Politics by Default: Debt Crisis Bargaining and the Lessons of the 1930s for the Present

This article develops a theory to explain the persistently problematic politics of recent efforts to resolve the debt servicing difficulties of several European sovereigns. It first discusses economic approaches to sovereign debt negotiations . Then it reviews the scholarship in International Political Economy (IPE) to identify crucial international political factors that bear on such negotiations. Finally, by applying Schultz’ model of crisis bargaining from the International Relations (IR) literature, it uncovers the mechanism by which domestic political factors interfere with international resolution efforts. Discussion of historical examples in light of this theory demonstrates its utility and explanatory power in the context of past and present policy puzzles. Further research into other settings, where simplifying assumptions about homogeneous preferences are relaxed and political institutions are specified in greater detail, promises additional insights for the future.