The European Union Insolvency Recognition Procedure

The international financial crisis seems to be over, but the next and probably more severe crisis is building up fast: The possible bankruptcy of member states of the European Union. Since many states in the EU have serious difficulties to finance their budget deficits and pay for their external debt, Greece is only the most prominent example of a long list of countries with similar problems. It is a surprising observation that there is no legal provision for such a case, neither in the European Treaties nor in international law, even though historically the list of state bankruptcies is quite long. And also in modern economics, there are almost no articles dealing with this issue. Therefore the intention of this paper is to discuss criteria if and when a state becomes insolvent, who has to pay for the financial damage, how support by international institutions and organizations could be organized, what kind of reforms have to be implemented in these states in order to prevent and avoid similar difficulties in the future, and, finally and most important, which institutional regulations have to be included into a credible and sustainable European Insolvency Code (EIC). In addition to these issues, this paper discusses the specific problem of state bankruptcy within a currency union.