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Whenever debt becomes unsustainable it causes chaos, businesses fail, people lose their homes and livelihoods. There are few winners amongst both debtors and creditors which is why most societies have laws and guidelines for dealing with these situations. Mostly they help minimize the effects and enable a fair resolution on all sides. Often these help people hold onto their homes, businesses keep trading – not always of course but there is at least some sort of protection.
This however has not been the case for sovereign or state debt, the lack of any fair principles has caused chaos, economic and political instability. The latest example is of course Greece, where the crisis has deepened while the arguments go on. The problem is that the lack of agreement hurts both sides – economic output falls due to uncertainty which of course means that the creditors are even less likely to see their money repaid.
However last week we saw what looks like a genuine improvement for nations trying to deal with unsustainable debt problems. The United Nations general assembly has approved a set of guidelines and principles which can be applied to resolve disputes between countries and their creditors. It was passed almost overwhelmingly with 136 voting for, 41 abstaining and only 6 against. The primary hope is that the process will help protect countries from having to make destabilising cuts in order to satisfy aggressive creditors.
The principles are as yet non-binding but perhaps signal a watershed in how bankrupt countries are plunged into disarray in order to meet creditor demands. Nation debt has caused misery to millions across the planet in numerous situations. From Argentina’s default more than a decade ago to ‘vulture funds’, countries like Iceland, Ireland, Greece and El Salvador have also suffered from financial crisis due to debt issues.
It is disappointing but probably not surprising that the few nations which voted against the proposals were the powerful and rich creditors such as the USA, Germany, and the United Kingdom. Even the European Union collectively abstained despite various please for it to join the pro-group.