There are two main insights from an analysis of the haircut data. First, there are strong recurring features over time. Over the entire 200-year span, average haircuts and their variation are surprisingly similar. The level of creditor losses averaged between 40% and 50% – with no visible time trend or outlier spells. Every decade since 1815 featured a few sovereign restructurings. The only major exception is the period between WW2 and the 1970s. This is the Bretton Woods era with closed capital accounts and very limited private cross-border lending, so that barely any new defaults or restructurings on privately held sovereign debt occurred. Since the 1980s, we have seen a sharp increase in the number of sovereign restructurings, which also owes to the fact that the number of independent countries is much higher today. The standard deviation of haircuts is large throughout the sample, at about 30%. Some deals imply low haircuts of less than 20% while others reach 80% or more. Thus, the historical haircut statistics resemble those of more recent decades, despite the fundamental changes in institutions and markets since the 19th century.<sup>27</sup> Table 1: Sovereign haircuts with foreign private creditors (1815-2016)

||Cases|Mean|Median|SD|Min|Max|
|---|---|---|---|---|---|---|
|**Haircuts across time**(by default-restructuring event)|||||||
|Full sample (1815-2016)|313|44|39|30|-14|100|
|_Historical_sample (defaults pre-1970,<br>only bond restructurings occurred, no bank debt)|138|51|48|32|-14|100|
|_Modern_sample (defaults post-1970,<br>incl. 152 bank debt defaults and 23 bond defaults)|175|39|34|28|-10|97|
|... subsample of 23_recent bond restructurings_|23|37|37|21|6|77|
|(note: first “modern” bond exchange is 1998)|||||||
|**Alternative haircut measures**|||||||
|_Weighted_haircuts_,_by amount restructured|313|39|30|27|-14|100|
|_Face value_haircut|313|24|0|34|-15|100|

_Note:_ Some of the haircuts shown are negative, but these are only 10 events and they mostly occur at the start of debt distress (see Footnote 27). A negative face value haircut only occurred in one case: the Mexican restructuring of 1864 (-15%), since interest arrears were capitalized into new debts at a rate above 100% (for every 0.66 pounds of arrears outstanding, creditors received new bonds at a face value of 1 pound). Weighted haircuts use restructured amounts in real terms (2009 USD).

A second main insight is that debt repudiation and debt cancelations (haircuts of or close to 100%) are the exception rather than the rule. This is true even for the most tumultuous episodes of modern history, such as after the Great Depression and in the wake of major wars. The average haircut in the full sample is 44% and drops to 39% once we calculate weighted haircuts (i.e., weighted by restructuring amounts in USD). The historical average haircut is somewhat higher than that of recent decades, owing largely to the

> 27 Like Cruces and Trebesch (2013), we obtain negative haircuts for a small subset of cases, most of which happened in the first half of the 1980s. Negative haircuts typically result from a restructuring in which the interest rate on the new debt exceeds the estimated discount rate prevailing at the time. In such cases, any lengthening of maturities will increase the present value of the new debt, instead of decreasing it (note that most deals in the 1980s involved rescheduling only). While these look like bad deals for the government, a successful agreement can buy time and avoid a disorderly default. These benefits can outweigh the drawback of accepting a deal at unfavorable terms.

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