European Countries Have Defaulted 73 Times Since 1800

The Business Insider ^ | 4-30-2010 | Christopher Pavese, CFA

[blam]

European Countries Have Defaulted 73 Times Since 1800

Christopher Pavese, CFA, The View From the Blue Ridge
Apr. 30, 2010, 9:15 AM
(This is a guest post from Broyhill Asset Management.)

As we discussed in our Q4-09 Broyhill Letter, it appears that the EU’s initial plan of action (see illustration below) was not exactly a robust plan after all. At the time, we suggested that Mr. Almunnia consult his history books, when he claimed that “There is no bailout problem. In the euro area, default does not exist.” Actually, European nations have defaulted on their debt a stunning 73 times since 1800, with Greece in default more than 50% of the time!

It appears that we will soon add a few more defaults to that running total. PIMCO CEO, Mohamed El-Erian, summed up the bottom line as simple yet consequential, “The Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and what started out as a Greek issue has become a full-blown crisis for Europe.”

Plainly, we agree. In addition to our year-end letter, we shared our thoughts on Europe’s struggles here, here, here and here. We’d also recommend investors take a look at the Economist’s interactive guide to Europe’s economic woes, The PIIGS That Won’t Fly. With interest rates exploding higher and excessive fiscal spending likely to be reined in, the currency appears to be the only release valve. According to the Economist’s most recent “Burger Index,” the Euro still has a ways to go before reaching fair value on a purchasing-power-parity basis. Given the prospects for an extended deflationary period ahead, we think the odds of a downside overshoot are

[snip]

[HIDEK6]

Is this the same Europe that we are looking to for an example on how to run a society?

[GeronL]

And what happens if this pulls all of Europe into the same hole that Greece is falling into?? WIll the US be there for them and get pulled in too?

[agere_contra]

Since 1800? What a strange horizon.

Political instability and being on the losing side of major wars would explain most of the defaults. 1800 to 2000 is a timescale that includes the overthrow of Napoleon, the end of the Ottoman Empire, the creation of a political entity called ‘Germany’ - and the export of the very concept of sovereign debt from Britain (who got it from the Dutch)

This is just another way of saying that there were more rich countries capable of amassing sovereign debt on the European mainland in those two centuries than anywhere else.

Rather more useful would be the picture since 1945. The debt problems would still be heavily euro-centric, but the comparison would be less farcical.

[blam]

Greece Armageddon, Financial Ebola Sweeps Through Global Bond Markets