Crisis Talk at Humboldt University

By ISABEL FEICHTNER

It’s easier to talk about love than about the debt crisis. Talking about the debt crisis, however, can be lovely. The conference “A Debt Restructuring Mechanism for European Sovereigns. Do We Need A Legal Procedure?” at Humboldt University on January 13 and 14 was a demonstration of lovely crisis conversation.

Christoph Paulus, Professor of Private Law at Humboldt University, had convened a group of economists and lawyers, academics and practitioners from Europe, the USA, Latin America and Japan to discuss causes and responses to the European debt crisis. Even though the emphasis of the conference lay on Europe, and more specifically a formal restructuring mechanism for sovereign debt in Europe, voices from outside enriched the debate, presenting legal approaches to the indebtedness of states and municipalities in the United States and Japan.

Listening to the presentations and debates was in several ways reassuring. Not only was the tone and atmosphere so cordial and friendly, the discussions also conveyed the impression of broad consensus among the presenters as to the feasibility and desirability of legal procedures for an orderly debt restructuring.

Some of the participants are directly involved in the ongoing crisis management. Among them Ludger Schuknecht, economist at the Ministry of Finance, who stood in for Finance Minister Wolfgang Schäuble. His speech did not surprise – the essence being: We are on the right track – dealing with the current crisis as well as preventing and addressing future crises. He stressed the importance of avoiding a disorderly default and the need for a more rule-based governance – the latter to be achieved through the European Stability Mechanism and reforms to the Stability and Growth Pact’s preventive and corrective arms, including the new fiscal compact. His optimism also extended to the ongoing negotiations on private sector involvement (i.e. the voluntary taking of losses by private investors) in the handling of the Greek crisis which were likely to be concluded successfully (on Friday evening successful conclusion still was not in sight). The crisis countries themselves had to address the root causes of the crisis by reducing public debt and budget deficits and increasing their competitiveness. This required structural reforms including spending cuts and flexibilizing labour markets. With respect to the narrower conference topic, Schuknecht pointed to the decision of the European Council of 26 March 2011 to include collective action clauses in all new euro area government securities from July 2013.

A number of people in the audience, myself included, wished the speaker would concretize the recent intentions of Merkel and Sarkozy to address unemployment, explain how the small steps towards financial regulation taken so far would restore the primacy of…