0
$\begingroup$

The WWI & WWII debt is quite well defined in the UK for example and quite shocking how many years it took to pay off.

Somebody told me that the Italian debt crisis really goes all the way back to Mussolini's excessive prewar spending and in 2011 Berlusconi defended Italy's debt crisis as he argued it went back to the war and was just the way the country runs.

What is the true reason? Given that a country such as Russia managed last year to pay off all the Soviet debt it seems quite strange that a G7 economy like Italy could have a debt going back to Mussulini's era starting in the twentys.

Obviously a countries debt is made up of many things such as public spending and in all countries but chronically in some corruption. But there often is an isolated or small number of decisions, policy or event that accountants for the beginning of the problem.

P.S is this question perhaps for the history stackexchange?

Some historic/economic background is summaried here: https://en.wikipedia.org/wiki/Economy_of_Italy_under_fascism

$\endgroup$
  • 1
    $\begingroup$ "Russia managed last year to pay off all the Soviet debt" Can you please back this up with a reference? Preferably one that mentions the 1998 bankruptcy of Russia? $\endgroup$ – Giskard Dec 20 '18 at 14:18
  • $\begingroup$ the first part to the 'Paris club' telegraph.co.uk/finance/2945924/… and the rest rt.com/business/400489-russia-soviet-debt-payment As to the 1998 bankruptcy of Russia I take it you mean the default in payment - that would not be bankruptcy and I mentioned Soviet debt not Russian debt. $\endgroup$ – onepound Dec 20 '18 at 15:24
  • $\begingroup$ I did mean default, thank you for correcting me. Russia did take on the Soviet debt, so when Russia suspended payments to foreign creditors in 1998, it also suspended repayment of the Soviet debt. The default caused quite an upheaval in the domestic credit market as well. Your Telegraph article also notes that Russia also owed $23 billion worth of Soviet to the 'London Club'. Possibly they repaid this as well, a reasonable explanation as to how is given in the Telegraph article. $\endgroup$ – Giskard Dec 20 '18 at 16:03
  • $\begingroup$ In what sense is British war debt well defined? Like in other developed countries, almost all bonds are rolled over (new bonds refinance maturing bonds), and almost no country aims to drive government debt levels to zero. (The UK has perpetuals - consols - but they were created by consolidating war debt, hence the name.) By that metric, debt for these countries are expected to be around for an indefinite period. $\endgroup$ – Brian Romanchuk Dec 20 '18 at 22:43
  • $\begingroup$ History is likely to reject this as an under formed morass in its current state. $\endgroup$ – Samuel Russell Dec 21 '18 at 9:52
1
$\begingroup$

Debt Crises are the inability to pay interest on the debt a country has already taken up to that point. There are many theories, about how such crises can develop, however all have one thing in common. You need debt to have a debt crisis.

What is debt? Debt is when a country spends too much compared to how much it earns (in case you are familiar with simple econmic terms, that is G (gov. spending) exceeds T (gov earning — $ \Delta M$ could be taken into account, is however negligible for most countries, as money printing is usually not the way to finance debt.)

"War is expensive", means that during war-time there are HUGE governmental expenses to production of weapons and what not. However, to say that the debt crisis is due to WW expenses one would have to look at how debt levels of Italy have developed after the world wars.

I have found a graph in my book and saw that in the 1970 Italy had a debt ration $(\frac{B}{Y})$ of 40 percent, which in today's terms is not much, rather below average.

In the years 1980 to 1990 Italy took up a lot of new debt, peaking at a debt level of ca. 120% in the early years of the 90's. From there debt has been 'steady' with increases to 130% in 2014. Thus, one can say. No. The debt crisis is not due to war expenses, when looking at it from this purely expense-tracking perspective...

$\endgroup$
  • $\begingroup$ thank you for your answer. 'I have found a graph in my book and saw that in the 1970' Do you have the book title where you found this? $\endgroup$ – onepound Dec 23 '18 at 15:14
  • $\begingroup$ Macroeconomics by Manfred Gärtner. I guess any introductory Macroeconomic book will have some sort of discussion on public debt and thus hopefully a plot of the debt development over the years of numerous countries as well. $\endgroup$ – thebilly Dec 24 '18 at 10:14

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.