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States, Debt, and Power'Saints' and 'Sinners' in European History and Integration$
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Kenneth Dyson

Print publication date: 2014

Print ISBN-13: 9780198714071

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780198714071.001.0001

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The Dynamics of External Imbalances and Debt

The Dynamics of External Imbalances and Debt

(p.404) 13 The Dynamics of External Imbalances and Debt
States, Debt, and Power

Kenneth Dyson

Oxford University Press

This chapter examines the difficulties in defining ‘excessive’ external imbalance and external debt. It begins by addressing the issue of ‘original sin’, focusing on Austro-Hungary, Greece, and Spain, and the implications of excessive imbalances and debt for state power. It sets these issues in the contexts of the distinctive characteristics of creditor-debtor state relations. The chapter shows how states are stress-tested using a series of indicators: current accounts, unit labour costs, inflation-rate differentials, domestic savings rates, and net household wealth in the case of external imbalances; gross external debt/GDP ratio, external debt service payments and exports, and foreign-exchange reserves in the case of external debt. The chapter analyses the buffers that states can erect against these types of crisis: export-led growth, size and liquidity of domestic bond market, and foreign-exchange reserves. It concludes by considering external risk management as an imprecise science, stressing the overall importance of private sector and state capacity.

Keywords:   external imbalances, external debt, risk management, original sin, indicators, political will, private sector capacity, state capacity, crisis buffers, foreign exchange

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