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Even if the corporation is not over-indebted, there may be the possibility that it may become
illiquid. This will happen when a company has depleted all its available cash and when – at
the same time – nobody is willing to credit new money to the corporation.
Why do I speak out this, what is known to all of you?
I speak it out, because when it comes to government and state financing, there are no such
guidelines / regulations / laws.
There is no regulation and law in the world which regulates the situation, when a country or a
government is bankrupt and which procedures will then have to be taken.
With countries like Greece, presently on the brink of financial collapse, there is the desire in
the European Union by many member countries, since a long time, that it would be wishful to
have regulations that clearly define what a bankruptcy of a state government is, and which
would give clear rules and guidelines, as to how to proceed in such a case.
There are also requests by many politicians at the European level, that such regulations should
be put in place. But as no individual country has such regulations for its own country and
government, it is so much more difficult, to establish such regulations within an association of
states like the European Union.
So, clear rules for state government bankruptcies, remain wishful thinking.
What guidance do we all have when we have to make an opinion about whether a country, a
state and a government have a debt level which is sustainable over a longer term or not.
Here are some answers:
According to the Maastricht Treaty criteria a government debt level of 60 % of GDP is
acceptable.
In the past few years much research and studies have been done by economic professors
worldwide and there is a conclusion of all this research that a government indebtedness in the
order of 100 % of GDP is just about tolerable though not desirable over the longer term. Any
ratio in excess of 100 % is said to make the economic and financial situation problematical for
a government and a country, and it will endanger the possibility for the country to further
grow its economy.
Let us have a look at the government debt ratio of a few member countries of Euroland:
Greece has presently a government debt ratio of 177 % of GDP which – due to the orientation
ratios which I have just mentioned – appears as not manageable over a longer term.
Italy with 132 % and Portugal with 130 % are already both in a problematic range.
France with 95 % is approaching the 100 % ratio which is regarded by many as just about
tolerable.
Germany with 75 % is less indebted, but it is over and above the Maastricht criteria of 60 %,
which, however, the German acting politicians want to reach again over the medium term and
they are striving for it.
At the low end, you find Estonia with only 11 %. The low ratio is partly due to the fact that
after the fall of the iron curtain, countries like Estonia made a new start.
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