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You are misreading the comment while making untrue economic and policy comments. "They can unilaterally declare their debt to be in their new currencies, if th
by antr 15y ago
You are misreading the comment while making untrue economic and policy comments.
"They can unilaterally declare their debt to be in their new currencies, if they separate." is juts a wrong statement. How is sovereign debt different from corporate debt? Do you have an example?
Example: If Italy goes back to the Lira, the face value of Italian debt that the U.S. Government holds, in dollar terms, will not change, even if that debt is changed to Lira, IT IS NOT re-valued to a price the Italian Govt. sees fit. Should a devaluation of the debt occur, the U.S. would have to write-off billions from its balance sheet (assuming a devaluation of the Lira occurs, which is most certain).
If each country does this, billions will have to be written off, there isn't such thing as "Sovereigns do not play by the same rules as the rest of us.". I suggest you read any debt offering memorandum from any European Government or even the U.S. Government, all terms, clauses, reps/warranties are clearly explained and detailed.
- barrkel 15y agoSovereigns are exactly that: sovereign. They create the law. What court do you think you're going to take a country to when they default on a bond? Which court is going to force them to pay? And under which set of laws? Sovereigns can rewrite the law to change the terms of these contracts. What they can't control is how (allegedly independent) third-party ratings agencies rate their bonds, and declare whether a credit event has occurred or not (triggering insurance etc).
- antr 15y agoyou missed the whole first point. Anyways, i'm happy you are happy with your answer.
- barrkel 15y agoWhat first point? How sovereign debt is different from corporate debt? Because it is different, and I explained why. It's commonly mentioned in articles on sovereign debt. Single example: http://blogs.reuters.com/felix-salmon/2011/11/20/cds-conspiracy-theory-du-jour-gretchen-morgenson-edition/ http://blogs.reuters.com/felix-salmon/2011/11/20/cds-conspir... "Everybody knows that Greece can and should take some kind of tactical advantage of the fact that most of its debt has been issued under Greek domestic law."
- yxhuvud 15y agoMost of the debt Italy has taken has been taken under Italian laws. The Italian government can rewrite those laws at will. Sovereigns define their own laws as they see fit - that is the meaning of being sovereign. Sovereigns entering obligations under laws not their own is a totally different thing though, and cannot be changed this simple though. As to how the US would react in such a hypothetical scenario, they'd probably send diplomats to Italy to try to bend some arms and influence the terms to be better for them, but it is the Italian government that is the bookkeeper for deals made under their own laws.