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Eurobonds past and present: a comparative review on debt mutualization in Europe

Esteves, RP; Tuncer, AC; (2016) Eurobonds past and present: a comparative review on debt mutualization in Europe. Review of Law & Economics , 12 (3) pp. 659-688. 10.1515/rle-2016-0047. Green open access

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Abstract

This paper reviews the economic and historical literature on debt mutualization in Europe with reference to pre-1914 guaranteed bonds and current Eurobonds debate. We emphasize that, notwithstanding the differences in scale and nature, debt mutualization solutions similar to Eurobonds were tried before, and the closest historical examples to the present debate are the pre-1914 guaranteed bonds. We highlight three key characteristics of debt mutualization, which are apparent both in the current debate and in history: moral hazard, debt dilution and conditionality. We show that the fears about short-run dilution and moral hazard were not unknown to pre-1914 market participants. These problems were partly addressed by mechanisms of conditionality such as international financial control. The historical evidence suggests that the dilution of outstanding obligations may be overplayed in the current debate. On the contrary, creditors’ moral hazard (ignored in current debt mutualization proposals) was as problematic as the usual debtor’s moral hazard –especially when the groups of countries guaranteeing the bonds and the creditor nations did not overlap entirely.

Type: Article
Title: Eurobonds past and present: a comparative review on debt mutualization in Europe
Open access status: An open access version is available from UCL Discovery
DOI: 10.1515/rle-2016-0047
Publisher version: https://doi.org/10.1515/rle-2016-0047
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: debt mutualization, debt dilution, moral hazard, conditionality, pre-1914
UCL classification: UCL
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/1495998
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