Yes, we should indeed have a form of sovereign bankruptcy:
Unfortunately, no mechanism like this exists for countries, which is what has made sovereign debt crises so difficult to manage. Because they don’t have any legal protection from creditors in times of trouble, countries typically postpone the necessary restructuring of their economies by piling on more debts in the (usually unfulfilled) hope that the situation will somehow resolve itself. This makes the debt problem bigger than necessary.
What’s more, because they cannot officially go bankrupt, countries face a stark choice. Either they default and risk exclusion in the international financial market (although countries can overcome it quickly, as Russia and Malaysia did in the late 1990s) or they have to opt for a de facto default, in which they pretend that they have not defaulted by making full repayments on their existing loans with money borrowed from public bodies, like the International Monetary Fund and the EU, while trying to negotiate debt restructuring.
Better by far to be able to declare, yup, we’re broke, now, what do we do about it.
Except, except, there’s one glaring problem here:
All national bankruptcy laws allow companies with too big a debt problem to declare themselves bankrupt. Once bankruptcy is declared, the debtor company and its creditors are forced to work together to reorganise the company’s affairs, under clear rules.
First, a standstill is imposed on debt repayments – for as long as six months in the case of the debtor-friendly American bankruptcy law. Second, subject to the majority (or in some countries a super-majority of two thirds) of them agreeing, creditors are required to accept a debt reduction programme in return for a new company management strategy.
“New company management strategy” in nation state terms is “the government will stop fucking up like it has been”. Or, if you prefer, a sovereign bankruptcy would insist that the nation state is no longer sovereign.
Which is fine by me. The people who get fucked over when governments go on the rampage are the citizenry. Turfing out the rampagers as a condition of aiding the citizenry sounds like a good idea to me. Except, ofcourse, it’s colonialism, a denial of democracy and, erm, national sovereignty.
And there isn’t actually a way around this little point. If for example, Argentina declared bankruptcy then Christina would, necessarily, be out on her ear and the electors be damned.