A survey of the relevant materials shows that, in contrast to municipal law, international law does not have a clear answer as to when one has to speak of bankruptcy. The easiest definition, also to be found on wikipedia, holds that „Bankruptcy is a legal status of a person or other entity that cannot repay the debts it owes to creditors“.
In this sense, bankruptcy needs to be distinguished from Insolvency, the latter being present only once proceedings involving the debtor and his creditor(s) have been initiated.
In simplest terms, the common definition of bankruptcy can also be applied to the field of international law. As soon as a State cannot repay its debts, it can be considered as bankrupt. However, things are more difficult upon closer inspection. The entry in the Max Planck Encyclopedia of International Law (written by Jörn Axel Kämmerer) for instance does not contain a clear definition of bankruptcy on the international level but rather shows that it is not settled whether and to what extent the above-mentioned definition can also be applied to sovereign states:
Mere unwillingness, also called ‘opportunistic default’ (…) must therefore always be considered a breach of obligations and, where the creditor is a State, of international law in particular, allowing for countermeasures (…). Whether inability to pay merits a different judgment depends on whether the debtor State can rely on the state of necessity objection (…). Even in the event that such an objection is unsubstantiated, countermeasures would hardly be of any avail and an agreed solution would have to be found in the common interest of both the debtor and its creditors. Whether the State must be incapable of servicing a certain number of financial duties or whether default in just one of them can suffice (as it implies that any obligation in kind might be affected), is an open question (…). It must be borne in mind that even failure to comply with financial obligations attached to State bonds can trigger a large-scale default where ‘cross-default clauses’ apply: other financial obligations are prematurely due in this event, and the State debtor might face majority actions of creditors (…). Likewise, it is unclear if a State can be considered bankrupt as long as its financial means will theoretically suffice for comprehensive debt service in case the latter will probably lead to social instability, as all kinds of service to its own population would have to be cut down. To public international law, a financial crisis matters—and may therefore qualify as ‘bankruptcy’—whenever the concerned State cannot escape from it by its own effort.
At the end of the day, however, as Kämmerer himself (who wrote the MPEPIL-entry just quoted) emphasizes in an article written in German (Der Staatsbankrott aus völkerrechtlicher Sicht (2005) 65 ZaöRV 651), it is necessary to restrict the scope of the concept of bankruptcy to the inability to repay debts, not also to situations when the State is merely unwillinng to do so. Also, as the example of Argentina in summer 2014 has shown, there is no such as thing as „partial default“.
What remains is the often heard (especially in international law) and obviously not really helpful simple observation that instances of state bankruptcy/insolvency will continue to be dealt with on a case-by-case basis, with no clear and general rules in place.
If Greece keeps getting loans from the international financial institutions or fellow Eurozone members, it remains able to repay its debts and thus, technically speaking, cannot be considered as being bankrupt. While it may be deemed as de facto bankrupt for quite some time now, de iure it remains solvent.
This is also where politics preside over law. Germany and the other creditors still follow a policy that seems to be based on the assumption that Greece will – sooner or later – repay its entire debt. Hence the continued rejection of the possibility of a haircut. Behind closed doors, however, it may well be that they have accepted that a lot of money has been lost for good. However, the earlier this is openly admitted, the weaker the leverage to impose any meaningful reforms. If these are indeed as short-sighted as many point out, one may wonder whether the creditors are currently simply trying to squeeze as much money as possible out of Greece in full awareness that their policy is probably not tenable for much longer, i.e. until the final boiling point is reached – whenenver that will be the case.