Champions Of Default

When I started this blog back in June of 2011, we were in the midst of what I would call a "hysteria about default". From the top EU echelons down, the impression was broadcast that a sovereign default was the end of the world and had to be avoided at all cost. In fact, it was exactly the fear of Greece's default which lead to the unfortunate first financing package for Greece in May 2010.

Having been through two sovereign defaults during my banking career, I failed to understand the hysteria. It was a relief to hear the Chief Economist of Citibank say that the major problem was "that the Europeans did not understand that a sovereign default was quite a normal thing" and that there had been dozens of sovereign defaults in prior decades. That assured me that I was not totally wrong with my opinion.

Against the above background, I am now quite pleased to finally have statistical evidence about the frequency of sovereign defaults. The graph below shows sovereign defaults since the year 1800. Greece is not alone with 7 defaults; my home country Austria is right up there with Greece, also with 7 defaults. Spain, Russia, Germany and Portugal follow right behind.

But most important is the recent past. Since 1975, there have been almost 50 sovereign defaults. Each sovereign default was handled 'the normal way': existing creditors restructured their maturities by extending them and lowering the interest rate; official lenders provided the Fresh Money; and the IMF put together a program which was the basis for the agreement of all creditors.

Only Greece was different. Here, the EU elites felt that they didn't need to learn from professionals with previous experience. Instead, they assured themselves that the EU was different and required a different solution. The end result was that, today, European tax payers carry the risk which was previously carried by private creditors. Great showing!