Different lessons For Europe from American financial history-a counterpoint to Mr. Gaspar

Sovereign debt restructuring played a key role in placing the US federal government on a sound financial footing under its new Constitution in 1789. State governments in the US, like national governments in the euro area, do not have bankruptcy protection. US state governments have not defaulted sin...

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Bibliographic Details
Published inJournal of European Integration Vol. 38; no. 7; pp. 823 - 836
Main Author Kincaid, G. Russell
Format Journal Article
LanguageEnglish
Published Abingdon Routledge 09.11.2016
Taylor & Francis Ltd
Subjects
Bankruptcy
Central government
Debt management
Economic crisis
Euro crisis
Federal government
financial markets
Markets
Moral hazard
National debt
Public debt
Public finance
Risk
sovereign debt
States
United States
United States > US
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Summary:Sovereign debt restructuring played a key role in placing the US federal government on a sound financial footing under its new Constitution in 1789. State governments in the US, like national governments in the euro area, do not have bankruptcy protection. US state governments have not defaulted since the Great Depression, owing to a credible no-bailout policy by the federal government coupled with fiscal rules and an effective signalling of default risk by private markets. At the municipal level in the US, bankruptcy protections apply and recent default experience is very low. With permanent sovereign bailout mechanisms in place in the euro area, sovereign bankruptcy provisions might lessen officially induced moral hazard, allowing market discipline to function more effectively with respect to euro area countries than previously.
ISSN:0703-6337
1477-2280
DOI:10.1080/07036337.2016.1226300