EU Debt Write Off: Cancelling Debt when a Country is Both Debtor and Creditor

Anthony J. Evans and Terrence Tse • http://econ.anthonyjevans.com • August 24, 2012

This page presents the results of a simulation conducted by students at ESCP Europe Business School. The aim was to uncover the amount of interlinked debt between Portugal, Ireland, Italy, Greece, Spain, Britain, France, and Germany; and then see what would happen if they attempted to cross cancel obligations.

The results were astounding:

  • The countries can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58%
  • Six countries – Ireland, Italy, Spain, Britain, France and Germany – can write off more than 50% of their outstanding debt Three countries
  • Ireland, Italy, and Germany – can reduce their obligations such that they owe more than €1bn to only 2 other countries
  • Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP
  • France can virtually eliminate its debt – reducing it to just 0.06% of GDP

For more information download the full report: The Great EU Debt Write Off (.pdf).

The idea is very simple – if Portugal owes Ireland €0.34bn of short term debt, and Ireland owes Portugal €0.17bn, we can write off Ireland’s obligations and leave Portugal with a reduced debt of €0.17bn. If you are both a debtor and a creditor you do not need money to settle claims. Rather than require additional funds to deal with choking debt, why not write it off?

Read the entire article here.
Get the report (.pdf) here.

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3 Responses

  1. Reblogged this on Xenotopia and commented:
    If any aspect of the chaos of the Eurozone crisis strikes you as slightly crazy, read this. It truly is completely insane. Why do we let these people run things again…?

  2. Thanks for the comment, Angus!

  3. I don’t leave a ton of comments, however i did some searching and wound up here EU Debt Write Off: Cancelling Debt when a Country is Both Debtor and Creditor | Public Banking. And I actually do have a couple of questions for you if you don’t mind.
    Could it be only me or does it give the impression like some of the
    comments come across as if they are left by brain dead
    folks? :-P And, if you are posting on other sites, I’d like to follow everything fresh you have to post. Would you make a list of all of all your social pages like your linkedin profile, Facebook page or twitter feed?

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