Hope Springs Eternal: French Bondholders and the Repudiation of Russian Debt by Kim Oosterlinck (review)

The Bolshevik coup of October 1917 was, according to American journalist John Reed, an event that “shook the world.” One wonders then, why contemporary French investors seem to have been relatively unmoved. Even two years after the Bolsheviks repudiated foreign debt in January 1918, yields on Russian bonds on the Bourse remained remarkably low. Kim Oosterlinck’s Hope Springs Eternal: French Bondholders and the Repudiation of Russian Debt explores the history of this significant case of debt repudiation with the goal of understanding why French holders of Russian sovereign debt remained relatively calm until 1921. Though the pricing of these bonds may seem irrational a hundred years later, Oosterlinck makes a strong case that French bondholders had ample cause to remain hopeful.

The book is divided into seven chapters, the first of which reviews the literature on sovereign debt and repudiation theory. The following four chapters cover the major sources of hope for French bond-holders: the possibility of a change in Soviet policy, the collapse of the Bolshevik regime, a French government bailout, and the assumption of Tsarist-era debt by Germany or new nations that emerged on the territory of the former Russian Empire. The sixth chapter uses quantitative methodology to isolate moments of shock to bond prices and correlates them with events that may have been responsible for these sudden changes.

Oosterlinck concludes that the potential overthrow of the regime was the most significant source of hope, followed by a change in Bolshevik policy or a French bailout, with the assumption of debt by other states having the least notable impact on prices. As the author points out, the order of significance is likely a function of payout; the accession of a White regime could have meant full repayment of Tsarist-era debt, while a new state such as Ukraine could have only been liable for a portion of it.

Oosterlinck’s research is solid. Readers who are familiar with his previous work will see a lot that is familiar, but the additional data here makes the book worth reading. He draws on an impressive set of primary sources, including the records of bondholders’ associations, government agencies, and newspapers, to build a data set and to present the world as seen by French bondholders. His review of the literature on sovereign defaults is strong and provides a good starting point for anyone interested in the subject. Oosterlinck’s treatment of events in Russia comes up short—he cites only a few books on Russian history, many of which were published decades ago—but given that his focus is French perceptions, this in no way undermines his conclusions.

The author is honest about the difficulty of establishing perfect causation for price shocks and acknowledges that he only treats a few of the Russian bonds listed on the Bourse, but his research is thorough enough to make a convincing argument. His observation that the October Revolution had no discernible impact on bond prices, while surprising, is consistent with works on Russian history that have shown that the Bolshevik regime inflated the event’s significance following the institutionalization of Soviet power. For French bondholders, the impact of the revolution did not fully register until 1921, when the Red Army emerged victorious in the Russian Civil War, an outcome that seemed nearly impossible when the war began in 1918.

Hope Springs Eternal reminds us of some remarkable aspects of foreign investment in the years before World War I. At the turn of the century, investors came to see Russian sovereign debt as a sure bet, leading 1.6 million French citizens to purchase Russian bonds worth 4.5% of French national wealth. This faith in a state with such concentrated power and instable institutions was cultivated by an information campaign by Tsarist agents with willing partners inside France that included French financiers, the media, and...