Can Countries go Bankrupt?

The IMF has a $250 billion bailout fund for use in emergencies to lend to  countries that could go bankrupt, but this is not enough to cope with today’s mounting crises so some of the rich oil producing states are being asked to contribute to an extension fund.

Ukraine accepted a 40 billion dollar loan from the IMF to avoid bankruptcy, Romania is currently negotiating and Iceland has already taken drastic measures after the collapse of its financial sector. Belarus and Hungary are also on the critical danger list but the UK and Switzerland have serious national debt and currency problems as well.

Iceland has enough natural resources to survive in some way outside of the global financial system but The UK should be especially worried, as one of the main importers of goods in Western Europe. UK national borrowings also tend to be in other currencies so the debt balance will almost certainly increase as the pound sterling weakens against both the dollar and the euro, after printing and lending out huge sums of money to avert the banking and finance sector crisis.

When Gordon Brown the UK prime minister went to tell the Eurozone leaders how to restructure their banking industries along the lines of the UK model this appeared as a great act of economic statesmanship, but I bet Sarkozy and Merkel had a quiet word in his ear about the UK ditching the pound and joining the euro zone eventually. The big question would be at what rate? The present rate doesn’t look too great, having fallen from 1.5 Euros to the Pound down to 1.25 over the past year or so, but as the financial crisis gets worse over the next few months the worsening terms could end up looking look more like a collapse and rescue operation rather than a dignified merger.