External publications

Escaping from the debt trap

Berensmann, Kathrin
External Publications (2022)

published on www.danc.eu, 07.04.2022

Volltext/Fulltext

The Covid-19 pandemic has significantly worsened the debt situation in many developing countries. According to the World Bank and the International Monetary Fund (IMF), around 60 % of the world’s poorest countries are now heavily indebted. The big questions are how debt crises can be prevented and how a global debt governance system should be designed. One instrument for tackling sovereign-debt problems would be an insolvency procedure for sovereign states. Germany’s new Federal Government has expressed support for such an innovation in its coalition agreement. The idea is to create a legal framework that would serve to clarify which creditors will be serviced to what degree – to some extend similar to private-sector insolvency. It would provide a predictable and transparent roadmap for debt restructuring and, when necessary, debt relief and it would therefore permit swift and systematic action. An insolvency procedure for sovereign states is missing from the toolbox of global governance.