Public borrowing in harsh times: The Leagues of Nations loans revisited
AbstractThis paper reassesses the importance of the League of Nations loans of the 1920s. These long-term loans were an essential part of the League’s strategy to restore the productive basis of countries in Central and Eastern Europe. Whereas the literature is not conclusive as to the final result of this experience, we argue that the League Loans were successful because they accomplished the task for which they were conceived – namely, to allow countries in financial distress to access capital markets. This success rested on the sustained efforts of the League of Nations to gather support from creditor countries’ governments and financial intermediaries, as well as its efforts to develop plans for economic reform for borrowing countries. We provide quantitative and qualitative evidence to show that the League provided market access in a difficult and hostile environment, and did so by building its own reputation as an actor that provided a credible commitment to economic and institutional reforms. Through the success of the placement of the initial issues, the League became capable of influencing borrowing costs, even if they continued to be predominately determined by the secondary market and remained high as a result of the risk involved. Much of the confusion in the literature is explained by the fact that the League lacked its own capital, which impeded its ability to act as a lender of last resort once the great depression hit Europe.
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Bibliographic InfoPaper provided by Département des Sciences Économiques, Université de Genève in its series Research Papers by the Department of Economics, University of Geneva with number 12091.
Length: 38 pages
Date of creation: Sep 2012
Date of revision:
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League Loans; Great Depression; capital markets; underwriting;
Other versions of this item:
- Yann Decorzant & Juan-Huitzi Flores, 2012. "Public borrowing in harsh times : the League of Nations Loans revisited," Working Papers in Economic History wp12-07, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
- G01 - Financial Economics - - General - - - Financial Crises
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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