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State dissolution, sovereign debt and default: Lessons from the UK and Ireland, 1920-1938

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  • Foley-Fisher, Nathan
  • McLaughlin, Eoin

Abstract

We study Ireland´s inheritance of debt following its secession from the United Kingdom at the beginning of the twentieth century. Exploiting structural differences in bonds guaranteed by the UK and Irish governments, we can identify perceived uncertainty about fiscal responsibility in the aftermath of the sovereign breakup. We document that Ireland´s default on intergovernmental payments was an important event. Although payments from the Irish government ceased, the UK government instructed its Treasury to continue making interest and principal repayments. As a result, the risk premium on the bonds the UK government had guaranteed fell to about zero. Our findings are consistent with persistent ambiguity about fiscal responsibility far-beyond sovereign breakup. We discuss the political and economic forces behind the Irish and UK governments´ decisions, and suggest lessons for modern-day states that are eyeing dissolution. "Further, in view of all the historical circumstances, it is not equitable that the Irish people should be obliged to pay away these moneys" - Eamon De Valera, 12 October 1932

Suggested Citation

  • Foley-Fisher, Nathan & McLaughlin, Eoin, 2014. "State dissolution, sovereign debt and default: Lessons from the UK and Ireland, 1920-1938," QUCEH Working Paper Series 14-06, Queen's University Belfast, Queen's University Centre for Economic History.
  • Handle: RePEc:zbw:qucehw:1406
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Who Will Get the Bill? Lessons from #EconHis on Scottish Independence #indyref
      by missiaia in NEP-HIS blog on 2014-09-15 18:54:30

    More about this item

    Keywords

    state dissolution; sovereign default; Irish land bonds; Dublin Stock Exchange;

    JEL classification:

    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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