Simulation: Could mutual debt cancellation to achieve debt reduction work in Europe?

Below is the encour­ag­ing result of a sim­u­la­tion for mutual debt can­cel­la­tion in Europe. How­ever, I admit it, I don't think mutual debt can­cel­la­tion to achieve debt reduc­tion could avoid a gigan­tic eco­nomic col­lapse in Europe or any­where longterm.

I do believe though it may be pos­si­ble to squeeze a few years out of a global eco­nomic sys­tem that has been long due to be replaced by some­thing sus­tain­able like The Par­tic­i­pa­tory Econ­omy Project or the even more ambi­tious Venus Project.

The fol­low­ing was taken from this web­site  which also pro­vides files (and more infor­ma­tion) to per­form this cal­cu­la­tion your­self or in a school/student/classroom environment.

Mutual debt can­cel­la­tion to achieve debt reduc­tion — the simulation

The idea is very sim­ple. If Por­tu­gal owes Ire­land €0.34bn of short term debt, and Ire­land owes Por­tu­gal €0.17bn, we can write off Ireland's oblig­a­tions and leave Por­tu­gal with a reduced debt of €0.17bn.

If you are both a debtor and a cred­i­tor you do not need money to set­tle claims. Rather than require addi­tional funds to deal with chok­ing debt, why not write it off?
The dia­grams below show the before and after sit­u­a­tion, based on analy­sis done by stu­dents. The sim­u­la­tion itself took place on May 17th 2011 and involved three sep­a­rate trad­ing rounds.

Here is the sit­u­a­tion before the mutual debt can­cel­la­tion in the Euro­pean Union:

The debt rank­ing is as fol­lows: UK, Ger­many, Italy, France, Spain, Ire­land, Por­tu­gal, Greece. Not that this is not the same order as the one  that would result from using debt/GDP which would pro­pel Greece to place one.

Debt dis­tri­b­u­tion in EU coun­tries before mutual debt can­cel­la­tion in 2011. Source

Here is the sit­u­a­tion after two rounds of mutual debt can­cel­la­tion in the Euro­pean Union:

The debt rank­ing has now changed to: UK, Italy, Spain, Ger­many, Por­tu­gal, France, Ire­land. Most impor­tantly how­ever, all coun­tries could reduce their debt by about 50%.

Debt dis­tri­b­u­tion in EU coun­tries after the­o­ret­i­cal debt can­cel­la­tion in 2011. Source

 

This would not only reduce the debts but also the interest.

[update Nov 8, 2011] : Writing-off (not just can­cel­ing mutual debt) all debt may be another pos­si­bil­ity and jus­ti­fi­able because much debt was cre­ated fraud­u­lently — read this inter­est­ing arti­cle here

Data Sources:

• IMF World Eco­nomic Out­look Data­base, Octo­ber 2010
• BIS Loca­tional bank­ing statistics