Governments should not issue debt under foreign law

In examining the implications for an exit from a currency union, one of the issues that arises is the proportion of public debt that is issued under foreign law. This is a separate issue to the implications of foreign-currency denominated debt. Both issues are problematic and compromise a government’s capacity to remain solvent. I covered the former issue to some extent in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – when I was considering different strategies for exit. There has been some further research on the question of foreign law debt issuance by the ECB and its Working Paper No. 2162 – Foreign-law bonds: can they reduce sovereign borrowing costs? – published June 2018, has relevance. It is clear that a government reestablishing its sovereignty has the upper hand, especially if it has issued debt under its own legal system. Which is why the likes of the IMF and the European Commission has been keen to increasingly pressure governments to issue debt under foreign laws under the ruse that this is a show of faith to the private bond markets. Once again the increasing bias towards foreign-law debt is all about privileging private capital over the interests of citizens in national states. What is absolutely clear is that a sovereign government should never issue debt instruments under any legal system other than their own. What is even clearer – such a government has no need to issue any debt at all.

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