Redacted by Réjean J. Boudreau

avec la collaboration de Jonathan Bisson

       The global recession and the economic upheaval observed these last two years suffice to convince us of the relevance of this question. To answer simply: yes, certainly, a country might become bankrupt. The sole names of Iceland, Greece and Dubai, which all narrowly escaped bankruptcy last year, remind us how too much public debt and difficult economic conditions may drag an entire country towards insolvency, not unlike consumers and businesses. Yet, it is important to specify how the role of debt in modern States and global financial institutions differ from bankruptcy experienced by consumers and businesses.

       A State's finances are similar to business finances: countries have revenues and expenses which they plan each year in a budget, and also have a borrowing capacity (thus a credit rating) to amass debts. Each year, a portion of the expenses are allocated toward the reimbursement of debts, or in worst case scenarios, only the interests of the debt. Yet, a state's debt is more ‘normal' then the debt of an individual, or even a corporation: the State reimburses its debt to banks or other national financial institutions, thus the wealth remains in the same country. Furthermore, a State may emit obligations or bonds, which are in fact a loan from a consumer to a State under the promise of reimbursement with interests. Even if debts remain normal, indebtedness may have catastrophic effects.

       Iceland, Greece and Dubai demonstrated the tools available if a State (or an emirate in Dubai's case) is dangerously leaning towards insolvency. For Iceland, the International Monetary Fund granted a loan to prevent this European country from declaring bankruptcy. Along with the IMF, the European Union played a similar role with Greece, although the latter's economic situation will probably worsen in the coming year.¹ Finally, Dubai was saved by its neighbour emirate, Abu Dhabi, much wealthier. As with very large businesses, the impact of a country's bankruptcy would be so important as to justify avoiding it at any cost. Indebtedness in public finances was an important source of financial difficulties: Greece had a debt-to-income ratio of 102,6 percent and Iceland 96,3 percent. Should we be concerned about the fact that the province of Quebec's debt-to-income ration is 94 percent?²

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1. Jérémie Tordjman, ‘Le spectre de Dubaï fait craindre la faillite d'États,' Agence France Presse, November 26, 2009, ‘http://lapresseaffaires.cyberpresse.ca/economie/international/200911/26/01-925404-le-spectre-du-dubai-fait-craindre-la-faillite-detats.php', [consulted on April 21, 2010].
2. Jean Pascal Lavoie, ‘Taille de la dette : le Québec en queue de peloton,' March 24, 2010, http://www.cyberpresse.ca/le-soleil/affaires/actualite-economique/201003/23/01-4263590-taille-de-la-dette-le-quebec-en-queue-de-peloton.php, [consulted on April 21, 2010].