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EU Countries To Get Legal Protection from Bankruptcy?

eu bankruptcy protectionThe European Parliament has adopted an amendment to new fiscal union rules, giving the European Commission the authority to give legal protection to EU member states on the verge of default.

Once under such protection, a country could not be declared to have defaulted, its creditors would need to make themselves known to the Commission within two months, and loan interest rates would be frozen, according to the amendment.

The amendments were introduced by Jean-Paul Gauzès (EPP, FR) and Elisa Ferreira (S&D,PT).

"With such rules in place two years ago we would have avoided the problems currently experienced by some countries since early and clear actions would have been taken," said Gauzès.

"Fiscal discipline cannot be the Alpha and Omega of our strategy. We need to rebalance our short term objectives to also address growth and the vicious spiral of high debt-financing interest rates,"said Ferreira.

The European Parliament also proposed a European Debt Redemption Fund which would be set up to group together all Eurozone members' debt which exceeds 60% of their GDP. Currently amounting to around €2.3 trillion, this debt would then be repaid over 25 years and at a lower average interest rate. This would provide breathing space for countries to carry out difficult structural reforms and would also help to break the spiral of high interest rates, higher debt, and less growth, said the EP in a statement.

As to longer-term solutions, one month after the legislation's entry into force, the Commission would also be required to present a roadmap for introducing Eurobonds and a proposal for a growth instrument which would mobilise 1% of GDP per year, or around €100 billion, over ten years, for infrastructure investments.

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