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German Economic Advisers Propose Bankruptcy Mechanism Within the Eurozone

European central bankOn Tuesday, the German “wisemen,” five independent economic advisers, argued in favor of creating a mechanism that would allow Eurozone countries to go bankrupt, Reuters reported.
“To ensure the cohesion of the monetary union, we have to recognize that voters in creditor countries are not prepared to permanently finance debtor countries,” Chairman of the German Council of Economic Experts Christoph M. Schmidt said.
According to the independent advisers, establishing this bankruptcy mechanism would have impacts across the board. On one hand, debtors will know that bailout policies are not the only option on the table. On the other hand, the potential of loss of payment for creditors -due to bankruptcy- would cause investors to analyze sovereign risk more thoroughly.
The “wisemen” also disapproved measures such as a Eurozone treasury, arguing that such measures that bear no sovereignty loss for nations but at the same time impose a collective responsibility in the face of problems would further undermine the Eurozone.
The independent advisers noted that a country’s exit from the Eurozone should only be a last option.

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