Sovereign Defaults and How to Handle Them. Global Economic Order vs. National Economic Policy Interests on the Examples of Greece, Hungary and Ukraine

Bethlendi, András (2018) Sovereign Defaults and How to Handle Them. Global Economic Order vs. National Economic Policy Interests on the Examples of Greece, Hungary and Ukraine. POLGÁRI SZEMLE: GAZDASÁGI ÉS TÁRSADALMI FOLYÓIRAT, 14 (Spec.). pp. 93-113. ISSN 1786-6553

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Abstract

This study shows that since the Keynes-White dispute in the middle of the 20th century, the global economic policy thinking is clearly determined by White’s views up until today. In the global monetary system, debt restructuring solutions are subordinated to the global economic order, and not to national economy policies, as shown by the recent examples of Greece, Hungary and Ukraine. According to this thinking, basically the debtor is held liable for imbalance and over-indebtedness. Obviously, the system cannot solve balance of payments problems between countries and the ensuing debt crises. The free movement of goods and capital is given an absolute priority. We show that out of the elements of the Keynesian system, only the introduction of creditor’s liability as an instrument and the establishment of some sort of a supranational debt restructuring forum were proposed as a comprehensive solution after the 2008 crisis, besides some small-scale technical suggestions (e.g. the CAC). The reform proposals have not brought about any significant change in the management of sovereign defaults. In the euro area, after the 2010 sovereign crisis, the emphasis was laid on establishing the institutional background for the short-term financing of countries in debt crisis, rather than on genuine institutional reform of debt restructurings. And even in the worst of the crisis, the indebted countries are asked to implement more fiscal constraints and privatisation programmes as a prerequisite for further financing. Large international banks and investors and their home countries have no interest in institutional reforms: sovereign default remains a slow process with uncertain outcomes and even enormous costs. In our opinion, the institutional system of sovereign debt crisis management can only be reformed by the massive support of already existing international organisations. It would be a big step forward if IMF/EU abandoned their previous practice of protecting private investors and provided better safeguards for the interest of indebted countries and/or their own taxpayers.

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