Capital Markets and Sovereign Defaults: A Historical Perspective

This paper provides a historical perspective on the relationship between capital markets and sovereign defaults. While the main body of the sovereign debt literature has rarely incorporated supply side factors, such as market distortions or conflicts of interest, we argue that the history of sovereign defaults cannot be understood without including the evolutionary structure of capital markets. The Southern European debt crises and the recent controversy surrounding the role of holdouts demonstrate that certain proposals raised in previous default episodes deserve further discussion, in particular, those aiming to deal with problems of collective action, liquidity provision, and information flaws.