German central bank suggests countries could use one-time capital levy to stave off bankruptcy

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BERLIN – Germany’s central bank is suggesting that European countries facing bankruptcy could in the future consider imposing a one-time domestic capital levy rather than seeking foreign aid.

The Bundesbank has taken a tough line in Europe’s debt crisis, opposing measures such as buying unlimited quantities of government bonds. In its monthly report released Monday, it stressed that help from other countries’ taxpayers must be a “last line of defence.”

It acknowledged that there would be “significant risks” to imposing a one-time levy on citizens but argued it would be more orderly than insolvency and would uphold the principle of national responsibility. It did not specify what kind of levy would be acceptable.

The Bundesbank argues a levy could quickly and significantly reduce debt, leading to a fall in countries’ borrowing costs.

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