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The role of a creditor in the making of a debt crisis: the French government's financial support for Poland, between cold war interests and economic constraints, 1958-1981

  • Emmanuel Mourlon-Druol (a1)

Abstract

In spite of considerable attention granted to sovereign debt failures, we still have limited knowledge of the incentives which induced creditors to lend at unsustainable levels. This article looks at the French government’s policy towards Poland from 1958, when economic cooperation between the two countries started, until Poland's announcement in 1981 that it could not service its debt. Export credit guarantees supported France's financial involvement, and this implied the government's strong influence on the decision to lend. This article brings out the tension between economic and political priorities in French policymaking during the cold war. Archival evidence reveals that as early as 1975 the French finance ministry warned that French risks were excessive; that Poland’s growing economic difficulties would render the country unable to repay its debts; and recommended limiting France's financial commitments. The French government, however, decided not only to carry on but also to increase lending, in order to support its political objective of using economic and financial means to relax East–West tensions. This article illustrates how creditors play a part in sovereign debt crises by voluntarily turning a blind eye to a country’s growing inability to repay its debts, and thus reinforce a vicious circle of indebtedness.

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Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Corresponding author

Professor E. Mourlon-Druol, Adam Smith Business School, Gilbert Scott Building, University of Glasgow, University Avenue, GlasgowG12 8QQ; email: emmanuel.mourlon-druol@glasgow.ac.uk.

Footnotes

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I would like to thank Sebastian Alvarez, Stefano Battilossi, Juan H. Flores, Angela Romano, Catherine Schenk, Mary O'Sullivan and two of the three anonymous reviewers for their constructive and helpful comments. This research was part of the Uses of the Past in International Economic Relations (UPIER) project, financially supported by the HERA Joint Research Programme 3 Uses of the Past, which is co-funded by AHRC, AKA, BMBF via DLR-PT, CAS, CNR, DASTI, ETAg, FWF, FRS-FNRS, FWO, FCT, FNR, HAZU, IRC, LMT, MIZS, MINECO, NWO, NCN, RANNÍS, RCN, SNF, VIAA and the European Commission through the European Union's Horizon 2020 research and innovation programme under grant agreement No. 649307.

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References

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The role of a creditor in the making of a debt crisis: the French government's financial support for Poland, between cold war interests and economic constraints, 1958-1981

  • Emmanuel Mourlon-Druol (a1)

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