Sovereign Debt Guarantees and Default: Lessons from the UK and Ireland, 1920-1938∗
Sovereign debt guarantees and default: Lessons from the UK and Ireland, 1920-1938∗ Nathan Foley-Fisher y Eoin McLaughlin z This draft: May 2016; First draft: March 2014 Abstract We study the daily yields on Irish land bonds listed on the Dublin Stock Exchange during the years 1920-1938. We exploit Irish events during the period and structural differences in land bonds to tease out a measure of investors’ credibility in a UK sovereign guarantee. Using Ireland’s default on intergovernmental payments in 1932, we find a premium of about 43 basis points associated with uncertainty about the UK government guarantee. We discuss the economic and political forces behind the Irish and UK governments’ decisions pertaining to the default. Our finding has implications for modern-day proposals to issue jointly- guaranteed sovereign debt. ‘Further, in view of all the historical circumstances, it is not equitable that the Irish people should be obliged to pay away these moneys’ - Eamon De Valera, 12 October 1932 Keywords: Irish land bonds, Dublin Stock Exchange, sovereign default, debt guarantees. JEL Classification: N23, N24, G15 ∗We gratefully acknowledge discussion and comments from Stijn Claessens, Chris Colvin, David Greasley, Aidan Kane, John McDonagh, Ralf Meisenzahl, Kris Mitchener, Cormac Ó Gráda, Kim Oosterlinck, Kevin O’Rourke, Rodney Ramcharan, Paul Sharp, Christoph Trebesch, John Turner, and seminar participants in the European Historical Economics Society Annual Meetings 2015, Atlanta Fed/Emory University Workshop on Monetary and Financial History 2015, Central Bank of Ireland Economic History Workshop 2015, Irish Quantitative History Conference 2014, the Economic History Society Annual Conference 2014, the Cliometrics Conference 2014, the Scottish Economic Society Annual Conference 2014, Swiss National Bank, Dundee, Queen’s University Centre for Economic History, University of Edinburgh, LSE, and the Federal Reserve Board.
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