The city of Detroit has announced it is filing for bankruptcy due to debts of at least $15 billion (£10 billion), making it the largest US city ever to do so.
Mayor Dave Bing claimed that public sector workers are going to continue to be paid despite the move, but the bankruptcy filing has been described as a power grab by the unions.
Detroit's declining industry now means that the city needs protection from creditors, who include public-sector workers and their pension funds, reports BBC News.
"I really didn't want to go in this direction – but now that we are here, we have to make the best of it," Mr Bing said, adding: "Paychecks for our city employees will continue, services will continue."
Ed McNeil, the lead negotiator for a coalition of 33 unions, suggested in an interview with Reuters that filing for bankruptcy is about "busting" the unions for the mayor.
Detroit's bankruptcy is a blow for the US economy, which had appeared to be on a firmer footing.
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