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Europa without the Euro – An Insolvency Statute for the Debt Union

Since ECB President Mario Draghi reduced interest rates to nearly zero, Europe has been flooded with cheap money. For weeks now, the president of Europe’s only bad bank has been purchasing government bonds to alleviate the crisis in Europe. This game is a kind of race, and the financial health of the Eurozone countries is at stake as a crash looms. With this knowledge alone, politicians must finally develop alternatives to the euro.
This game is risky because fresh money does not necessarily stimulate the economy as politicians hope it does, so they can stay in power and continue to dream about a united Europe. Politicians in all of the euro countries tell us that it will bring growth. Bankers, especially central bankers, like to talk about cash injections. EU Commission President Jean Claude Juncker refers to it this way and has an economic programme to get Europe back on its feet that will have little effect, since interest rates have long been below value because these types of programmes are merely a redistribution from bottom to top, always to the detriment of the worker.
Juncker must know this; Draghi must know this, and must also know that everyone on the market is aiming at future interest rates. Instead of assuming the current interest rate, shareholders, agents, suppliers, consumers, entrepreneurs and bankers speculate on possible future rates. They want greater yields. It is doubtful, which is not to say impossible, that this will occur. Because the overall effect is that the money is not flowing in because actual yields are not as promising as they thought they would be. Instead of trying to rescue the euro from the abyss and pump it back into the market, companies must be called upon to invest so that the market starts to move again.
British economist, politician and mathematician John Maynard Keynes (1883-1946) was the first to describe this effect, which he called the “liquidity trap,” in which the market is flooded with money but there is no upturn. If this effect occurs, the European economy will soon be bankrupt. The national budgets are already bankrupt. All legal, and controversial, aid has been ineffective, because loans, i.e. debt, are paid off with more loans, i.e. debt.
In light of this virtually hopeless situation, business associations have demanded change. On Monday, 20 April 2015, according to the German Press Agency (DPA), umbrella organizations of German industry demanded a policy change from the German government. According to the daily newspaper “Bild,” quoting a manifesto signed by the Federation of German Industries, the Federation of German Employers and the New Social Market Economy Initiative, one of the aims is for employees to live well, safely and with social justice in the future. The manifesto says the current course on which the great coalition is on was determined by regulations, bureaucrats, an entitlement mentality and redistribution plans. In the future, they say, we must generate prosperity once again, namely by improving the infrastructure, attracting skilled immigrants and increasing investment in education. What they left out is that the big companies make big profits on the stock markets, hardly any of which flows into the economy. When the state needs something, companies are not willing to come to its aid, but ask for its help when businesses are threatened. It is precisely in this sector in which the balance is utterly lost, and business, government and finance finally give up on the euro experiment and think about reforms.
For this, those responsible will have to admit some facts followed by immediate action:

  1. The euro has failed.

  2. It is time to end the experiment.

  3. Establish an insolvency procedure and enforce of bankruptcy for all euro countries.

  4. Immediate currency reform in the 18 euro countries, particularly Germany: creation of a non-allocation-based retirement and pension system.

  5. Suspend national and EC treaties related to the euro that hinder such reforms.

  6. New elections in the individual euro countries. Each country elects a new national government without European influence.

  7. Planning and negotiations to set up a democratic, legally secure and economically healthy community based on equal partnerships to serve the people.

  8. International support until the currencies of the individual countries have recovered to a reasonable level of competitiveness.

  9. Disclosure of the intentions of all countries regarding how they see a future European community, and the introduction of the appropriate legal foundations. For Germany, this would mean: recognition of the country as a sovereign state in the world, which would involve, above all, severance from the U.S., which controls Germany. In addition, a new constitution that would finally be created with and imply the full political participation of the people. Our proposal for this can be found in our book “ The German Disaster: How the Germans were cheated of their Democracy and why the Prospects for Europe can scarcely be better” on page 195 ff and starting on p. 231 “A New Constitution for Germany.“

  10. Establish a committee and appoint a person (jurist, economist) to determine criminal offences stemming from the perversion or violation of the law since introduction of the euro, and move to initiate legal proceedings (modelled on the Nuremberg Trials).

  11. Replacement of all middle and senior managers at the IMF and other financial organizations.

  12. Abolition of any curtailment of press rights and of justice by political parties, politicians or any other institutions associated with them in any way (economic institutes, public ministries, authorities and office holders).

  13. Obligation of all former euro countries to sign a non-aggression pact.

Each of these steps would have to be taken not because Europe has failed but because it lost a poker game with its currency that was run by inept politicians to the detriment of all workers, pensioners, benefit recipients, children and young people.
The former euro countries would then have to take control of their own affairs again, to determine their own economic and budget objectives, to sign their own trade agreements and set new goals. Austerity programmes and borrowing will have their place, but only to the extent they help strengthen the local currency.

The controlled exit from the euro will be achieved via an insolvency procedure approved by the former euro countries. The IMF has required such a national insolvency procedure since 2002. Professor Anne O. Krueger, onetime deputy managing director of the IMF, played a leading role in this with her report “A New Approach To Sovereign Debt Restructuring”. The U.S. prevented the insolvency procedure from materializing – but then its plans to boycott the European Union did not work. The U.S. does not want a financially strong Europe, but a sickly Europe that can be eviscerated by U.S. companies at any time. Nevertheless, the UN General Assembly adopted a resolution on 9 September 2014 to establish multilateral legal framework for sovereign debt restructuring processes. However, no action followed this resolution.

When a state is insolvent, its payments are suspended. This does not require any regulation. If there are no foreign assets, creditors can no longer enforce their claims. The legal status of the claim becomes the theory, default becomes the reality.

The divide between law (claims) and social reality (default) is a legal-philosophical problem. Is the law still the law when it no longer applies?
The professor of law Georg Jellinek first stated the theory of “the normative power of the factual.”
This problem also affects the legal practice. Laws not adapted to social reality are abusive to citizens. Using the law to continue squeezing a bankrupt state and force it to repay its debts leads to social catastrophe, poverty, a breakdown of social services, and economic decline. Of course, indebted countries can seek negotiations and work out solutions with their creditors without a legal framework, but that would be difficult, because public debt would no longer be simply public debt.
Up until the 1980s, the debt structure of a country was relatively easy to understand. The creditors were other countries and major banks. Solutions were negotiable (waiver/partial remission/postponement of maturity). Since the 1980s, the debt structure has changed. Instead of a few main creditors, there are now many creditors pursuing different interests. Therefore, solutions are not negotiable anymore. Even if an agreement is reached with a large number of creditors, some withdraw and insist on 100 percent. Consequently, a legal/institutional framework is required for negotiated solutions in which the majority of the creditors can reach an agreement with the debtor nation that is also binding for the opposing minority. This must also be established in an insolvency procedure for the European Union.

The inevitable question is, what would a national insolvency procedure look like? The national insolvency procedure could be oriented on the insolvency procedure for companies. It would be necessary to include the following in the law:

1. Prohibition/stay on creditor enforcement
During the insolvency proceedings, creditors cannot enforce/execute their claims. In bankruptcy law, this is called a “prohibition on enforcement” (in the interest of full enforcement with the goal of a satisfying all creditors equally). Krueger refers to it as a “stay on creditor enforcement.“ This entails two things: 1) Creditors should be treated equally and 2) the debtor is protected from the claims of the creditor, and not (initially) broken up /liquidated, etc.

Protection of creditor interests
The receiver confiscates the assets. He ensures that the assets are not disposed of by illegal means or that individual creditors are given preference.

Insolvency asset liabilities / facilitate new financing
New debts (so-called asset insolvency liabilities) are given priority over old debts (insolvency claims). This is so a company, for example, remains viable during insolvency proceedings. Otherwise nobody would make any deals with the receiver.

Binding decisions by a qualified majority
The (qualified) majority of creditors can reach agreements with the debtor that are binding for all creditors. Individual creditors cannot stop the process.

Two restrictions must apply to these broad guidelines:
  1. The (indebted) state remains sovereign during insolvency proceedings. This means the state in question decides whether and when to initiate proceedings. The state cannot be forced to initiate insolvency proceedings. If the proceedings are initiated (at the request of the state in question), there is no receiver to take the place of the legislature and government. The government and legislature maintain political responsibility. Where applicable, however, the interests of creditors can be taken into account in political/economic measures (e.g. reforms or austerity measures such as those customarily used in IMF programmes).

  2. A state cannot be liquidated. The objective is therefore not the maximum satisfaction of creditors but the reduction of public debt to a tolerable level. The level of debt must be the benchmark.

The Eurozone is on the verge of bankruptcy. Politicians and the ECB are acting with gross negligence. It is time to think about abandoning the euro and helping each euro country to get back on its feet with an orderly state bankruptcy procedure. The Eurozone countries now have the chance to reform. If they miss this opportunity, Europe will be threatened with collapse and devastating consequences such as famine, war and a new kind of fascism.
Politicians and financial leaders must finally act responsibly. It is also time for the European people to fight back against this policy and stop believing that the euro will be preserved. The euro has brought about its own ruin. Only a few people in high finance have benefitted from it. In a reformed Europe, high finance must be controlled, and so must politicians. This is a task for the future to make Europe what it was before: a peaceful alliance of nations that continues to develop. Each country acting in the interests of all Europe, not in the interests of a few Eurocrats.
Anyone who believes this future is far off now is mistaken. If politicians do not take control of high finance soon, it will take less than 10 years before these grievances lead to war and tear Europe apart. Let’s not allow the politicians to continue making mistake after mistake and destroy Europe’s peaceful coexistence.
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