With the collapse of the crisis

European policy had long is excluded sovereign defaults in the euro zone, it is perfectly clearly. Instead, it has the hope that debtor countries through structural reforms again take root and will achieve an effect of growth of debt. It is now clear: The reality has overtaken hope. Bankruptcy_2Some euro countries sit so deep in debt that short-term correction is not possible. A change in strategy is necessary.

It comes to ​​without a debt restructuring, i.e. a de facto bankruptcy. It will be a debt spiral for the debt-ridden euro countries. Granted, the incentive effects are bad. The over-indebted countries such as Greece will increase dramatically declaring bankruptcy to its creditors. Other countries could also follow suit. The default of a euro member state is expected to trigger shock waves that to act far beyond the affected country. The risk premiums for other euro area countries with high public debt would be driven suddenly into the air.

This will increases greece their funding costs. This domino effect could lead to a meltdown of equity and of sound financial institutions. In this case, will be necessary the support of insolvent countries through Community assistance. The money is needed to recapitalize their banks. At the same time as consideration, must structural reforms are under way. It is good that the Greek drama is not for European tragedy. Maybe some of you are wondering whether it would be better if the private creditors were involve at the disposal of the situation.

To simply over-indebted countries, such as Greece may be hope for a declaration of bankruptcy to the detriment of its creditors. We wish to rid of this. Structural reforms are suddenly no longer, so urgent and other countries could follow the example. Nevertheless, things should not work this logic. This would not lead to positive development. As you can see from Argentina, can such a country be ruled out in the end from the capital market?

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Thus, the structural reforms are already enforced by the fact that the borrowing is radically reduced to zero; also even the remaining debts must be serviced.