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Sovereign debt: the assessment

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  • Christopher Bowdler
  • Rui Pedro Esteves
Abstract
This article serves as an introduction to two issues of the Oxford Review of Economic Policy , one entitled ‘Sovereign Debt: Understanding Bond Markets During the Eurozone Crisis’ and the second ‘Sovereign Debt: Lessons from the Past, Reforms for the Future’. We begin by documenting recent trends in advanced country sovereign indebtedness and reviewing events that preceded the sovereign debt crisis in the eurozone. The mechanisms through which rising sovereign debt may impact bond yields, economic growth, and inflation are discussed and the evidence for such effects is reviewed. Our discussion highlights that there is no unique threshold beyond which sovereign debt exerts adverse macroeconomic effects, and that in order to understand the consequences of a given debt load one must analyse its structure in terms of internal and external creditors, currency denomination, the time to maturity of the bonds, and the legal code governing debt issuance, as well as various economic and political constraints measuring the fiscal space of the sovereign. We then turn our attention to episodes in which sovereign debt proves excessive and default occurs. We review explanations for the protracted and inefficient nature of defaults and describe some lessons from historical studies examining default outcomes. In the final part of the paper we discuss proposals for averting future debt crises, including jointly issued bonds such as eurobonds, contingent convertible bonds, and elements of a Sovereign Debt Restructuring Mechanism. In the course of our discussion we draw on each of the 11 articles included in the two issues of this journal devoted to sovereign debt. Copyright 2013, Oxford University Press.

Suggested Citation

  • Christopher Bowdler & Rui Pedro Esteves, 2013. "Sovereign debt: the assessment," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 29(3), pages 463-477, AUTUMN.
    • Handle: RePEc:oup:oxford:v:29:y:2013:i:3:p:463-477
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    File URL: http://hdl.handle.net/10.1093/oxrep/grt037
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    Cited by:

    1. Roberto Tamborini & Matteo Tomaselli, 2020. "When does public debt impair economic growth? A literature review in search of a theory," DEM Working Papers 2020/7, Department of Economics and Management.
    2. Fusheng Xie & Lei Hang, 2022. "A Game-Theory-Based Interaction Mechanism between Central and Local Governments on Financing Model Selection in China," Sustainability, MDPI, vol. 14(16), pages 1-18, August.
    3. Atif Ansar & Bent Flyvbjerg & Alexander Budzier & Daniel Lunn, 2016. "Does infrastructure investment lead to economic growth or economic fragility? Evidence from China," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(3), pages 360-390.
    4. Yifan Yang & Hongda Liu, 2024. "Sustainable Media and Green Innovation: The Impact of Sustainable Atmosphere and Environmental Regulation on Manufacturing Enterprises," Sustainability, MDPI, vol. 16(8), pages 1-17, April.
    5. Enrique Alberola-Ila & Gong Cheng & Andrea Consiglio & Stavros A. Zenios, 2022. "Debt sustainability and monetary policy: the case of ECB asset purchases," BIS Working Papers 1034, Bank for International Settlements.
    6. António Afonso & Frederico Silva Leal, 2017. "Sovereign yield spreads in the EMU: crisis and structural determinants," Working Papers Department of Economics 2017/09, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    7. Giuliana Passamani & Roberto Tamborini & Matteo Tomaselli, 2014. "Sustainability vs. credibility of fiscal consolidation. A Principal Components test for the Euro Zone," DEM Discussion Papers 2014/09, Department of Economics and Management.

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