The Formation of Sovereign Debt. Diagnosis and Remedy
101 Pages Posted: 23 Oct 2014 Last revised: 15 Sep 2015
Date Written: October 23, 2014
Although the sovereign debt crisis is worldwide considered as a main disorder affecting indebted countries’ economic recovery, its analysis is still incomplete and has so far failed to provide a satisfactory explanation of its origin and of the way it can be successfully addressed. The aim of this paper is to propose a new analysis of this phenomenon, based on monetary macroeconomics and capable of grasping the nature of a pathology that is a major cause of the present economic crisis. In particular, the paper shows that countries’ external debts are twice as high as they should be because of a pathological mechanism, which doubles the debt incurred by any country that is forced to finance through a foreign loan its overall net foreign purchases or (commercial and financial) imports. Part I is entirely devoted to the analysis of this duplication and to its statistical confirmation, while Part II presents principles and steps for a reform that could be implemented by any one country and that, by preventing the double charge of its external debt, would allow its government to obtain a substantial gain to be invested in the reduction of unemployment.
Keywords: Sovereign debt crisis, external debt, balance of payments deficit, system of international payments, reform of the system of external payments, duplication, unemployment, banks
JEL Classification: F32, F33, F34, E24, E58, G21
Suggested Citation: Suggested Citation