Eduardo Borensztein and Ugo Panizza counts as many as 257 sovereign defaults between 1824 and 2004. Between 1981 and 1990 alone, there were 74 defaults....Messrs Borensztein and Panizza show that having defaulted is associated with a credit-rating downgrade of nearly two notches.....That said, markets appear to have short memories. Only the most recent defaults matter and the effects on spreads are short-lived. Messrs Borensztein and Panizza find that credit ratings between 1999 and 2002 were affected only by defaults since 1995.....Messrs Borensztein and Panizza find that a defaulting country grows by 1.2 percentage points less per year while its debt is being restructured compared with a similar country that is not in default. This effect, too, is concentrated in the first year after default. Once again, measuring from the point of default will somewhat understate the damage: defaults tend to occur during recessions, so GDP is already depressed when a country reneges...Another element to the costs of default may also alarm Greek policymakers. Messrs Borensztein and Panizza find that political leadership changed in the year of default or the year after in half of the 22 cases they study. That is twice the usual probability of such change. These political costs, at least, are unlikely to vary.
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