German Chancellor: “There’s A Rumor Going Around That States Cannot Go Bankrupt. This Rumor Is Not True.”

In an article entitled “Can Countries Really Go Bankrupt?“, Germany’s leading newspaper, Der Spiegel, boldly addresses the fact that the financial crisis might cause a number of countries to go bankrupt.

The article contains the following quote:

“There’s a rumor going around that states cannot go bankrupt,” German Chancellor Angela Merkel said recently at a private bank event in Frankfurt. “This rumor is not true.”

Merkel is not alone in saying this. The Spiegel article quotes two top American economists – Carmen Reinhart and Kenneth Rogoff – who say that states might go bankrupt because they do not understanding the financial crisis, and are repeating mistakes from the past:

It would be an illusion to believe that countries have learned from their past mistakes, US economists Reinhart and Rogoff warn. In fact, another state could go bankrupt at anytime and take its people down with it.

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