Bail-out and bailout (also used in German, more rarely rescue operation)

Generally, rescue by way of debt relief by third parties (a situation where a bankrupt or nearly bankrupt entity, such as a corporation or a bank, is given a fresh injection of liquidity, in order to meet its short term obligations). A distinction is made between – private sector bail-out, in which a company such as a bank is saved from insolvency by another institution, by the central bank, by the state, – domestic bail-out, in which the solvency of a state institution – municipality, county, country, state-owned enterprise – is broken by assistance from another public body, and – international bail-out, in which a state is supported by another state or by international organizations such as the International Monetary Fund. – A non-bail-out clause is built into the EU Treaty (Article 125 TFEU): the Community is not liable for the debts of any public entity in the member countries. Admittedly, many feared from the outset that exceptions could be made in emergencies by a corresponding decision of the European Parliament. – In the course of the financial crisis that followed the subprime crisis in 2007, there was talk of bonds issued by the EU Commission, the proceeds of which would be passed on to states that themselves hardly enjoy any confidence on the capital market. It was also thought possible for the ECB to buy government bonds on the secondary market – it is expressly forbidden to do so on the primary market under the EU Treaty – in order to stabilize prices, which it did. However, these are measures against the spirit of the no-bail-out clause, which is supposed to prevent moral hazard at the sovereign level. The temptation is for national governments to engage in lax spending behavior if they can count on other members taking on some of their debt. A “race to fiscal indiscipline” would be the consequence; and necessary adjustments of the national economy would thus be postponed. – The International Monetary Fund (IMF) should therefore remain solely responsible for financial assistance of this kind, linking its support to strictly monitored conditions (conditionality). At the G20 summit in London on April 02, 2009, this task of the IMF was emphasized and the IMF’s financial resources were therefore substantially increased. – See resolution mechanism, unified, AIG deal, fear, perverse, presumption, central banking, buyouts, central banking, aval, bank, systemic, bank bailout, bank bailout, reverse, banking union, balance sheet adjustment, bazooka, guarantee, deficit financing ban, Finland, euro bonds, common, European Financial Stabilization Facility, European Monetary Union, fundamental error, contingent claim, ECB sin, guarantee, money market operations, money lender of last resort, Giips states, government guaranteed bond, government spreads, peer pressure, Kaldor Hicks criterion, wage policy, coordinated, moral hazard, nuclear option, Plan C, policy clamp, policy default, bailout, risk sharing, return ideology, shadow state, debt repayment pact, European, safety net, global, single master liquidity conduit, stabilization mechanism, European, stability fund, European, stand-by credit, transfer union, redistribution, central bank-induced, wealth levy,
Debt-productivity linkage, contract fidelity, confidence bubble, growth-debt fact, historical, monetary union 2nd two-way option, forced expropriation, forced convertible bond. – Cf. Monthly Report of the Deutsche Bundesbank of May 2010, pp. 12 f., p. 67 f. (critical of the guarantees in the course of the European Stabilization Mechanism).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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