy to forget that there were no defaults until the Latin American crisis of the 1980s. Here, we see the emergence of the International Monetary Fund (IMF) as a lender of last resort. Over the years, with the internationalisation of finance, the IMF developed a conditional loans system which is reminiscent of the Rothschild Bank in the 19th century, that was known for its ability to get their money back.
Roos's biggest contribution in this book is the typology of sanctions regimes developed by creditors to enforce repayment of debts which allows us to understand how much the “moral economy” of debt repayment has changed in 2-3 centuries. Historically, there have been three kinds of sanctions regimes:
(1) Market Discipline
There is literature in international political economy which suggests that when markets are dispersed and decentralised, as was the case in the 1930s, it is easier for countries to default on their debt. But modern day lending is very concentrated among 'creditor cartels' who can dictate terms to borrowers. Since the 1980s, we have had fewer creditors and bondholders. In the Greek case, the creditors were a bunch of European banks. So, it was easier for these banks to act as a creditor cartel unlike the bondholders of the 1930s.
However, Roos is not convinced that this is sufficient grounds for a country to not default. If a borrower country does not have foreign exchange or has liquidity issues, then even if the creditors and borrowers don’t want a default, it will still happen. This leads us to the second sanctions regime.
(2) Conditional Lending
The IMF has become synonymous with conditional loans in the modern international economy. The key difference of these kinds of lending from market-based lending is that there are hard conditions imposed on debtor countries so that they free their domestic resources to service foreign debt. These policies can involve wage cuts, reducing the bargaining power of labour, and other factors which can improve the competitiveness of the debtor country’s economy in the long run. The US government played a major role in the crises of the 1980s and 90s. The European banks, along with the IMF did do so in the case of the Eurozone crisis in the 2010s. It is during this time period that the IMF became the international lender of last resort with the ability to withhold credit if there is non-compliance. However, Roos argues that even this may not be sufficient grounds to ensure debt repayment. So, he develops his most favoured explanation.
(3) Bridging Position of Domestic Financial Elites
In this form of enforcement mechanism, many of the debtor countries with technocratic policymakers use their relationships with international creditors in order to borrow on better terms than their democratically elected counterparts. If the political establishment in the debtor country feels that they ought not to pay back the debt either as defiance or simply because they lack the capability to do so, foreign creditors and domestic technocratic elites would work together to encourage institutional changes in debtor countries. Policy changes such as central bank independence, growth in the finance ministry’s power or constitutional pledges are meant to ensure that the debt is paid back.
In practice, this results in insulation of governments in debtor countries from domestic political pressures. Financial policymakers start to gain power, and the influence of cartelised foreign creditors becomes much more. Roos identifies this mechanism in operation in Latin American countries in the 1980s, and the Euro Crisis.
The last puzzle which is now left unanswered is how Argentina managed to default in 2002 while Greece did not in 2010 during the Euro Crisis. The above mentioned sanctions regimes were in operation. Did they break down?
Both countries faced serious backlash from protestors who were unhappy with the deals thrown at them from international financial players. In Greece’s case, even a new government was elected, Syriza, that publicly proclaimed that they will default on the debt. But it did not come to pass. In Argentina’s case, the government fell and in 2002, there was a default. Roos argues that this is not a case of successful defiance on the part of Argentina, but of them being over-compliant. The patria financiera (financial elite) had reached its influential peak in Argentina under the Carlos Menem-Domingo Cavallo government. After Menem gave way for the Presidency of De la Rúa, him and the all-powerful Economy Minister, Cavallo were insistent that the debt be repaid throughout the crisis. However, the creditors realised that the default was inevitable and had begun to divest. So, American institutional investors who held Argentinian bonds had sold off the bonds packaging them into complex financial products with the toxic underlying assets to European pension funds and Japanese investors. The enforcement mechanism breaks down in the sense that there is no credit cartel anymore.
The second mechanism, which is in operation through the IMF, also breaks down because of political changes from the Clinton to the Bush Jr administration in the USA. The Clinton administration had massive bailout programmes in the 90s and early 2000s, starting with East Asia, then Russia, Brazil, Turkey and Argentina. The Bush Jr regime had the Meltzer Commission which called for the abolition of the IMF. While that advocacy was not successful, they do manage to cut IMF funding from the Congress. This means that the IMF is now overexposed to Turkey, Brazil and Argentina. Weeks before protests erupted in Argentina in November 2001, Cavallo was still talking about debt repayment. With the withholding of the IMF credit line on top of which, there were protests in December 2001, Argentina is forced into a default.
The same did not happen in Greece’s case because according to Roos, the international context did not change. The Bush regime was focused on the War on Terror. In Greece’s case, the enforcement mechanisms were still in place. So, a political regime change, along with protests in Greece could not challenge the structural power of international finance. Greek debt was still concentrated, not dispersed. To make matters worse, the bailout programmes meant that the debt ownership transferred from a creditors’ cartel to European taxpayers. So, if Greece defaults, the average citizen bears the brunt.
All this is not to say that the structure prevails even if there is agency in the form of civil resistance. Roos argues that knowing the structure of international finance is crucial to finding solutions. Solutions have to entail:
(a) More democratic control over credit circulation;
(b) Distributing the costs of adjustment in the event of a default between lender and borrower; and
(c) Development of broad-based international alliances in creditor and debtor countries.
Overall, this is a fantastic overview of the international political economy of sovereign debt and much more accessible than the average academic output in this field.
February 28, 2019
I only read the first part, which is mostly theoretical, but I greatly enjoyed it. The book is well-written, insightful and rather accessible to readers without a background in economics.
May 21, 2024
Why not default? Why would a sovereign country repay its debts if it would mean imposing austerity on its citizens, possibly causing a political crisis of legitimation? In the 19th century, the reason was quite simple: the gunboats of the UK would come to your doorstep and demand repayment. But this barely seems a real possibility in the 21st century. So, then, why go through all this mess if you could simply default?
Jerome Roos outlines some main characteristics why governments do so. Beginning with a long history of political debt, he eventually analyses the option to default in the age of neoliberalism by looking at three case-studies: Mexico in the 80s, Argentina in the early 00s, and, of course, Greece. From a structural analysis (using Poulantzas) of finance’s power in contemporary capitalism, he gives three mechanisms that enforces countries to repay.
First, market coercion: if you don’t pay back, you won’t get a second loan. Market coercion also includes spillover costs in the economy. If financial markets don’t trust your debt, they won’t trust your currency either. Market coercion is the bedrock of the struggle, but how this unfolds in reality is mediated by two additional mechanisms.
Second, the political unity of the creditors. If the creditors manage to politically unite and go to the defaulting debtor as one bloc, market coercion will have a political flex that is hard to ignore. According to Roos, this is why most countries, despite market coercion, were able to default in the 1930s: as hegemony was passing from the UK to the US, no central organisation was able to organise market coercion politically. After 1945, the IMF would take over this organising role.
Third, domestic elites internalising market coercion. On this level, domestic politics are key, and do make a difference for overturning an austerity plan. The domestic hawkish elites always had a strategy to encapsulate themselves within the state, often at the head of the central bank. From there, they make sure their country will obey. However, their power is often combatted by popular politics, which is key to break this third mechanism. It is important! In Argentina, for example, the two other enforcement mechanisms had already been broken down in 2001: both financial markets and the IMF had already been pushing for a restructuring of the debt. They knew they wouldn’t be able to pay back, the banks had already wrote-off their losses, and of course it was important to keep Argentina in the debt-game rather than pushing so hard they would completely break with debt-ties. For a moment, the only reason why Argentina was loyal to repaying its (overwhelming) debt was because of internal elites being stubborn. Eventually, though, their power was broken by popular politics, and Argentina could (finally) default.
About 1/3rd of the book is on the history and theory of sovereign debt and default, which might be less relevant for most people. If you’re interested in knowing everything about one of the three case-studies, I absolutely recommend this. Political economy in top-shape, balancing between the coercions and structures of the market, outlining its influence on political struggle. Especially Mexican and Greek case-studies were fascinating. If you want to know how an internally divided, but mostly left-wing Mexican government headed by Mitterand-lovers tried – in vain – to battle the financial markets (even nationalising the banking sector at some point!), read it! If you want to know every little detail of the Greek tragedy, how the Troika was internally divided, why the Eurozone often pushed draconic austerity despite the IMF actually opposing the (in their eyes impossible and ineffective) policies, read it!
Jerome Roos outlines some main characteristics why governments do so. Beginning with a long history of political debt, he eventually analyses the option to default in the age of neoliberalism by looking at three case-studies: Mexico in the 80s, Argentina in the early 00s, and, of course, Greece. From a structural analysis (using Poulantzas) of finance’s power in contemporary capitalism, he gives three mechanisms that enforces countries to repay.
First, market coercion: if you don’t pay back, you won’t get a second loan. Market coercion also includes spillover costs in the economy. If financial markets don’t trust your debt, they won’t trust your currency either. Market coercion is the bedrock of the struggle, but how this unfolds in reality is mediated by two additional mechanisms.
Second, the political unity of the creditors. If the creditors manage to politically unite and go to the defaulting debtor as one bloc, market coercion will have a political flex that is hard to ignore. According to Roos, this is why most countries, despite market coercion, were able to default in the 1930s: as hegemony was passing from the UK to the US, no central organisation was able to organise market coercion politically. After 1945, the IMF would take over this organising role.
Third, domestic elites internalising market coercion. On this level, domestic politics are key, and do make a difference for overturning an austerity plan. The domestic hawkish elites always had a strategy to encapsulate themselves within the state, often at the head of the central bank. From there, they make sure their country will obey. However, their power is often combatted by popular politics, which is key to break this third mechanism. It is important! In Argentina, for example, the two other enforcement mechanisms had already been broken down in 2001: both financial markets and the IMF had already been pushing for a restructuring of the debt. They knew they wouldn’t be able to pay back, the banks had already wrote-off their losses, and of course it was important to keep Argentina in the debt-game rather than pushing so hard they would completely break with debt-ties. For a moment, the only reason why Argentina was loyal to repaying its (overwhelming) debt was because of internal elites being stubborn. Eventually, though, their power was broken by popular politics, and Argentina could (finally) default.
About 1/3rd of the book is on the history and theory of sovereign debt and default, which might be less relevant for most people. If you’re interested in knowing everything about one of the three case-studies, I absolutely recommend this. Political economy in top-shape, balancing between the coercions and structures of the market, outlining its influence on political struggle. Especially Mexican and Greek case-studies were fascinating. If you want to know how an internally divided, but mostly left-wing Mexican government headed by Mitterand-lovers tried – in vain – to battle the financial markets (even nationalising the banking sector at some point!), read it! If you want to know every little detail of the Greek tragedy, how the Troika was internally divided, why the Eurozone often pushed draconic austerity despite the IMF actually opposing the (in their eyes impossible and ineffective) policies, read it!
November 27, 2022
I picked this up because I wanted to understand the EU debt crisis better. I was slightly disappointed (in the beginning) to find that it was about debt in general, but decided to give it a read anyway because I figured it was better than nothing. I'm an avid reader and often read 2-3 books at a time, and this one was kind of on the backburner as I read it very, very slowly. It wasn't until about 2/3 into the book that I realized the point the author was trying to make, and once I caught it I became very interested.
I actually applaud the author for remaining "neutral" throughout most of the book without drawing too many political conclusions and instead just sticking to a historical presentation of the facts. This made his ultimate argument and proposal at the end of the book all the more compelling.
In the end I was pleasantly surprised with this one, and it has resulted in me adding a few new books to my list, starting with the Varoufakis memoir cited in the book. It really is a fascinating time to be alive right now, fascinating and scary I suppose. To understand it is both interesting, and IMO necessary in order to know where we're going.
I actually applaud the author for remaining "neutral" throughout most of the book without drawing too many political conclusions and instead just sticking to a historical presentation of the facts. This made his ultimate argument and proposal at the end of the book all the more compelling.
In the end I was pleasantly surprised with this one, and it has resulted in me adding a few new books to my list, starting with the Varoufakis memoir cited in the book. It really is a fascinating time to be alive right now, fascinating and scary I suppose. To understand it is both interesting, and IMO necessary in order to know where we're going.
February 25, 2025
This political economy book addresses the question of how financial and political mechanisms make modern governments so committed to serve their external debt, even at the expense of imposing harsh austerity measures.
I appreciated the straightforward structure of the book. The first third outlines the theory and history of sovereign debt, introducing three enforcement mechanisms that keep the sovereigns committed to their debt service and prevent unilateral default. This theoretical framework is then explored extensively through three case studies of modern sovereign debt crises in Mexico, Argentina, and Greece. Although the case study on Greece receives the most attention, I personally found it the most interesting, as it provides a good overview what a modern-day debt crisis in the euro area might look like.
I shall return to the individual crisis chapters whenever I need a quick overview of the events. I would recommend this book for anyone interested in the history and politics of sovereign debt crises, provided they have a basic understanding of the financial terms and mechanisms. Other than that, the book is not too technical and is accessible to a general reader.
I appreciated the straightforward structure of the book. The first third outlines the theory and history of sovereign debt, introducing three enforcement mechanisms that keep the sovereigns committed to their debt service and prevent unilateral default. This theoretical framework is then explored extensively through three case studies of modern sovereign debt crises in Mexico, Argentina, and Greece. Although the case study on Greece receives the most attention, I personally found it the most interesting, as it provides a good overview what a modern-day debt crisis in the euro area might look like.
I shall return to the individual crisis chapters whenever I need a quick overview of the events. I would recommend this book for anyone interested in the history and politics of sovereign debt crises, provided they have a basic understanding of the financial terms and mechanisms. Other than that, the book is not too technical and is accessible to a general reader.
June 26, 2025
It was totally good and the history is beyond interesting. I just don't know that I was blown away by the research question or its answer: Why don't sovereign states default more? You might think it's because of these economic and political (both domestic and international) influences but actually it's because of THESE economic and political (both domestic and international) influences. Like, I wasn't that blown away that states don't default at the beginning so I feel like I wasn't blown away by the conclusion.
December 19, 2020
Excellent qualitative approach to the problem of sovereign debt, with a large part of the book dedicated to three major crises ; Mexico 1980s, Argentina 2000s, Greece 2010-15.
Although the book tackles mainly the issue of external debt, some of the mechanisms identified can be applied to internal indebtness.
Although the book tackles mainly the issue of external debt, some of the mechanisms identified can be applied to internal indebtness.
May 25, 2021
Can't believe this is me now
Read
November 13, 2021Read this for a class but was very surprised about how interesting it got! The history of sovereign debt is an integral part of the answer to power dynamics in world politics.
February 19, 2025
Fascinating historical detail, interesting political economy framing, embarrassingly weak economic/fiscal analysis, frustratingly prejudicial language
May 28, 2025
A triumph and surprisingly readable. Long live comparative-historical analysis!!
Displaying 1 - 18 of 18 reviews