Time-Varying Returns on Sovereign Debt

Lessons from 16th century Spain – here.

23 replies on “Time-Varying Returns on Sovereign Debt”

Interesting history but did the system promote prudence? Philip II controlled a large part of Italy but not Genoa. However, he had some leverage on the bankers.

After the costly Armada fiasco, taxes had to be raised at a time of plague and a century later, a struggling Spain had to cede control of the western access to the Mediterranean, to the English.

As regards sovereign debt developments, in recent decades the biggest change was the fall in the average maturity of debt following the inflation shock of the 1970s.

So countries need to raise funds more often.

Typical average maturities are in the range of 5 to 8 years with the US on the low side and the UK in double-digits.


Nothing new indeed and what we have here is an Irish version of Salome’s Dance of the Seven Veils.

By Budget time, Noonan will have cash from the remains of the public pensions fund to announce some ‘eye-catching’ programs

Budget blather will run its course in time but what is the bigger worry is the fairytale world inhabited by ministers.

Gilmore said in Beijing this week that China is crucial to the Irish recovery – it accounts for €200m of indigenous exports from a total headline value of €177bn.

Also in the real world, the sale of Elan to a US drugs firm that makes private label products such as cold remedies for retail outlets including Wal-Mart, evoked not even a whimper from the comatose smart economy eco system, nor the Oireachtas. The new holding company will benefit the GNP figures!

Elan, Iona, Trintech, Cognotec, Baltimore, Riverdeep, Webworks Galway, MIT Lab, Tower of Babel and pray for us!


Last June, the Irish Government announced a €50m joint industry research project in Cork. Industry participants include the Kerry Group.

Wonder why the taxpayer will pay 80%?

Failure is costly.

The article is sensible. But the descendants of the largest writeoff in modern economic history (yes, you Germany) see this as a morality play to enforce discipline on the unruly periphery.

Re banks and sovereign debt, compare today’s AIB results (half year loss of €572 million) with those of Lloyds (£2.1 billion profit). Competence still matters when you are managing an economy and Ireland has at numerous levels managed the crisis far worse than the UK. Not all of this was historically inevitable due to things like euro membership: a lot of it is just a difference of talent in the civil service, regulatory bodies and the financial sector. Let’s not even discuss academia.


it was generally poorly reported yday on Brazil. Apparently they have abstained at every review of Greece in this second program. Media only seemed to realise this for the first time yesterday. But yes, i have always said, in response to calls from some of the more excitable on here that Ireland should ditch the EZ bailouts and rely purely on the IMF, that some of the poorer developing economies that are paying into the IMF would eventually baulk at the idea of being asked to lend more and more money to wealthy European economies.

@Michael Hennigan

Interesting history but did the system promote prudence?

The only way, the only way to promote prudence among investors is to burn them at periodic intervals. Nothing else will make them pause before investing money in yet another crazy scheme. Nothing.

The current system is dysfunctional precisely because investors, creditors, and stakeholders are being protected and bailed out to such a massive degree. Like a coddled child, they consequently learn that their mistakes have no consequences, and logically proceed to invest in even crazier schemes and riskier ventures. They did this under the conscious conclusion that the central banks will not allow things to become “that bad”, and hence their gambling losses will be covered.

The only time this didn’t happen was during the Lehman’s bankruptcy — which only came about after a comedy of errors by US officials. The system seized up yes, but for a short while bankers were humbled and reform was on the cards. When this failed to participate, the effect must have been something like that on Jackson Way at the end of the latest trial; They became even more emboldened than before.

We need another Lehman’s event. We need another Hapsburg-esque default. We need to enforce an iron rod of fiscal discipline on a now completely delinquent financial (and political) system.

@ Sean O’Dubhlaoigh

What happened to all those jobs in Athlone the Chinese promosed?

This project was a fantasy from the start.

It was claimed there were plans to build an international airport near Athlone and that direct flights to China would be established once the hub was in operation.

Serious buyers from the US East Coast or Europe would not go to Athlone, even if they hadn’t to be busssed on a wet Monday morning from Shannon or Dublin. They would go to places like Guangzhou where there are trading clusters specialising in a big range of sectors. Big buyers would avoid the middle-men.

A substantial Asian importer of Chinese goods says that the typical trader would require a big minimum order quantity; a downpayment of at least 50% and the rest of the payment on shipment.

Given the cutthroat competition, it’s not uncommon for Chinese manufacturers to sacrifice quality to get cash flow. Local contacts/business relations are important and of course this takes years to mature.

1,700 business visitors a day to Athlone?


So far the pattern of Chinese FDI in Europe, is to buy existing companies in markets like Germany. They are looking for technology and an existing customer base.

IDA Ireland should try to get FDI projects. It’s likely to remain a challenge for many years.

There are many potential markets: Southeast Asia, and the rest of the world.

We got manufacturing projects from Japan and South Korea in the past 30 years but most have closed. There is some activity in the IFSC but not much (a Japanese company acquired the aviation leasing business from RBS).

@Brian Lucey

“But the descendants of the largest writeoff in modern economic history (yes, you Germany) see this as a morality play to enforce discipline on the unruly periphery.”

Not so sure about that. The Greek farce continues with 95 required actions unfulfilled. I wonder would the Troika allow Paddy such latitude. With another big hole in the cash reported today (11b) it seems inevitable that official lenders will have to take a haircut on their Greek debt. Thats when the fun will start and could benefit us with our big debt pile. Interestingly, the good Professor Honohan is being candid in the FT about same. I’ve wondered about that for a while.


Maybe the bail-ins will help?

The situation of banks gets a little surreal when a big US brewer accuses Goldman Sachs of manipulating aluminium prices by fiddling with delivery schedules from a big warehouse it owns.

Here is Prof John Kay, the FT columnist, on the lack of evidence for the effect of quantitative easing as a driver for economic growth:



‘… a now completely delinquent financial (and political) system.’

+90 Billion

@ John G

Brazilian govt now claiming IMF rep was not mandated to abstain, govt supports Greek package. While maybe he was being honest, he was perhaps goin off on a solo run too.

@Fiat re GS,Jury finds Tourre defrauded investors,i know you a big fan-a tad off tread too but a cracking read,FT/WSJ etc willl have Tourre jury decision.

Regarding returns/defaulting on sovereign debt-some decent audio commentary here ..It won’t be easy/You’ll think it strange/When I try to explain how I feel..

@BEB-hi Eoin the reporting was rather confusing,at first it was a number of Latin American countries,that was amended to just Brazil-i guess the dispute btw IMF and Brazil is not that surprising i agree with you there,fact that it went public is.

As we having a bit fun with breaking news…lawyers statement.

“The judgment of the Court of Cassation in the Process Rights can only leave dismayed. There were very solid reasons and legal arguments to reach a full acquittal of Mr Berlusconi. We will pursue any useful initiative and also in European locations to make sure that this unjust judgment is radically reformed. ” Franco Coppi Niccolo Ghedini Piero Longo

@John Gallagher

Re the squid and Tourre….good win for the SEC.
Nothing surprises me about banks…the aluminum caper,I think, was flagged by the NYT…now they are trying to sell it off, warehouses and all. The physical amount of the stuff they were moving between warehouses each day was, at 3500 tons, ginormous.
Then good old JP paid up for rigging the electricity market. What else is rigged…got it…gas. Not to mention Libor and derivatives. I forgot about misspelling insurance and I’m sure there is a load more.
They really make Enron look like alter boys.

Meanwhile over in Greece..

@Fiat of some interest to Irish investors in the Lloyds numbers announced earlier today,is the set aside off 500mio for PIP claims.I think you linked the NYT piece on ‘warehousing’, and yeah JPM got a little slap on the wrist this week,hope it does not affect their very generous hospitality at the US Open shortly-arguably NY’s greatest sporting event.
Its a lot easier over here to be inside that tent than outside,those dastardly bankers oh heavens above,everyone likes an unfair advantage.Who ever said life was fair…

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