<p>The most widely used mechanisms for crisis recovery in the developed world are:</p>

<ul>
<li><p>Quantitative easing, <a href="https://en.wikipedia.org/wiki/Quantitative_easing" rel="nofollow">QE</a>, which is basically the monetization of goods and services from the private sector in exchange for bonds. Successfully implemented in the US.</p></li>
<li><p><a href="https://en.wikipedia.org/wiki/Austerity" rel="nofollow">Austerity</a>, or local devaluation in terms of reducing the wages and prices, which is done by the reducing of public spending and proceeding towards a direction of <em>minimal state</em>, that will mean minimal spending. </p></li>
</ul>

<p>It should be noted that crisis recovery is strongly related with the present state and structure of the local, regional and global economy and thereby depends on different parameters, as it works by different rules<sup>1</sup>. Consequently, I wouldn't consider <em>thinking by analogy</em>, i.e. in terms of historical precedence a valid strategy for problem solution. </p>

<p>The problem should be (could be) tackled only in terms of first principles of the economy, in your case in terms of first principles of the EU economy, which will inevitably result in a solution lying outside Greece itself and more specifically in the rebooting of the EU zone and recompilation of the regulations governing it in the direction of a economically (and politically) equal / homogeneous monetary union with surplus recycling mechanisms that assure the financial distribution in the deficit countries in the form of productive investments (that will in turn produce the needed growth), instead of distributions in the form of loans (as in the current situation). </p>

<hr>

<p><sup>1. The currently established economic and political regulations.</sup></p>

CC BY-SA 3.0
2015-12-26T19:46:33.903Z
2016-10-12T15:18:51.197Z
2016-10-12T15:18:51.197Z
Ziezi
<p><a href="http://www.ukpublicspending.co.uk/debt_brief.php" rel="nofollow">By one estimate</a> (<a href="http://www.bondvigilantes.com/blog/2010/02/02/what-happened-the-last-time-the-uk-defaulted/" rel="nofollow">here is another</a>) , as a result of WWII, the United Kingdom saw a debt of more than 200 percent of GDP. They never defaulted on their debt after reaching that level. I believe they never did anything radical, just systematically growing government spending more slowly than national income, thus gradually eroding the debt as a fraction of GDP. </p>

<p>The paper <a href="http://personal.lse.ac.uk/ritschl/pdf_files/Stockholm_reconstructed.pdf" rel="nofollow">Sustainability of High Public Debt: What the Historical Record Shows</a> may also be of interest.</p>

<blockquote>
  <p>The paper looks into the debt histories of three European countries,
  Britain, France, and Germany, to study three questions. First, are
  there historical parallels to the accumulation of high debt in
  peacetime that has taken place in the past decades? The answer to this
  is mostly in the negative. National debt was high during long periods
  but usually related to wars or their financial aftermath. Second, how
  were large debts reduced, and that were the factors determining
  decision-making? Recent research has emphasized the role of social
  conflict in this context. We find that although this may play a role,
  the dominant effect may have come from international financial
  relations. Third, what are the macroeconomic effects of budget
  stabilization, and does it pay off for a country to repudiate or
  inflate away its debt? The short-run evidence is mixed, as the success
  of debt default has varied considerably. In the long run, however,
  stabilizing the budget pays off, as there seem to be no lasting
  adverse effects of fiscal austerity on a nation's growth performance.</p>
</blockquote>

CC BY-SA 3.0
2015-06-30T18:06:20.300Z
Any internal-external debt division? Just thinking that external public debt in the currency you can't print ends with a default more often.
Anton Tarasenko
CC BY-SA 3.0
2015-06-30T18:18:12.967Z
This could make for an excellent and  topical  new question.
BKay
CC BY-SA 3.0
2015-02-03T01:45:36.643Z
2015-02-03T01:45:36.643Z
BKay
<p>Current, Greece has a debt of <a href="https://en.wikipedia.org/wiki/Greek_government-debt_crisis" rel="nofollow noreferrer">roughly 175% of GDP</a>.  The new government has announced it wishes to negotiate a write-off, something Eurozone leaders have <a href="http://www.bbc.com/news/business-30977714" rel="nofollow noreferrer">so far refused</a>.  From prior knowledge and <a href="https://economics.stackexchange.com/a/15/332">this post</a>, I understand that governments may want to stimulate consumption when the economy is doing poorly, and have budget surpluses / pay off debt when the economy is doing well.  Since the beginning of austerity, <a href="http://www.theglobeandmail.com/globe-debate/editorials/europes-greek-lesson-austerity-has-failed/article22719860/" rel="nofollow noreferrer">the Greek economy has shrunk by 25%</a>, and unemployment is now 27%.  I have mainly read economical opinions arguing that austerity is harmful and needs to stop, but I the sources I read are probably not representative.</p>

<p>Is there any historical precedent of a country that recovered from a 175% debt, <em>without</em> either having substantial debt write-off, or a currency devaluation?  By recovering I mean: returning to substantial economic growth, increasing standards of living compared to crisis conditions, and a public debt shrinking to become substantially less than 100%.  If so, how did they do it?</p>

<macroeconomics><debt>
Recovering from large government debt without currency devaluation
gerrit
# Recovering from large government debt without currency devaluation

(Asked by: username_0 on 2015-02-03)

Current, Greece has a debt of [roughly 175% of GDP](https://en.wikipedia.org/wiki/Greek_government-debt_crisis). The new government has announced it wishes to negotiate a write-off, something Eurozone leaders have [so far refused](http://www.bbc.com/news/business-30977714). From prior knowledge and [this post](https://economics.stackexchange.com/a/15/332), I understand that governments may want to stimulate consumption when the economy is doing poorly, and have budget surpluses / pay off debt when the economy is doing well. Since the beginning of austerity, [the Greek economy has shrunk by 25%](http://www.theglobeandmail.com/globe-debate/editorials/europes-greek-lesson-austerity-has-failed/article22719860/), and unemployment is now 27%. I have mainly read economical opinions arguing that austerity is harmful and needs to stop, but I the sources I read are probably not representative.

Is there any historical precedent of a country that recovered from a 175% debt, *without* either having substantial debt write-off, or a currency devaluation? By recovering I mean: returning to substantial economic growth, increasing standards of living compared to crisis conditions, and a public debt shrinking to become substantially less than 100%. If so, how did they do it?

**Tags:** macroeconomics, debt

---

## 2 answers

### Answer by username_2 on 2015-02-03. Score: 2 | Accepted answer

[By one estimate](http://www.ukpublicspending.co.uk/debt_brief.php) ([here is another](http://www.bondvigilantes.com/blog/2010/02/02/what-happened-the-last-time-the-uk-defaulted/)) , as a result of WWII, the United Kingdom saw a debt of more than 200 percent of GDP. They never defaulted on their debt after reaching that level. I believe they never did anything radical, just systematically growing government spending more slowly than national income, thus gradually eroding the debt as a fraction of GDP.

The paper [Sustainability of High Public Debt: What the Historical Record Shows](http://personal.lse.ac.uk/ritschl/pdf_files/Stockholm_reconstructed.pdf) may also be of interest.

> The paper looks into the debt histories of three European countries,
> Britain, France, and Germany, to study three questions. First, are
> there historical parallels to the accumulation of high debt in
> peacetime that has taken place in the past decades? The answer to this
> is mostly in the negative. National debt was high during long periods
> but usually related to wars or their financial aftermath. Second, how
> were large debts reduced, and that were the factors determining
> decision-making? Recent research has emphasized the role of social
> conflict in this context. We find that although this may play a role,
> the dominant effect may have come from international financial
> relations. Third, what are the macroeconomic effects of budget
> stabilization, and does it pay off for a country to repudiate or
> inflate away its debt? The short-run evidence is mixed, as the success
> of debt default has varied considerably. In the long run, however,
> stabilizing the budget pays off, as there seem to be no lasting
> adverse effects of fiscal austerity on a nation's growth performance.

> **Comments:**
> **username_3**: Any internal-external debt division? Just thinking that external public debt in the currency you can't print ends with a default more often.  
> **username_2**: This could make for an excellent and  topical  new question.  

---

### Answer by username_1 on 2015-12-26. Score: 2

The most widely used mechanisms for crisis recovery in the developed world are:

* Quantitative easing, [QE](https://en.wikipedia.org/wiki/Quantitative_easing), which is basically the monetization of goods and services from the private sector in exchange for bonds. Successfully implemented in the US.
* [Austerity](https://en.wikipedia.org/wiki/Austerity), or local devaluation in terms of reducing the wages and prices, which is done by the reducing of public spending and proceeding towards a direction of *minimal state*, that will mean minimal spending.

It should be noted that crisis recovery is strongly related with the present state and structure of the local, regional and global economy and thereby depends on different parameters, as it works by different rules1. Consequently, I wouldn't consider *thinking by analogy*, i.e. in terms of historical precedence a valid strategy for problem solution.

The problem should be (could be) tackled only in terms of first principles of the economy, in your case in terms of first principles of the EU economy, which will inevitably result in a solution lying outside Greece itself and more specifically in the rebooting of the EU zone and recompilation of the regulations governing it in the direction of a economically (and politically) equal / homogeneous monetary union with surplus recycling mechanisms that assure the financial distribution in the deficit countries in the form of productive investments (that will in turn produce the needed growth), instead of distributions in the form of loans (as in the current situation).

---

1. The currently established economic and political regulations.


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