European leaders and the European Commission are to be commended for starting a dialogue on the issue of burden-sharing with the private sector during banking and sovereign debt crises. Current proposals for dealing with bank and sovereign debt problems appear to assume that we can get through the next few years without debt write-downs or a further crisis, so the role of new resolution
procedures is to deal with some future crises that will not happen for a number of years. This approach is based on wishful thinking. A future transition to a world in which newly-issued bank and sovereign bonds are treated as junior to previously issued debt would most likely produce a bigger crisis than the one seen last year.
The European Union needs to accept the seriousness of current problems and also that dealing successfully with these problems may require writing down existing debt.