Managing the next debt crisis: A briefing paper for European legislators and decision-makers
This briefing examines recent reform proposals to manage future debt crises by international organisations– one from the International Monetary Fund (IMF) and one from the United Nations – and spells out next steps in the process. It also makes concrete recommendations with respect to the role of Parliaments and steps that legislators and decision-makers can take in coming months to ensure that Europe influences future effective debt workout mechanisms that are responsible, fair and humane.
The world is faced with increasingly complex sovereign debt situations, and the institutions and the instruments they use to tackle these crises are often inadequate and harmful to the most vulnerable in affected societies. The UN Financing for Development Conference in 2015 will be a unique opportunity to change the way debt crises are being managed to avoid forced ‘defaults’ like the one Argentina has recently faced, or crushing financial collapse like the one that Greece has experienced.
This briefing finds that:
- It is vital that a responsible debt workout mechanism for cases of sovereign insolvency is established and integrated into the international financial architecture.
- The UN’s current proposals for development-friendly debt workouts based on human rights and responsible financing - which is the co-responsibility of creditors and debtors - offer the best chance of ensuring that countries can restructure their debts in an effective, sustainable and humane way.
European decision-makers and legislators can make this a reality by:
- Supporting initiatives for a resolution establishing a Multilateral Convention on sovereign debt workout at the United Nations General Assembly.
- Calling on the UN’s Financing for Development Conference in Addis Ababa in 2015 to promote the institution-building process for an international insolvency procedure.
- Ensuring that any new international insolvency regime is mandated to deal comprehensively with debt problems, is independent of creditors in analysis and decision-making, provides a human needs-based approach to debt sustainability, and gives all stakeholders the right to be heard.
- Integrating debt (debt workout, debt sustainability and responsible lending) into the EU’s Policy Coherence for Development Framework, and defining debt reduction as an explicit aim of the EU’s development cooperation with third countries.
- The European Parliament should also recall and strengthen its earlier motion for an international insolvency procedure or fair and transparent procedure, and urge the EU to immediately take necessary steps for implementation.
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The briefing is also available in French