Sovereign Default and Future Borrowing: A Query
Suppose Greece defaults on its foreign debts, as seems not unlikely. What would the effect be on its ability to borrow?
The obvious answer is that, having stiffed its creditors once, it will be unable to find new ones. But it is not obvious that it is true. The more the country owes, the greater the incentive to default. At present, from what I can judge of Greek politics at long range, it is not entirely clear that there is any other alternative; there may be no politically viable path to paying off the current indebtedness. Greece after default, like a company coming out of bankruptcy, may actually be in a better position to borrow than before.
There must surely be historical data on this question; Greece is not, after all, the first country to face the possibility of sovereign default. I, however, am lazy. So instead of doing research, I am putting the question to my readers.
In the past, when countries defaulted on their debts, did the interest rate they had to pay for future loans go up, or down?
Readers with long memories will realize that this is not the first time I have raised the general question.