The Impact of Defaulting

IESE Prof. Rolf Campos on what happens when a country fails to pay its debts

02/05/2012

In this interview, IESE Prof. Rolf Campos explains that in the 1980s many countries defaulted but significantly fewer people were aware of it because the debt was owed to banks and was not issued in bonds. The case of Greece has gained unprecedented attention because it is a developed country, he said, which has sparked additional concern among investors.

Overall, not much happens when a country defaults, he says, and in fact, most countries are able to reaccess markets relatively soon. Research indicates that 50 percent of countries default are able to reaccess financial markets after just three years. The larger the debt, however, the longer it takes to reaccess markets. And interest rates on debt is higher for countries that have defaulted than those that have not.

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