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Public borrowing in harsh times : the League of Nations Loans revisited

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  • Decorzant, Yann
  • Flores, Juan-Huitzi

Abstract

This 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.

Suggested Citation

  • Decorzant, Yann & Flores, Juan-Huitzi, 2012. "Public borrowing in harsh times : the League of Nations Loans revisited," IFCS - Working Papers in Economic History.WH wp12-07, Universidad Carlos III de Madrid. Instituto Figuerola.
  • Handle: RePEc:cte:whrepe:wp12-07
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    References listed on IDEAS

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    1. Broadberry,Stephen & O'Rourke,Kevin H., 2010. "The Cambridge Economic History of Modern Europe," Cambridge Books, Cambridge University Press, number 9780521708395, November.
    2. Kindleberger, Charles P., 1993. "A Financial History of Western Europe," OUP Catalogue, Oxford University Press, edition 2, number 9780195077384.
    3. Flores, Juan H., 2011. "Information asymmetries and conflict of interest during the Baring crisis, 1880–1890," Financial History Review, Cambridge University Press, vol. 18(02), pages 191-215, August.
    4. Oosterlinck, Kim & Ureche-Rangau, Loredana, 2012. "Interwar Romanian sovereign bonds: the impact of diplomacy, politics and the economy," Financial History Review, Cambridge University Press, vol. 19(02), pages 219-244, August.
    5. Flandreau, Marc & Flores, Juan H., 2009. "Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830," The Journal of Economic History, Cambridge University Press, vol. 69(03), pages 646-684, September.
    6. Marc Flandreau & Norbert Gaillard & Ugo Panizza, 2009. "Conflicts of Interest, Reputation and the Interwar Debt Crisis: Banksters or Bad Luck?," IHEID Working Papers 02-2010, Economics Section, The Graduate Institute of International Studies, revised Feb 2010.
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    Cited by:

    1. Muriel Dal-Pont Legrand & Dominique Torre, 2014. "Pierre Quesnay (1897-1937) From the League of Nations to the Franc Poincaré: Financial Discipline and Monetary Pragmatism," Working Papers halshs-01237514, HAL.
    2. Eichengreen, Barry & Flandreau, Marc & Mehl, Arnaud & Chitu, Livia, 2017. "International Currencies Past, Present, and Future: Two Views from Economic History," OUP Catalogue, Oxford University Press, number 9780190659455.
    3. Matthias Morys, 2016. "Financial supervision to fight fiscal dominance? The gold standard in Greece and South-East Europe between economic and political objectives and fiscal reality, 1841-1939," Discussion Papers 16/05, Department of Economics, University of York.

    More about this item

    Keywords

    Capital markets;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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

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