I just uploaded the introduction to my PhD thesis on my academia.edu page — it can be read or downloaded here. A short extract:
Why do heavily indebted countries not default on their external debts more often? This question, which lies at the heart of a long-standing debate in the economics literature and touches upon some of the most important controversies in political science, has gained renewed relevance in light of the ongoing European debt crisis. Recent events have revealed how international lending is governed by a fundamental paradox: in the absence of a world government capable of enforcing cross-border debt contracts between sovereign borrowers and private foreign lenders, we would expect default to be a widespread phenomenon. Since repayment effectively constitutes a wealth transfer from the borrower to its lenders, a distressed debtor that spends more of its tax revenues on foreign debt servicing than it attracts in new loans has an inherent incentive to suspend payments. In fact, this is precisely how international debt crises were generally resolved in the nineteenth and early-twentieth centuries: through the imposition of unilateral moratoriums by the debtors. And yet such payment standstills are exceedingly rare today: recent decades have witnessed a generalized trend away from unilateral default as a prevalent policy response; a trend that holds important lessons about the asymmetric balance of power between debtors and creditors in the global political economy and the evolution of state-finance relations more generally.
This PhD thesis aims to contribute towards the development of a political economy approach to sovereign debt that can account for this generalized trend away from unilateral default. The main argument developed in these pages is relatively straightforward: over the past decades, the dual processes of globalization and financialization have greatly enhanced the disciplinary force of finance, providing international lenders with a form of structural power over heavily indebted peripheral states, revolving around their capacity to withhold the short-term credit lines on which these states depend for their own reproduction. While this “structural power hypothesis” is by no means original – as we will see, its roots go back to some of the foundational political science debates of the 1960s and 1970s – this research project hopes to contribute to the recent revival of scholarly interest in the structural power of finance by identifying the exact enforcement mechanisms through which this power operates and the precise conditions under which it is effective and under which it breaks down. Building on in-depth case studies of three of the most substantively important and theoretically interesting sovereign debt crises of the past decades – Mexico (1982-’89), Argentina (1999-’05) and Greece (2010-’15) – the thesis aims to shed a new light on cross-border contract enforcement in the global political economy, as well as the various ways in which contemporary forms of crisis management tend to favor the interests of private lenders over those of debtor countries, with far-reaching consequences for the distribution of the costs of adjustment and the quality of democracy. This introduction briefly presents the puzzle at the heart of the research project before outlining the main argument and providing an overview of of the rest of the thesis.
Read the full introduction here.