Debt crisis of the euro periphery countries: How should debt restructuring be designed?

The debt crisis has hit the euro periphery countries. Christian Kirchner, Humboldt University of Berlin, sees real possibilities for an orderly debt restructuring. For public creditors the procedures of the Club of Paris are relevant; for private creditors a further development of the London Club procedures. It is the task of the European Union to design such procedures. The second stage of assistance could then consist of enabling the debtor state to offer such conditions for the exchange of old loans for new loans that the assumption of this offer is more favourable for the creditors than the present situation. Ansgar Belke, University of Duisburg, sees in the permanent durable rescue mechanism (ESM) a vicious circle. The continuous adding of resources for the relief of the financially weak countries could be regarded as a signal that increasingly larger portions of the losses will be transferred to the private holders of government bonds with longer maturities, since the recently concluded ESM enjoys a preferential creditor status which is subordinate only to the IMF. This in itself is a strong and decisive signal for private creditors, which in the case of an insolvency would be at the end of the queue. Private creditors would be more hesitant to grant loans to the troubled euro countries; a refinancing of these states via the markets would be impossible in the long run. Christoph Degenhart, University of Leipzig, fears that the ESM is a further and presumably irreversible step towards a quasi-federal assistance and liability institution and ultimately towards a transfer union. This major conversion of the Union must not be undertaken via the simplified procedure of a treaty alteration, however; and under no circumstances should the involvement of Parliament be limited to the establishment of ESM. Instead, for the implementation of ESM Parliament should have the right to absolute and constitutive reservations. Joachim Wieland, German University of Administrative Sciences, Speyer, sees, in the debt crisis of several countries of the euro groups, a crisis of the euro. The crisis can only be mastered via the joint efforts of all countries of the euro group and with outside assistance, in particular from the International Monetary Fund. With the introduction of the euro, the members of the monetary community have become closely bound and share a common fate in monetary matters; from this arise not only the obligation to pursue a stable budgetary policy but also to help each other in cases of serious difficulties. The planned creation of the ESM can provide the Union with the necessary legal basis for a lasting safeguarding of the stability of the euro. According to its constitution, Germany can participate in the ESM if this is introduced with the majority needed to change the constitution and if major decisions of the stability mechanism can only be made with the approval of the Bundestag.