Abstract
Experience shows that in every debt crisis, responsibility is shared between the debtor and the creditor. If responsibilities are shared, it is natural to think that when a crisis occurs, the solution should come from efforts shared by both parties in the contract. In the three cases analyzed in this book—the Argentine crisis, the American financial crisis, and the European economic malaise—a common feature has been a huge misjudgment by investors regarding the risks actually involved. However, important actors in the financial world have responsibility in this misjudgment. Therefore, a key issue for the future is how to protect investors from risk misjudgment. It is argued that regulation should restrict the type of products that financial institutions can offer to the public. Special attention should be placed on those risks capable of damaging the financial system as a whole. Moreover, the health of the banking system is also a critical issue in assessing the prospective of a country’s public debt, as the cases of Ireland, Iceland, and Spain show. Finally, a revision of economic research programs is encouraged. Economic illness rather than economic health should be the main object of economists’ efforts.
Serial default on external debt—that is, repeated sovereign default—is the norm throughout every region in the world, even including Asia and Europe
(Reinhart and Rogoff 2008, p. 5)
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Notes
- 1.
“The IMF yielded to external political and market pressures to continue providing its support despite serious concerns over fiscal and external sustainability” (IMF 2003, 72).
- 2.
In May 2011, the European Securities and Markets Authority (ESMA) was assigned the registration and supervision of credit rating agencies in the union.
- 3.
Farhi and Tirole (2009, 22) state under which assumptions this is the optimal behavior for banks.
- 4.
Greece manipulated data to become a member of the Eurozone and concealed the real amount of its public deficit for years until 2009.
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Beker, V.A. (2016). Open Problems and Conclusions. In: Modern Financial Crises. Financial and Monetary Policy Studies, vol 42. Springer, Cham. https://doi.org/10.1007/978-3-319-20991-3_12
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