Thesis advisor: David A. Deese / For centuries, debt has been an important financing vehicle for governments around the world, and ever since the liberalization of cross-border capital movement that started in the US in 1974 and spread quickly through the rest of the West in the second half of the 1970s, states have been borrowing billions of dollars in the international private capital market. All governments are not willing or able to pay their debts at all times, however, and when they are not, a sovereign debt crisis is born. Unlike domestic bankruptcy proceedings, there is no standard default resolution mechanism in sovereign debt, leaving the debt restructuring process ad-hoc, highly unpredictable, and extremely susceptible to political influence. This dissertation studies the behavior of creditor governments---the home governments of private creditors who have lent to foreign states---during such crises and how they step in to intervene in the process of crisis resolution and sovereign debt restructuring. It turns out that creditor government intervention can vary greatly from case to case, and it varies mainly in two dimensions: whether the creditor government compels the debtor state to repay debt (and, in order to do so, commit to structural economic reforms and fiscal austerity), and whether the creditor government uses its own public funds to provide temporary but immediate financial relief to the distressed debtor (known as a “bail-out”). This dissertation argues that the variation in creditor government behavior can best be explained by two factors in the creditor country: the interest of finance and public sentiment against foreign bailout. Strong, concentrated interests of big players in finance causes the creditor government to demand full debt repayment from and impose austerity demands on the debtor. Strong public opposition to foreign bailouts, driven by ongoing economic recessions in the creditor country itself, constrains the creditor government’s ability to tap into public funds to provide bilateral finance. This dissertation tests the theory using a mixed-methods research design, exploiting both quantitative and qualitative data to test three hypotheses proposed in support of the theory. It presents an original data set that comprises over 700 observations of creditor government intervention from 1981 to 2016, and uses structured comparisons of study cases to uncover causal mechanisms between the interest of finance, public sentiment, and creditor government behavior. / Thesis (PhD) — Boston College, 2023. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Political Science.

The recent financial crisis and subsequent sovereign debt distress in the eurozone has reinvigorated the debate over bailouts and sovereign debt restructuring. This paper analyzes the effectiveness of two approaches to debt management in addressing the practical challenges of debt workouts, particularly in relation to developing countries: a contractual approach and a sovereign bankruptcy approach. The paper uses an economic analysis of private law to analyze optimal solutions to those problems and proposes a flexible approach to debt restructuring. Drawing on theoretical research and experience from professionals in the technical aspects of the debt markets, the paper merges traditional solutions with the law and development concept of “odious debt”. It argues that potential legal elaborations of the concept of odious debt, shaped by a contractual approach, presents loan sanctions as an effective ex ante solution to contemporary problems of sovereign debt management a current climate of global sovereign debt distress.

The recent financial crisis and subsequent sovereign debt distress in the eurozone has reinvigorated the debate over bailouts and sovereign debt restructuring. This paper analyzes the effectiveness of two approaches to debt management in addressing the practical challenges of debt workouts, particularly in relation to developing countries: a contractual approach and a sovereign bankruptcy approach. The paper uses an economic analysis of private law to analyze optimal solutions to those problems and proposes a flexible approach to debt restructuring. Drawing on theoretical research and experience from professionals in the technical aspects of the debt markets, the paper merges traditional solutions with the law and development concept of “odious debt”. It argues that potential legal elaborations of the concept of odious debt, shaped by a contractual approach, presents loan sanctions as an effective ex ante solution to contemporary problems of sovereign debt management a current climate of global sovereign debt distress.

In the past decades, financial crises have recast the spotlight on sovereign debt restructuring (SoDR). Despite decades of discussion on how to reform SoDR, it still raises complex legal tensions. Among these tensions is the current lack of a mechanism to administer SoDR and the fact that the current SoDR regime is fragmented and leads to suboptimal and unfair results. This thesis critically assesses these tensions, with a focus on the international reform of the restructuring of privately held sovereign bonds. In making its contribution to the discourse on SoDR, this study seeks to bridge the gap between the legal and policy debates on SoDR. The novelty of the approach in this study is that it aims to add an African perspective to the international literature on the procedural, normative and conceptual reform of SoDR. Towards this end, the question of how to reform the SoDR landscape is addressed within the framework of a developmental and a human rights approach. This paradigm through which SoDR should also be viewed has only begun to feature in the literature recently and thus requires further evaluation. This study assesses the historical evolution of SoDR, the current challenges in the contemporary era of SoDR and evaluates the corresponding proposals for reform. While acknowledging the role that the contractual approach (the primary mechanism for SoDR) has already played in the current landscape, this study argues that this approach alone is not sufficient to ensure fair, transparent and prompt restructuring. The study consequently assesses the policy debate on viable options for reform. / Thesis (LLD)--University of Pretoria, 2020. / Centre for Human Rights / LLD / Unrestricted

Thesis advisor: Fabio Schiantarelli / In the aftermath of the Great Recession of 2007-2009, Europe has been grappling with both a debt and a banking crisis, which caused a prolonged recession and on-going stagnation in some countries of the Eurozone. The distinctive feature of the European crisis, compared to the global recession that originated in the United States, is that it emerged as sovereign debt crisis and later evolved into a banking crisis, finally affecting the real economy. The banking and sovereign crises are heavily intertwined because of the interplay between banks and sovereigns in Europe. In fact, the so-called bank-sovereign nexus works both ways: not only banks hold large amounts of sovereign debt, especially from the domestic government, but also European governments retain a significant presence in the domestic banks' ownership. The adverse feedback loop is reinforced during a sovereign debt crisis, as banks' losses from sovereign debt further exacerbate the strain on the domestic sovereign in expectation of a future bail-out. The overall goal of this dissertation is to have a better understanding of the interplay between sovereign, banks and capital regulation. In my first and second chapter, I analyze the two-way feedback loop between banks and sovereigns in Europe. In particular, in the first chapter, I show that banks' sovereign debt exposures had a negative effect on credit supply during the crisis. In the second chapter I explore the role that politics may play in determining banks' exposure to sovereign debt. Finally, the third chapter investigates the effect of changing bank capital requirements for the firms that borrow from the affected banks. / Thesis (PhD) — Boston College, 2015. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

The thesis analyses the moral hazard problem which arises in political or fiscal federations when member states anticipate being bailed out by the centre in case of financial distress. In particular, I examine whether an orderly default mechanism or deeper fiscal integration within the European Union can alleviate the soft budget constraint phenomenon and provide a solution to the sovereign debt crises engulfing the Eurozone and other parts of the world. The first essay adapts the standard Stackelberg approach of the bailout literature in order to study the effects of bankruptcy procedures on regional opportunistic behaviour. The insolvency mechanism is shaped by two parameters: the costs of default and the exemption level for public assets. The model lends support to the market discipline hypothesis if all public assets are exempt from seizure. If, by contrast, the exemption level for public assets is low, it is the central government rather than the credit market that discourages overborrowing since the former is incentivised to tax heavily indebted regions. The model's major policy insight is that an insolvency mechanism can lower the federation's welfare if it is not carefully designed. The second essay sheds light on the incentive effects of the sovereign debt restructuring mechanism which has been drafted by the Eurozone in response to the debt crisis. Employing a global game approach, the model analyses the impact of insolvency procedures on the size of the bailout, the level of effort exerted by the debtor country and EU welfare. Challenging some arguments in the policy literature, the model's major policy implication is that a half-hearted debt restructuring mechanism fails to mitigate the commitment and moral hazard problems embedded in the current EMU framework. The third essay questions the conventional wisdom that the Euro cannot survive without closer integration, using a simple political economy framework. The model compares the stability and welfare implications of the current "muddling through" scenario, an orderly default mechanism as well as a fiscal and a political union setting. Interestingly, the results suggest that the "muddling through" scenario is not more prone to break-up than the political or the fiscal union. The model's major policy recommendation is that implementing an orderly default mechanism and inserting an explicit exit clause into the European Treaties might prove more effective in preventing a Eurozone break-up than far-reaching institutional reforms.

This paper investigates the determinants of sovereign debt crises by using cross-country data from 1977 to 2010. In particular, I focus on the structure of sovereign debt by analysing the debt composition (domestic versus external), maturity structure (short-term versus long-term), composition type (bank loans versus bond) and currency denomination (domestic currency versus foreign currency) of debts. I also assess whether the previous history of banking and currency crises affect the likelihood of a sovereign debt crisis. The results suggest that both the structures of debt and the past history of other financial crises are important determinants of debt crises. The results are robust when using alternative measures to understand the risks of sovereign debt. I also investigate the impacts of debt structure and past financial crises history on the levels and changes of foreign and local currency long-term debt credit ratings.

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This study investigates the effect of the European sovereign debt crisis on alternative capital sources of public companies from France, Germany, Switzerland and the United Kingdom. Specifically, it studies which financing choices expose a company to potential bank lending and demand shocks during the Euro crisis. To this end, the study employs average treatment effect estimations and difference-in-differences regressions to show whether financially more (less) constrained companies use more (less) alternative capital than matching control companies. I find that two of three financially more constrained company groups show higher use of alternative capital sources than matched companies due to evidence for bank lending shocks in Germany and France. Companies with a high financial dependence behave against the expectation because of high cash holdings and lower need for alternative capital. Companies with high cash holdings showed signs of a demand shock. Swiss and British companies appear to be much less affected by the Euro crisis because of weaker financial ties with the most affected southern Eurozone economies.

The concept of asymmetric information is probably best described by medieval idiom to buy a pig in a poke or to buy a cat in a sack, and is a long standing issue in a market economy. A solution to this predicament, is thought to be an objective third party certifier who would provide true information for the market participants. Credit Rating Agencies (CRAs) by all definitions act as such certifiers within financial markets and have been on the public spotlight for the last years. In both cases, the US subprime mortgage crisis and the EU sovereign debt crisis, the agencies were charged for miss-information on quality of financial products, that led to financial losses for the investors or debtors. Theoretical deduction suggest that certain market reaction to CRA announcements may indicate  if markets perceive CRAs themselves as selling a cat in a sack to the investors. Event study approach is employed to investigate how do sovereign debt market react to CRA announcements. The results suggest that sovereign debt market reaction is more pronounced if three major CRAs issue clustered announcements, and more actively react to following announcements as opposed to the leading ones.