10

What happens if one of the European Union countries goes bankrupt?

Suppose I have money (bank deposits at local banks) in US dollars, Euros and local currency (I'm not in the US). Now one of EU countries goes bankrupt. What happens to my money?

Improve this question

3 Answers 3

Reset to default
5

If one of the EURO countries goes bankrupt, then it will destablise the entire financial industry. IE there would be many financial institutions [Banks, Credit Union, Pension Funds, Insurance Funds, Corporates] that are holding EURO Investments in that country will loose their money and this will have a cascading impact ... similar and much bigger than US Sub-prime crisis of 2008.

So if your money is in EURO and you are staying in EURO countires, the inflation will mean your money is of less value ...

If you are holding USD and staying in EURO and country goes bankrupt then chances are that it will loose value with USD and hence you can convert them to EURO and spend more EUROs to buy the same items ...

Improve this answer
1
  • There are also many chances that the bank where you deposited your money go banckrupt (cause banks are usually packed of bonds emitted by sovereigns) and then its ATM won't spit out your money anymore at all (even if they are in dollars).
    – Marco Demaio
    Sep 6, 2011 at 10:30
11

Sovereigns cannot go bankrupt. Basically, when a sovereign government (this includes nations and US States, probably political subdivisions in other countries as well) becomes insolvent, they default.

Sovereigns with the ability to issue new currency have the option to do so because it is politically expedient. Sovereigns in default will negotiate with creditor committees to reduce payments. Creditors with debt backed by the "full faith and credit" of the sovereign are generally first in line. Creditors with debt secured by revenue may be entitled to the underlying assets that provide the revenue.

The value of your money in the bank in a deposit account may be at risk due to currency devaluation or bank failure. A default by a major country would likely lock up the credit markets, and you may see yourself in a situation where money market accounts actually fall in value.

Improve this answer
7

It depends on what actions the European Central Bank (ECB) takes. If it prints Euros to bail out the country then your Euros will decline in value. Same thing with a US state going bankrupt. If the FED prints dollars to bailout a state it will set a precedent that other states can spend carelessly and the FED will be there to bail them out by printing money.

If you own bonds issued by the bankrupting state then you could lose some of your money if the country is not bailed out.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .