Restructuring government debt under European Union law

“What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?” pondered Adam Smith in the 18th century. When applied to the financial situation of states rather than to individuals, the observation is just as relevant. David Hume saw restoring public finances as a question of survival for the nation: “Either the nation must destroy public credit, or public credit will destroy the nation.” This view is undoubtedly an exaggeration: it reflects a traditional approach to economics in which debt is merely a liability and not the reflection of assets – such as a welfare system and public infrastructures – passed on to future generations. Such a view underestimates the fact that debt, like taxes, contributes to the funding of public services, and in so doing – as emphasised by US historian James Macdonald – it plays a part in the development of democratic regimes...