Banking crises precede sovereign debt crises in 80 percent of cases

Evidence

We really should know better. Carmen Reinhart and Kenneth Rogoff, no friends of Keynesian policy, note that a banking crisis is followed by a sovereign debt crisis 80 percent of the time. Reinhardt and Rogoff stop short of using the word “cause.” However, as Moritz Schularick and Alan Taylor have shown, sovereign debt crises are almost always “credit booms gone bust.” They develop in the private sector and end up in the public sector. The causation is clear. Banking bubbles and busts cause sovereign debt crises. Period. To reverse causation and blame the sovereign for the bond market crisis, as policy makers in Europe have repeatedly done to enable a policy of austerity that isn’t working, begs the question, why keep doing it? — Mark Blyth, Austerity, 206

Categorization

• QUESTION: The punchline — ‘why keep doing it?’ — invites investigation into the political explanations for sustaining a failing policy, which connects to the book’s austerity-intellectual-history frame.
• XREF: Reinhart-Rogoff’s 80% statistic and the credit-boom causal claim should connect to the reader’s Mattei and general austerity reading. — connects to: Austerity transmitted sovereign-risk to the banks that held the bonds. — Mark Blyth, Austerity: The History of a Dangerous…, 31; The sovereign debt crisis is a transmuted and camouflaged banking crisis — Mark Blyth, Austerity: The History of a Dangerous…, 35; A banking guarantee transformed private debt into sovereign debt overnight — Mark Blyth, Austerity: The History of a Dangerous…, 184 (+3 more)

Broader Connections

• The European debt crisis resulted from banking losses, not sovereign overspending #exemplifies (0.88) — Mark Blyth, Austerity, 40