This well documented paper discusses the difficulties that several European governments faced in managing their debts accumulated after World War I. The authors assemble convincing evidence to discriminate between alternative explanations of the common experiences of France, Belgium, Italy, Portugal and Greece.

In my remarks, I argue that the phenomenon discussed by Makinen and Woodward is just an example – but a very interesting one – of the consequences of financial repression. Viewed in this light, the interwar experience helps to emphasize the way financial repression works, and its limitations as a policy for raising tax revenue.

Funding crises: equilibrium or disequilibrium?

The common problem faced by the European governments was the inability to roll-over debt. In France buyers refused to renew subscriptions to maturing long-term debt in the Spring of 1925, in Belgium apparently financial institutions refused to renew large-denomination Treasury bills, in Italy issues of nine-year bonds went undersubscribed by 30 percent in 1925, and similarly, in the July of the following year, only 60 percent of maturing short-term debt was renewed, in Portugal the government could not stem a sharp fall of floating debt between June 1923 and June 1924, and, finally, in Greece the government was unable to roll-over Treasury bills in the second half of 1924.

Pursuing the arguments of the two authors, one might identify two alternative explanations of funding crises, which might be labelled ‘equilibrium’ and ‘disequilibrium’.