During the recent Financial Crisis, as well as the 2010 and ongoing European Sovereign Debt Crisis, several governments had/have had to raise their debt levels in order to stabilize their economies. The principal problem attributed to sovereign debts, which is linked to their characteristics, is the possibility of defaults occurring in relation to these – since they are usually accompanied without collaterals. The possibilities of such defaults occurring are further increased where bailouts are granted in relation to these debts. Increased doubts in relation to the likelihood of larger sovereigns “rolling over maturing debt on their own”, as well as the consequential occurrence of “very high, economically penalizing, interest rates”, is considered to be the present reality.
This paper aims to illustrate why distressed countries, once granted bail-outs, should be given full assurance (by grantors of the bail-outs) that continued assistance will be provided in the form of accompanying aids to assist in completing repayments relating to such bailouts (through the extension of repayment periods or reduced interest rates) – rather than aggravating their position (hence facilitating the risk of defaults) [...]