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Economists demand EU sovereign default plan

The Local · 25 Feb 2011, 11:54

Published: 25 Feb 2011 11:54 GMT+01:00

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"We call on the German government to take measures in event of a failure of the European rescue mechanism and to quickly establish with European partners a detailed plan to manage the bankruptcy of heavily-indebted eurozone countries," said a text published by the Frankfurter Allgemeine Zeitung daily.

More than 200 professors were invited to sign the document, and 189 did so, including prominent figures such as Manfred Neumann of the University of Bonn and Justus Haucap of the University of Düsseldorf, both in western Germany.

Instead of the collective support mechanism set up last year that could be made permanent in a modified form from 2013, the economists argued it would be better to let countries restructure their debts.

"Restructuring allows the countries concerned to reduce their debt and start over," said the economists.

The solution being mulled at present and likely to be approved by European leaders next month would amount to "a permanent guarantee" of some countries' debt, with "very serious consequences," they added.

The signatories also doubted the effectiveness of measures to reinforce the competitiveness of weaker eurozone countries and control members' public finances owing to the European Union's "limited firepower."

The document was published as lawmakers from Chancellor Angela Merkel's ruling coalition sent her a clear message ahead of negotiations on a permanent EU rescue plan to take place in Brussels.

Story continues below…

The German deputies said the future European Stability Mechanism should not be allowed to buy eurozone government debt, as the European Commission and European Central Bank would like.


The Local (news@thelocal.de)

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Your comments about this article

15:53 February 25, 2011 by tallady
It would be unpleasant to be a citizen in a country that files bankruptcy with in the EU,,retirement, assistance programs ,taxes, interest rates ,property value to name a few would most likely be issues.

The idea of a broad based standard of living across the Euro zone is in the trash.

It's back to the have and have nots as it always has been.
16:22 February 25, 2011 by elboertjie
By creating these bailout funds, everyone becomes poorer due to the diluted value of the fiat currency called 'euro'.

By bailing out entities, banks or countries that goes bankrupt, we not only remove a vital feedback mechanism of failure in the market, but we punish those that did make good choices.

Allow people to succeed and allow people to fail. Governments should get out of the way.
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