Without an Insolvency Procedure for Sovereigns, Europe is on Course to Become a Transfer Union

The next German government should not agree to any reform of the Eurozone that does not include the introduction of an insolvency system for Member States deep in government debt. To mark the founding conference of the „European Network for Economic and Fiscal Policy Research“ (EconPol Europe)), ZEW research department head Professor Friedrich Heinemann today in Brussels presented an outline of a potential Eurozone reform.

“A far-reaching compromise on the reshaping of the Eurozone should, on the one hand, be based on ideas like those put forward by French President Emmanuel Macron, who has suggested that the EU engage in new projects in the area of security and defence. On the other hand, one issue that cannot be avoided is the need to find a credible solution for Member States deep in government debt. While there are a wide variety of ideas involving new EU budgets and lines of credit, many of the current suggested reforms to the Eurozone have a blind spot in that they lack any concrete vision of how to deal with Member States who are insolvent so that they are unable to fully honour their debt obligations even when the overall economic climate is favourable.

After what happened with Greece it is not unthinkable that, in the future, other, considerably larger, Member States could also fall into insolvency. Without some kind of defined insolvency procedure for these countries, Europe is about to set up a transfer union that will no longer find acceptance in Northern Europe. This could lead to the emboldening and, in some cases, the success of anti-EU movements in other Member States. In order to satisfy critics, Eurozone reforms must combine solidarity with individual accountability, or else they are doomed to fail.”

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49(0)621/1235-149, E-mail friedrich.heinemann@zew.de