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Does Europe need an insolvency procedure for states?ta>

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  • Michael Hüther
  • Christoph Paulus
  • Kathrin Berensmann

Abstract

Should an EU member state be allowed or required to claim insolvency? This question is currently being discussed within the euro zone. How should an insolvency procedure for states be designed? Michael Hüther, Cologne Institute of the German Economy, fundamentally agrees since without the possibility of insolvency, purchasers of government bonds would not need to make the necessary risk calculations. But an insolvency procedure can only be effective as part of a more comprehensive restructuring mechanism. Christoph Paulus, Humboldt University of Berlin, stresses that the main issue in the case of heavily indebted states is the sustainable restoration of solvency. Instead of using the word insolvency with all its negative connotations, it would be better to use the concept of re-solvency to make it clear that the only goal of a corresponding legal framework is the restoration of a state's ability to function. Also Kathrin Berensmann, German Institute for Development Policy, Bonn, regards an insolvency procedure for states as an important but still lacking instrument for overcoming the indebtedness crises in the European Monetary Union. Such a procedure could bring about a rapid and orderly solution of indebtedness crises and would distribute the burdens among the creditors. But an insolvency procedure is only one of several instruments for the prevention of indebtedness crises in the European Monetary Union.

Suggested Citation

  • Michael Hüther & Christoph Paulus & Kathrin Berensmann, 2010. "Does Europe need an insolvency procedure for states?ta>," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(23), pages 3-15, December.
    • Handle: RePEc:ces:ifosdt:v:63:y:2010:i:23:p:3-15
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    References listed on IDEAS

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    1. Jürgen von Hagen & Jean Pisani-Ferry & André Sapir & Francois Gianviti & Anne O. Krueger, . "A European mechanism for sovereign debt crisis resolution- a proposal," Blueprints, Bruegel, number 446, December.
    2. Nouriel Roubini, 2002. "Do We Need a New Bankruptcy Regime?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 321-333.
    3. Hans-Werner Sinn & Kai Carstensen, 2010. "Ein Krisenmechanismus für die Eurozone," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63, pages 01-17, November.
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