The word “Bankruptcy” has a bad connotation in any language….faliment (Romanian)… Ð±Ð°Ð½ÐºÑ€Ð¾Ñ‚ÑÑ‚Ð²Ð¾ (Russian)…bancarotta (Italian)…fÃ©imheacht (Irish). They all mean the same thing: Unable to pay off a debt. And, therefore, headed to court to have one’s creditors divide one’s remaining assets.
HISTORY OF BANKRUPTCY
Modern bankruptcy came into being in the middle of the 15th Century. Prior to that, people who could not pay their debts in Asia were killed; in Ancient Greece, they were placed into slavery; in Israel, after seven years, the debt was forgiven; and amongst the Muslims, debtors were either forgiven or given endless time to repay.
Today, in Europe and in the U.S., insolvent debtors, who are mere citizens, have their assets taken and given to their creditors. But, this cannot happen to Sovereign Nations. It would be an act of war, for another nation, or nations to enter a Sovereign Nation and try to seize assets.
If, for example, Greece cannot repay the money lent to the country by the world’s investors, those investors simply lose the money they lent. There is no international mechanism that will force a Sovereign Nation to repay a debt.
However, the result of such a default would be the complete drying up of credit to the defaulting nation. We already see that lenders to Greece and the other financially weak countries are demanding extremely high interest rates. These high interest rates will eventually paralyze the defaulting country and it will not be able to participate in international trade.
In the case of EU members, defaulting countries will be unable to contribute to the EU apparatus, and the EU will be forced to remove the defaulting country from EU membership. Such a removal would weaken the EU currency, the Euro, because the collective base for the Euro would be smaller.
This is well understood by the solvent countries and they dread the consequences of any default by any EU country.
If the Euro falls in value, the banks in the solvent countries will lose the purchasing power of the Euro denominated bonds that they hold. Exporting countries, such as, Germany and the Netherlands, will receive devalued payments for their goods. Deflation will result, worsening an already weak economy.
THE EU TRIES TO POSTPONE DEFAULT
We are seeing the strong members of the EU, stepping in to Greece yesterday, Ireland today and Portugal tomorrow, to try and prevent default. How? By lending money to the weak countries!
This is a major error.
The weak countries who receive the loans, Greece and Ireland, are being forced to reduce their budgets, in order to repay the loans. This, in effect, reduces their capacity to repay, as their economies sink lower as workers are fired and taxes are raised. The accumulating interest on the new loans will make the weak countries weaker. It is already pushing Greece and Ireland into deeper recessions.
Workers in Greece and Ireland are emigrating to other countries in search of jobs. Tax receipts will be lower in both countries.
PORTUGAL, SPAIN AND ITALY ARE NEXT
It is obvious to the investors of the world that Greece and Ireland are only the beginning. The other weak countries will be demanding the same help within six months.
The situation has not been resolved, it has been postponed. In this process of postponing, a large sector of the EU is seeing its GDP go down. When the debt arrives for complete payment, there will be no money.
The EU (and the US) is avoiding reality. They unrealistically want to keep their dream of a Common Market, Common Currency and Common Passport. But, the citizens are unwilling to make the enormous sacrifices to pay for this enormous beaurocratic burden. On the contrary, these citizens want to work less, retire early and eat more.
In the past, the solution was to borrow from the world’s investors. The day or reckoning has arrived. Ordinary citizens would be hauled to bankruptcy court. Sovereign nations stretch out their hand for more.
Borrowing again will produce an impossible tomorrow.Better to face reality and live alone.
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