Can a country sell part of its land to pay off huge national debt?

Question

I know that in history, countries have sold certain parts of their territories to other countries. If a country is in massive debt today, and they feel there is no way they can get out of it, and the debt is causing huge problems, can they just decide to sell some of their land to another country, to get themselves reset financially again? Is this legal, and has it happened in modern times? As far as I know, there is no particular reason why national borders must always stay in exactly the same place, and countries can sell (or trade) land if they wanted to.

Note: Of course, it would not be very popular politically to suggest losing part of your country's territorial area, but if your country was in severe financial problems, and the country's leaders said to the people, "If we do this, we can avoid decades of austerity and financial hardship and start afresh and try to run things better in the future, and your lives would all be a lot easier," then it might be acceptable to the population. They could also point out, "You know, the borders of countries have often changed before in history." Obviously anybody living on the land that was sold would have to be compensated with part of the money, so they could move and buy elsewhere in the country.

As an example: Could, say, Greece announce it was going to auction off one of its islands to whoever bid high enough? (Selling an island or two would probably be more acceptable than a piece of your mainland.) A country who had money - such as, say, China, might be willing to pay an untold sum of money to gain a piece of Chinese territory in the Mediterranean, with all the associated rights that brings. And other countries with money - like, say, Germany, might pay a huge sum of money rather that see another country get those rights. So, in this example, Germany would gain an island in the Mediterranean, and instead of there being recurring problems between Germany and Greece over debt payments, all would become square and the debt would be resolved, or Greece may even find itself in profit if the amount paid was high enough.

Even if a country just announced it was planning to do this, it would be a massive bargaining chip in the next debt negotiations - they might get much easier terms, or large parts of their debt erased, if they agree to cancel their plans for now.

Wouldn't this be a reasonable solution to fix the severest financial crises? It would make a kind of sense that effectively the countries that are running themselves better would be potentially gaining territory, and countries that have run themselves badly would be losing territory. But with their big debts out of the way, they could then start trying to run themselves better again with a fresh start. And it would make things a lot easier for the population. And land and territorial rights is worth so much these days, that even a small amount of land could be enough to pay off huge debts.

Answer 1

International law recognizes several ways for a sovereign nation to acquire territory. Purchasing land is a form of cession (a treaty is the document that outlines the purchase or sale of territory between states).

So yes, international law recognizes the ability of a state to sell land to another state.

Modern Examples

In 1917 the Treaty of the Danish West Indies was signed, through which the United States purchased the Virgin Islands from Denmark. There are many other examples of cession, but this is the only modern case I know about that involves the purchasing of territory.

Answer 2

A country could, in theory, sell its land to another to pay its debt, but more likely outcomes include it selling its assets to private entities (land, buildings, etc.), devaluing its currency, negotiating to restructure its debt, outright defaulting on it, etc.

Countries selling territories to one another has a few historical precedents. For instance, France sold Louisiana (the entire Mississippi basin, really) and Russia sold Alaska to the US. Both mostly had to do with keeping the territories out of British hands.

I can't think of any that was strictly debt related off the top of my head. There might be some, but there are much better ways to trim a country's liabilities.

One alternative is to sell assets to private entities. Think national parks, road concessions, public utilities, national treasures (e.g. the Parthenon), government offices (e.g. the Hellenic Parliament), and so forth.

The next doesn't really apply to Greece as things stand, since it's using the Euro, but if Greek debt had been denominated in Drachma it could have devalued its currency so as to repay the debt in funny money.

Another option involves negotiating to restructure the debt. Greece has technically gone through this a few times already. As an aside negotiations can get more unilateral, like in Argentina a few years ago: creditors were offered a take it or go f' yourselves and get zero type of arrangement; most accepted to suck it in and cope. Vulture funds bought the holdings of those that didn't, and went on to fight in court with colorful outcomes from time to time.

Yet another option, of course, is to default on the debt. It's like... what can creditors do? In the past countries would occasionally threaten war when this type of thing happened, but those days seem over - it's not like Germany and France would send tanks to Greece to get paid at gunpoint.

A point worth mentioning in passing when it comes to the last three options, is that who holds the debt matters a lot. If a country's creditors are, say, its retirees, it can decide to slash its entitlements and call it a day. It can't do that type of shenanigan when its debt is held by foreign entities.

In the case of Greece, there also is a nuclear option. Namely, things could get creative at the EU level so as to get Europe as a whole (or its Eurozone members) to pay the debt in some form or another. It certainly won't popular, and it'll likely require some changes to EU treaties, but in my opinion Europe will get there eventually.

Answer 3

Problems with this:

1. The country doesn't actually "own" much land. Most land is owned by people in the country. The country can usually only sell territorial claims.

2. Territorial claims are worth much less than land itself.

3. A country can most easily sell territorial claims to adjacent countries.

Looking specifically at Greece (as you mention it), there are four adjacent countries:

1. Albania.
2. Macedonia.
3. Bulgaria.
4. Turkey.

Across water, there is also Italy, Libya, and Egypt.

The problem is that none of those seven countries is of such wealth or need for land that it would pay a premium price to Greece.

Farther away countries like Germany have more resources, but they have less use for territory. And what happens if the island doesn't go along? Scotland, Northern Ireland, and Catalonia all show the problems that can arise when someone asserts a territorial claim that the local populace opposes, even if only partially.

Traditionally this worked by trading mostly empty territory. For example, the Louisiana Purchase in the United States--although native American tribes might contest that it was empty. Or territory where the buyer's citizens were already contesting things. For example, the Gadsden Purchase.

If Greece sold Crete or a smaller island, it is possible, even likely, that some of the residents would disagree. In the face of that, another country might not want to contest things. In particular, Germany is rather light militarily at the moment.

China is even less likely to be greeted enthusiastically by the local population. And it's not clear that a European Union country could sell territory to a non-EU country. Non-Greek EU citizens who own land in the affected territory could reasonably block the transfer without EU permission.

The entire state of Alaska (which is larger than the entirety of Greece) was sold for an amount that only equals $123 million in modern dollars. But Greek's debt is about $385 billion. Less than a three thousandth of the debt does not seem worth it. The Gadsden Purchase at $4 billion in modern dollars would still only be 1% of Greek debt.

You seem to be comparing the value of land to its owners to the debt. But that's the wrong value for this. Greece would have to buy the land from such owners before selling it. Eminent domain (or whatever it might be called in Greece) might allow that, but they would still have to pay something approaching the market value of the property. As such, they wouldn't gain most of that value via a sale.

It's far more likely that Greece would leave the ownership as it was. Then they're just transferring the territorial rights that the country already owns.

TL;DR: No, this wouldn't be an effective way to deal with debt.

Answer 4

It's certainly possible to do so as evidenced by the recent sale of land from Egypt to Saudi Arabia:

In April 2016, during a visit to Cairo by the Saudi monarch, King Salman, Mr. Sisi announced that he had signed a maritime agreement ceding control of the islands, which sit at the mouth of the Gulf of Aqaba.

The decision provoked a storm of criticism from Egyptians who accused Mr. Sisi of trading land for money. Saudi Arabia has pumped at least $25 billion in aid and investment into Egypt since 2014.

It might be more difficult in a democratic state such as Greece as citizens could easily force the government to cancel the deal if there's enough public backlash. But theoretically speaking there's nothing in international law to prevent it.

Answer 5

There's many problems to this relating to how debt actually works on the scale of nations and whether selling territory would solve the problem of debt and the practicalities of selling off territory itself.

Countries usually raise money by issuing bonds in their own currency; the specifics can vary greatly, but they're basically IOUs that others can buy and which pay out a greater value at some later date. These bonds are often sold on the secondary market and their prices can rise and fall based on various factors. The point of this is that currency is a liquid store of value that can inflate or deflate in value. So for example, a $1 bond that pays out $2 in 1 year would actually be worth less than its purchase price if the inflation of dollars is over 100% that year. In a case like that where inflation outpaces the payout of the bond, the country issuing the bond is actually gaining money. This actually happened for the US for certain Treasury securities pretty recently (maybe even right now) since the demand for US debt as a stable store of value is so high, so by issuing debt the US was actually gaining money. Just from this fact alone you should be able to tell that debt isn't necessarily something you want to reduce rather than produce.

Since countries typically issue bonds in their own currency they can have a certain amount of control over their debt through monetary policy. One of the problems in the case of Greece for example, is that they do not have control over their own monetary policy because their currency is the Euro. Basic tools like inflating their currency to deflate the value of their debt doesn't work. If Greece were just a portion of a greater nation state, this wouldn't matter since the other parts of the country would just subsidize Greece and institute policies to solve its problems. The fact that the EU isn't one nation makes implementing something like that very hard. Other countries don't want to subsidize Greece, and Greece doesn't want other countries to dictate its policy.

The other problem is that a onetime lump sum payment wouldn't necessarily solve underlying problems. I'm not very clear on the specifics of Greece, but one problem I've heard is that there is rampant tax evasion as well as very high unemployment, something like that would still remain even if their debt was paid off. Other countries facing economic troubles like Venezuela right now, would still suffer from being a petrostate in a world of $50/barrel crude even if they had no debt at all.

Then we can finally move on to selling territory itself as a possible policy. Except in very special cases, the matching of seller and buyers would be extremely difficult. In your hypothetical of Greece selling an island to China to pay off their debt, China would have to pay hundreds of billions of Euros to get what exactly? A place to build an expensive military outpost to accomplish some unspecified geopolitical goal? In general terms, if you sell undeveloped land to another nation, who exactly would be the buyer? Unless the buyer is right next door, they would have to go a long way to develop the land, and if they do they'll end up with an exclave surrounded by foreign territory. If a country tries to sell developed land with their own citizens to another country, that's even more problematic. Presumably very few countries would be interested in gaining a bunch of (presumably poorer) people with a (most likely) distinct culture and language. The seller would also have to face the reactions from its own citizens of basically abandoning a bunch of them and causing a schism that most likely separates a large number of families. If the seller tries to finance a mass exodus it would still face opposition from its own citizens and the cost would defeat the purpose of the sale.

Basically, due to how sovereign debt actually works and the practicalities of selling off territory, it's just not a practical solution to a real world problem.

Answer 6

Another point to consider on this since the literal interpretation of the question was answered already:

Lenders may not be advocating Greece(or any country with big debts for that matter) to sell land directly(after all it will only create social disturbances and little economic results for the most part).

Of course, "land" is indirectly being sold out in the spirit of liberalization with the condonement of the IMF,as they done with plenty of countries before. So they end up having sold or having talks to sell critical infrastructure as aiports, electricity plants , or even the electricity grid itself to foreign funds for extremely undervalued pricing.

Without even accounting further issues as the (foreign) private enrichment at the expense of the poor masses resulting from this (1) (2) , its clear that lenders don't want to cause an uproar by selling something as symbolic as land itself that isnt even guaranteed to have a sound economic value of sale(as pointed out by other answers) when they can quietly and effectively "take over" the country bloodless and with much better returns as well.

Answer 7

Sort of.

This is how the US acquired the Mississippi river basin and Alaska.

Also a variation (owed countries taking it) is one of the trigger to Hitler's rise.

Guantanamo bay is also (by US legal theory) a lease making money for Cuba.

Places with people often disagree with the central government over whether it is a good choice to change who rules them. Newly acquired territories may have trouble adjusting, like Quebec, Northern Ireland, Kashmir, Tibet, Texas, Palestine, and many many more.