In a special report for the German government, the Council of Economic Experts advocated on Tuesday (28 July) for lawmakers to reinforce the architecture of the monetary union.
Such measures should include a possibility to exit the eurozone, the government advisors said.
“A member state’s long erm unwillingness to cooperate can threaten the stability of the monetary union,” the special report read. As a result, the country’s withdrawal from the monetary union should therefore be available as a last resort, the authors said.
An integral component of improving the architecture of the monetary union is regulation of insolvency for states nearing bankruptcy, according to four of the five researchers.
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Like the creditor investment plan which is in place to deal with bank collapses in Europe, sharing losses in state bankruptcy should also be possible, they said. For investors, this offers the benefit of being able to more accurately assess the risk of default in state debt.
But the researchers said insolvency proceedings should not be initiated immediately. Instead, a transition phase should be implemented.
Researchers from the Centre for European Economic Research (ZEW) was also in favour of a regulated insolvency procedure.
It should be applied when loans from the European Security Mechanism (ESM) do not help improve the creditworthiness of a country threatened by bankruptcy, the researchers said.
After at least three years without improvement, the country would have to negotiate “restructuring of debt” with creditors and ESM, ZEW analysts indicated.
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