“The twelve years 1920–1932, during none of which was the budget balanced, were characterized by an outflow of public funds on a scale as ruinous as it was unprecedented, fostered by a continuous stream of willing lenders. A new era of industrial expansion, easy money, and profitable contact with the American continent was looked for and was deemed in part to have arrived. In the prevailing optimism, the resources of the Exchequer were believed to be limitless. The public debt of the island, accumulated over a century, was in twelve years more than doubled; its assets dissipated by improvident administration; the people misled into the acceptance of false standards; and the country sunk in waste and extravagance. The onset of the world depression found the island with no reserves, its primary industry neglected and its credit exhausted. At the first wind of adversity, its elaborate pretensions collapsed like a house of cards. The glowing visions of a new Utopia were dispelled with cruel suddenness by the cold realities of national insolvency, and today a disillusioned and bewildered people, deprived in many parts of the country of all hopes of earning a livelihood, are haunted by the grim specters of pauperism and starvation."
This is the Lord Amulree Commission report of 1933 on Newfoundland. This is how the government finance looked like from the fiscal year 1920-21 to 1931-32:
The report concluded that—
"It will be seen from what has been said above that we do not regard default by Newfoundland on her loan obligations as providing a solution of her present problems; and we are satisfied that any of the proposals or suggestions last mentioned, if accepted, would offer only a temporary alleviation of existing difficulties. There are no other measures which Newfoundland can herself take to avoid default on the 1st January, and we turn now to alternative possibilities the fulfilment of which would be dependent on external assistance. The first of these is the possibility of negotiating some form of political union with Canada."
The story ended only in 1949 when Newfoundlanders voted in a repeated referendum to end their country's sovereignty and join Canada as a province.
So much for extremely indebted countries and their sovereignty.