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Feeling the blues: moral hazard and debt dilution in Eurobonds before 1914

Esteves, RP; Tunçer, AC; (2016) Feeling the blues: moral hazard and debt dilution in Eurobonds before 1914. Journal of International Money and Finance , 65 pp. 46-68. 10.1016/j.jimonfin.2016.03.004. Green open access

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Abstract

Debt mutualisation through Eurobonds has been proposed as a solution to the Euro crisis. Although this proposal found some support, it also attracted strong criticisms as it risks raising the spreads for strong countries, diluting legacy debt and promoting moral hazard by weak countries. Because Eurobonds are a new addition to the policy toolkit, there are many untested hypotheses in the literature about the counterfactual behaviour of markets and sovereigns. This paper offers some tests of the issues by drawing from the closest historical parallel–five guaranteed bonds issued in Europe between 1833 and 1913. The empirical evidence suggests that contemporary concerns about fiscal transfers and debt dilution may be overblown, whilst creditors' moral hazard may be as much of a problem as debtors'.

Type: Article
Title: Feeling the blues: moral hazard and debt dilution in Eurobonds before 1914
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jimonfin.2016.03.004
Publisher version: http://dx.doi.org/10.1016/j.jimonfin.2016.03.004
Language: English
Additional information: Copyright © 2016. This manuscript version is published under a Creative Commons Attribution Non-commercial Non-derivative 4.0 International licence (CC BY-NC-ND 4.0). This licence allows you to share, copy, distribute and transmit the work for personal and non-commercial use providing author and publisher attribution is clearly stated. Further details about CC BY licences are available at http://creativecommons.org/licenses/by/4.0.
Keywords: Eurobonds; Debt Mutualisation; Debt Dilution; Moral Hazard; Pre-1913
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of History
URI: https://discovery.ucl.ac.uk/id/eprint/1477186
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