“game over” – Can countries become bankrupt? How does a national bankruptcy work? What measures would be expected as part of an austerity policy and what effects would this have on the population? Such questions are by no means just hypothetical.
“How does a national bankruptcy typically work?”
>>Night in the Chancellery by Marietta Slomka (book)
“Can Germany go bankrupt? In principle, any state can go bankrupt. Germany has been insolvent twice in modern times, in 1923 and 1948. Both collapses were preceded by world wars. Anyone who thinks they have to conquer the entire world by force has the best chance of ending up on the ground. How does a national bankruptcy typically work? If the economy stagnates or even shrinks while debts grow to astronomical heights, a country will eventually reach a dead point. Nobody wants their government securities anymore, they can no longer take on new debts. If he prints money in his time of need, it will cause his inflation rate to skyrocket and push the population even further into poverty. In the end, the state can no longer pay its civil servants or the interest on the many loans it has taken out. Its currency is no longer accepted abroad, and goods and raw materials can no longer be imported. At some point it’s game over.”
“In the end, the state can no longer pay its civil servants or the interest on the many loans it has taken out”
How could this then?Game over scenario” be designed? In fact, everything in this country is regulated down to the smallest detail, but you will find no government insolvency law, even though the public sector is the single largest debtor.
“There is not a single law in Europe that would regulate the event of a national bankruptcy”
>>The Plunder of the World by Michael Maier (book)
“Law, law and morality are always suspended before someone collapses under the burden of debt. Here too, regimes and states act no differently than ordinary debtors. Anyone who can no longer service their loans will use all sorts of tricks and deception to try to avert collapse. Always hoping that everything would change for the better, he will leave no stone unturned to get his head out of the loop. For this reason, in the case of companies, there are strict rules for “delaying insolvency”: If a managing director can no longer pay the bills of the company he runs, under German law he must immediately go to the local court to announce that the company has gone bankrupt. The Federal Court of Justice has also meticulously listed the reasons for personal liability. Such rules do not apply to states – because they make the laws themselves. Concealment and deception are the last resort when over-indebtedness occurs. That’s why when the Greek crisis broke out, European politicians called for insolvency law for states with a lot of pathos. As soon as the crisis seemed to be overcome, the plan was forgotten. Even six years after the outbreak of the financial crisis, there is not a single law in Europe that would regulate the event of a national bankruptcy. The governments are counting on the fact that you can apparently cheat your way further and further.”
“Delaying insolvency” – “Such rules do not apply to states – because they make the laws themselves”
It is indeed useful to take a closer look at the Greek crisis of that time, as it already foreshadowed many aspects. In fact, the euro actually represents a huge debt community, even if the relevant contracts say otherwise. In comparatively small Greece, the austerity policy was – including all its consequences – already tried once.
“Foreign transfers have been limited or banned”
>>The Euro – From the idea of peace to the bone of contention by Hans-Werner Sinn (book)
“In Greece, Syriza, a radical socialist party came to power together with a radical nationalist party, which persuaded people that the hated austerity policy could be overcome through a referendum, although they overlooked the fact that austerity, i.e. forced austerity , was imposed by the international capital markets, whereas the other countries in the Eurozone made huge amounts of rescue funds available, up to June 2015 at least 31,000 euros for every Greek, 344 billion euros in total. Nevertheless, Greece is bankrupt, as the European rescue fund EFSF officially announced on July 3, 2015. Foreign transfers were limited or banned, account withdrawals were restricted, and finally the banks had to close completely for a while until it was decided to start negotiations on a new rescue program worth 86 billion euros.”
“Account withdrawals were restricted and eventually banks had to close completely for a while”
Public spending was reduced while at the same time the tax burden was increased. Since the euro acts as a common currency and Greece has only a small influence on it in comparison, nothing could sink the currency into a bottomless place. Nevertheless, capital movement regulations should be a cause for concern. In this context, the question remains whether the situation in our country is actually significantly different.
“The financial situation of many municipalities is very tense”
>>City of Weißwasser
“The financial situation of many municipalities is very tense – Weißwasser/OL has therefore imposed a budget freeze, which seamlessly follows on from the “budgetless period” (with almost the same rules, such as the ban on new investments or projects). To clarify, the mayor says: “The municipalities have more and more tasks without receiving more funding from the district, state or federal government. The situation in municipalities in rural areas is particularly tense because there is less income from financially strong companies. It is therefore not possible to compensate for temporary underfunding. There are no reserves. In the end, the municipality has to explain to its citizens that there are cuts in voluntary services and the quality of life locally – or people will be burdened even more. We are now at a point where the financial situation of the smaller municipalities in the region can no longer be explained to the local people.”
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“Municipalities have more and more tasks without receiving more funding from the district, state or federal government”
Austerity policy is sometimes manifested on a small scale. Many cities and municipalities are de facto heavily indebted and are therefore unable to fulfill their tasks fully or only to a limited extent. In some federal states there is also a very worrying picture. The fear of a massive tax increase or an exorbitant special levy hovers over everything. The outlined “Game over scenario” could therefore unexpectedly become a reality.
“Your ratings, also known as ratings or creditworthiness, determine when countries are bankrupt”
“Their evaluations, also known as ratings or creditworthiness, determine when states are bankrupt and how much new debt will cost. The worse the ratings, the more expensive it becomes to incur debt. The debt level also plays a role in determining ratings. What is particularly important for S&P is debt as measured by gross domestic product. … The higher the interest rates, the more expensive the debt becomes. And the level of interest also depends on inflation. If inflation is high, central banks try to counteract it with high interest rates.”
“The higher the interest rates, the more expensive the debt becomes”
The current national debt has already reached enormous proportions. Consequently, if the rating were to be downgraded and interest payments increased, this would not only result in a significant increase in required payments, but it would also make it significantly more difficult to obtain new loans.
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