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> “Every country has adopted a bankruptcy law,” said Joseph Stiglitz, a former chief economist at the World Bank, “but internationally we don’t have one.” The U

> “Every country has adopted a bankruptcy law,” said Joseph Stiglitz, a former chief economist at the World Bank, “but internationally we don’t have one.” The United States, though, has repeatedly opposed the idea, saying it is unnecessary. I don't know when the US said it's unnecessary, but it certainly is unfeasible. Normally, when you are not solvent, you go to a bankruptcy court. The deal is that you accept the court's rulings and the creditors accept them too, and if anyone's unhappy, they can argue within the confines of the judiciary system, and the law enforcement is always present to make sure everyone plays nice. None of these things exist in an international setting. And the most important missing piece is the law enforcement. If we set a bankruptcy court in Hague, let's say, and one of the parties does not respect its rulings, what exactly is the consequence? You can set up such a court, but it would lose its legitimacy in no time as more an more parties will disregard what it says.

Eridrus 3y ago
Internationally binding arbitration does exist and is written into trade agreements regularly, e.g. ISDS. As long as the disputes are small enough to not call into question the entire trade agreement/framework, you can have a backstop that makes this enforceable. The countries that are signatories agree to comply with the decisions so that they remain in good standing wrt the trade agreements.
- credit_guy 3y ago
  Ok, fair enough. But here we are talking about sovereign defaults. They are not small.
  - Eridrus 3y ago
    They are still relatively small on the scale of all international trade. This article talks about a $44bn debt. And a bankruptcy court does not have to write off debts entirely; it could force new interest rate agreements, fractional haircuts, etc. I think the bigger question is really if people want such a system or not: would the EU be willing to put tariffs on Chinese goods because they were refusing to restructure Argentinian debt? Would China ever sign on to such an agreement? I do not think they would, but the issue is not that such a system is impossible, it is that people have to want it and be willing to stake something larger as collateral (i.e. trade) in the first place.

Eridrus 3y ago

Internationally binding arbitration does exist and is written into trade agreements regularly, e.g. ISDS. As long as the disputes are small enough to not call into question the entire trade agreement/framework, you can have a backstop that makes this enforceable. The countries that are signatories agree to comply with the decisions so that they remain in good standing wrt the trade agreements.

credit_guy 3y ago
Ok, fair enough. But here we are talking about sovereign defaults. They are not small.
- Eridrus 3y ago
  They are still relatively small on the scale of all international trade. This article talks about a $44bn debt. And a bankruptcy court does not have to write off debts entirely; it could force new interest rate agreements, fractional haircuts, etc. I think the bigger question is really if people want such a system or not: would the EU be willing to put tariffs on Chinese goods because they were refusing to restructure Argentinian debt? Would China ever sign on to such an agreement? I do not think they would, but the issue is not that such a system is impossible, it is that people have to want it and be willing to stake something larger as collateral (i.e. trade) in the first place.