Consumer Insolvency in the European Legal Context

Consumer credit, as an important aspect of the free movement of capital, has for a long time now been subject to European Union regulations. However, one important aspect of consumer credit, over-indebtedness, has not been acknowledged in the Consumer Credit directives of 1978 and 2009, nor is there any other European Union law instrument that addresses over-indebtedness or insolvency of consumers. The only European-level document addressing the problem of over-indebtedness of ordinary people is the Council of Europe Recommendation of 2007. In European Union law, over-indebtedness can and should be approached from several angles. The Insolvency Regulation (2000) does not directly address situations facing the consumer debtor and leaves it up to the discretion of the Member States to include or exclude insolvency proceedings for consumer debtors regarding the scope of the Regulation. There can be little doubt that the European Union has a legal basis for action in this field, and it has also used its competence in a number of related issues, such as general insolvency law and enforcement of judgments. Case C-461/11, in which Advocate General delivered her opinion on Sept 13^th, 2012 shows that national insolvency procedures for natural persons may constitute a restriction on the freedom of movement. This article argues that, even in the absence of a European Union law instrument, the Member States should recognize debt adjustment judgments made in another Member State and that there is a need for a regulation in the European Union law in this field.     

Between Neo-Liberalism and the Social Market: Approaches to Debt Adjustment and Consumer Insolvency in the EU

Many EU countries introduced debt adjustment systems as a response to the growth of over-indebtedness since the 1980s. These systems, originally introduced in many countries as crisis measures, have now become normalized, metamorphosing through a continuing learning process into a combination of debt adjustment and insolvency relief through a discharge of debt, sometimes after only 1?year, but often after a debt repayment plan over a period of 3–7?years. Since the early 2000s, new Member States of the EU have also introduced insolvency systems, often based on models from the old states. This paper examines experience in European consumer insolvency systems, based on the modest empirical studies of existing systems, primarily England, France and Germany. It discusses the reasons for the use of consumer insolvency, and the limited data on the characteristics of users, charts distinct national approaches and outlines common themes and objectives for consumer insolvency in the context of EU measures to create an integrated credit market in a “competitive social market. To economy”. It concludes by underlining the absence of systematic social science knowledge on existing systems and outlines areas for further research.     

我国地方政府自主发债问题研究

目前我国保障房建设资金的短缺突显出地方资金和债务上存在问题。我国计划在广东、浙江试点实施地方自行发债,以解决地方政府融资问题,保证保障房的建设。我国地方政府在发债方面应注意清理地方债务,定期公布财务状况,完善相关法律法规。     

Retroactive terms adjustment

The concept of Retroactive Terms Adjustment (RTA) emerged as a response to the urgent need for international action on the debt problems of the developing countries. The following article analyses the concept and the contribution RTA has made towards solving the debt problem.     

Britain's best kept secret? An analysis of the credit union as an alternative source of credit

At any time, the significance of a new device which facilitates saving and borrowing and encourages the prudent management of credit and debt is clear. Given the present credit market, in which certain categories of borrowers either cannot purchase credit or can only do so on disadvantageous terms, then the importance of such an alternative only increases. The credit union is such a device. It has an established and proven record of success in many countries but, outside of Northern Ireland, credit unions are in their infancy in the United Kingdom. This article examines the possibilities credit unions afford, against the background of the increasing problem of debt in the United Kingdom. We contend that credit unions can afford a partial solution to the debt problem, but that attention should also be placed on their limitations.     

Note: Dealing with Iraq’s foreign indebtedness

Iraq now faces a growing economic crisis, which is impoverishing the country and threatening its basic social fabric. The crisis is partly the result of decades of mismanagement on the part of the Iraqi government. It is also the result of massive overspending and foreign borrowing during the Iran–Iraq War and the Gulf War. This article investigates Iraq’s debt crisis and attempts to devise a pragmatic debt‐management strategy, which could pos‐sibly lead to solving this acute problem. The four‐pillar strategy introduced here, if well implemented, would not only obliterate the debt, but could more importantly set the scene for Iraq’s return to its place in the international community with a renewed political and economic stability. © 2000 John Wiley & Sons, Inc.     

Firm-Level Determinants of the Financing Decisions of Small and Medium Enterprises: Evidence from Argentina

This article studies the determinants of the financing decisions of small and medium enterprises (SMEs), which we characterize through three cases: trade-off behavior, pecking order, and extreme aversion to debt. We test our hypotheses using a dataset of firms from Bahía Blanca (Argentina) for two years: 2006 and 2010. We find that firm characteristics related to information asymmetries, such as firm age, size, and legal form; and personal factors, such as owner’s age and education; and perception of emotional bankruptcy costs, are relevant variables in SME financing behavior. The recognition of extreme aversion to debt motivates reconsideration of the underleverage problem of SMEs.     

Debt and disadvantage: the experience of unmanageable debt and financial difficulty in England and Wales

In common with a number of other developed western states, the UK has seen significant growth of consumer debt over the past three decades. In tandem, there has been an associated increase on the demand for debt advice. Using data from the English and Welsh Civil and Social Justice Survey, this article explores how debt problems are experienced across the population and goes on to contextualize the distinct nature of debt problems and their relationship to other problems of everyday life. Findings reaffirm the increased vulnerability to debt problems experienced by socially excluded groups, such as lone parents, those with a long‐term illness or disability and the people with no academic qualification. Results go further to demonstrate that vulnerability is not constant but is also influenced by broader economic and social factors; in particular, findings demonstrate how problems directly associated with the economic downturn increase vulnerability to unmanageable debt and financial difficulty. Given this relationship, and the prolonged longevity of debt problems compared with other problem types, we would expect to see an increase in the experience of debt problems as the effects of the recession become fully apparent, and for some time thereafter. Discussion focuses upon the policy relevance of findings to frontline debt counselling and advice services operating within an increasingly tighter financial environment. Specifically, emphasis is placed upon potential benefits of offering debt counselling and advice as part of an array of other social welfare advice services, and even working across sectors to get better penetration into hard to reach groups.     

The creditworthiness and international payment ability of sovereign states

At the beginning of the 1990s debt accumulation has become persistent and the growth-cum-debt models which previously guided international lending offer no solution to the problem. The following article argues that major deficiencies in the methods used until now to assess the creditworthiness of debtor countries have exacerbated the debt problem and suggests an alternative approach.     

促进经济增长的中国政府最优债务率测算

通过构建跨期模型来探讨一国债务与经济增长的关系。理论分析表明,一国债务与经济增长之间存在倒U形关系,即在一定条件下,当一国的债务低于最优值时,提高债务对经济增长具有促进作用,而当债务超过这一最优值时,增加债务则对经济增长具有副作用。在理论分析的基础上,构建了线性时间序列模型,基于中国样本数据证实了中国政府债务与中国经济增长之间倒U形关系的存在,并测算出现阶段中国政府最优债务率约为47％。这一结论表明：中国政府债务目前尚处于合理范围,虽然长期来看中国政府债务的提升空间已不大,但短期内进一步提升的空间犹存,这为中国政府充分运用财政政策提升尚处于探底阶段的中国经济预留了政策空间。     

A problem of discrete choice: Moody's municipal bond ratings

This article focuses on an important discrete choice problem in business and economic research—the determination of general obligation municipal bond ratings by Moody's Investors Service, Inc. The problem is examined by using N-chotomous probit analysis on a data set that is more representative of the population of cities with Moody's bond ratings and that includes measurements for more of the community characteristics said to be examined by Moody's analysts than the data used in previous research. Several new insights on how population, housing, debt, and geographic variables influence municipal bond ratings are obtained from the use of this larger and more varied data sample.     

Managing international debt

The disappointing response to the Mexican debt-swap initiative has shown that financial innovations cannot be relied on solely to reduce the debt burden to levels that reestablish the creditworthiness of major debtors. The following article examines the conventional approach to solving the debt problem as well as a number of new proposals.     

The Financial Structure of Private Held Belgian Firms

We examine the determinants of the debt-equity choice and the debt maturity choice for a sample of small, privately held firms in a creditor oriented environment. Our results, which are based on 4,706 firm-year observations for 1132 Belgian firms in the period 1996–2000, generally confirm the role of asymmetric information and agency costs of debt as major determinants of the financial structure of privately held firms. High growth firms and firms with less tangible assets have a lower debt ratio. We also find that more profitable firms have less debt. Firms tend to match the maturity of debt with the maturity of their assets. Growth options do not seem to influence debt maturity, which would suggest that the underinvestment problem is resolved by lowering leverage and by bank monitoring, not by reducing debt maturity. Credit risk is also an important determinant of debt maturity: firms with higher credit risk borrow more on the short term. Finally, in contrast to most studies on the financial structure of companies, we find that larger firms tend to have a higher debt ratio and a shorter debt maturity.      

Debt Judgments as a Reflection of Consumption-Related Debt Problems

In connection with the strengthening and enlargement of financial markets, i.e., financialization, financial services and products play a major role in the everyday lives of consumers. One drawback of this trend is the increase in the number of debt problems. The data used in this article consist of Finnish district-court judgments related to debt that in most cases was consumption-related, and register-based data on debtors. We first compare debtors to the entire population of Finland by age, gender, marital status, and education, and also in different age groups. The focus then turns to the four most common types of debt in the judgments (based on consumer credit, operator services, distance selling, and credit card debts), and how age, gender, marital status, and education related to these debt types. According to the results, consumers under 30 years of age, in particular, men, those with a basic level of education, and the divorced were over-represented in the data, compared to the overall Finnish population. Young single adults were particularly likely to have accrued smaller amounts of debt related to instant loans and operator services, whereas more extensive consumer credit as well as credit card debt tended to be a problem among retirees. Credit card debt, as well as debts to lending firms, were more common among those with tertiary education than among those with a basic education. Overall, the adverse effects of financialization focused especially on young people with a low level of education. The results also indicate that legislation could partly reduce the negative effects of financialization.

     

经济增长视角下地方政府债务负担率动态标准研究--基于西部Y省县域非线性Panel Data模型

政府债务负担率标准并非固定,主要由债务边际社会成本与债务边际社会收益相等决定,如果其边际成本降低或边际收益提高,债务负担率标准将提升,相反会下降。本文将地方政府债务置于财政支出与经济增长的关系框架下,通过对西部Y省106个县域地区进行实证研究,发现不同时间段对应的债务负担率标准不同,2005－2006、2007－2008、2009－2010分别为14．28％、11．98％和14．16％,同时也发现各地地方政府在竞相超越既定债务负担率标准举债,带来较大的债务风险隐患。因此,防范我国当前地方政府债务风险需要重视两个问题：一是根据各地实际债务边际社会成本和收益,制定动态债务负担率标准,用于债务风险的监测预警;二是在解决实际债务负担率较高问题上,重点要从数量上化解债务转化为从质量上提高债务边际社会收益和降低债务边际社会成本。     

Bank lending,misleading signals,and the latin american debt crisis

This article explores the microfoundations of bank and borrower behavior in the Latin American debt crisis. In the model developed, less developed countries attract loans by signaling their ability and willingness to pay. Some of the signals are “coercive” because they indicate that if income targets are not met, income will be redistributed in order to honor debt obligations. Implicit in such coercive signaling is the borrower's expectation that redistribution will not damage economic productivity. A coercive signal is misleading when feedback effects on social stability and work effort—and thus on the ability to pay—are underestimated or ignored; in this case, it inaccurately predicts repayment prospects. We estimate two equations: (1) private lending to Latin borrowers as a function of our specified signals, and (2) the probability of payments problem as a function of the same set of signals. The results support our borrowing model: coercive signals do enhance lending, and at least one of these signals is misleading.     

Managerial Stock Ownership and Debt Diversification

In this study, we examine the impact of managerial behavior on the debt diversification decisions of firms using the agency cost of debt framework. We hypothesize that managers with higher equity ownership should favor debt diversification to avoid efficient monitoring by debt holders and thus, be able to engage in risk‐shifting behavior. Our empirical results provide strong evidence for a positive association between managerial ownership and debt diversification. This relationship is observed to be stronger for smaller firms, which are traditionally more susceptible to the moral hazard problem. Our results remain robust for an alternate measure of debt diversification.     

The external debt situation of the least developed countries

While the external debt of the least developed countries (LLDCs) is no threat to the international financial system, its adverse impact on the development efforts of many of these countries is severe. The following article examines their debt and economic situation and reviews major elements of the current international debt strategy with regard to their adequacy in bringing the LLDCs back to sustainable debt burdens and growth. The article was written while the author was working at the OECD. The views in the article are those of the author and do not reflect those of the World Bank or its affiliates or of the OECD.     

The Choice between Bank Debt and Trace Credit in Business Start-ups

This paper investigates the choice between bank debt and trade credit in business start-ups. While trade credit is more expensive than bank debt, suppliers tend to follow a more lenient liquidation policy when client firms encounter financial distress. As a result, suppliers are more willing to renegotiate the outstanding debt or grant additional debt whereas banks are more likely to liquidate borrowers upon default. Given the risky nature of business start-ups, we argue that the entrepreneur’s choice of debt instruments reflects these differences in liquidation policy between lenders and is thus determined by the venture’s failure risk, the entrepreneur’s private control benefits that are lost upon liquidation and the liquidation value of firm assets. Using unique data on 325 first-time business start-ups, we find that firms in industries with high historical start-up failure rates and entrepreneurs who tend to highly value private benefits of control use less bank debt. These effects are especially prevalent in start-ups where assets have a high liquidation value and thus banks are more likely to liquidate the venture following default. An erratum to this article can be found at     

Revenue windfalls and expenditure slippages: Disappointing implementation of the reformed stability and growth pact

With the 2005 reform of the Stability and Growth Pact, a commitment was made to actively consolidate public finances in good times and to use unexpected extra revenues for deficit and debt reduction and not for additional expenditure. Against this background this study provides evidence of a lax implementation of expenditure plans in recent years when revenues were buoyant. Moreover, the influence of revenue windfalls on expenditure overruns is found to be more pronounced in countries that also have not met their medium-term objectives. Thus, first experiences in implementing the provisions of the preventive arm of the Stability and Growth Pact after its reform are not encouraging. The views expressed in this article are those of the authors and do not necessarily reflect those of the Deutsche Bundesbank. The authors would like to thank especially Bernhard Manzke and Karsten Wendorff, as well as Lukas Reiss and other members of the ESCB Working Group on Public Finances for many helpful comments.