Dallas Fed: Argentina Offers Lessons to Euro-Zone Countries Facing Sovereign Debt Crises
For immediate release: May 7, 2012
DALLAS—A look at Argentina’s economic history and sovereign debt defaults in 1983 and 2001 offers a lesson to European nations confronting a sovereign debt crisis, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.
“The once unthinkable scenario of a large-scale sovereign debt crisis in the (euro-zone) region is prompting a heated debate concerning the costs and benefits of different ways to reduce unsustainable levels of government indebtedness,” writes senior research economist and advisor Carlos E. J. M. Zarazaga in “Default and Lost Opportunities: A Message from Argentina for Euro-Zone Countries.”
As Argentina’s experience suggests, European nations contemplating a sovereign debt default should take into account the long-term costs of that solution—including the risk of decades of lost prosperity, according to Zarazaga.
“Investors’ desire to avoid countries prone to opportunistic default suggests that those episodes’ costs may take the form of lost opportunities that can go undetected when looking at the subsequent performance of output alone,” Zarazaga says.
Economic Letter can be found at: http://www.dallasfed.org/research/eclett/2012/el1204.cfm
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