Overcoming Europe’s Sovereign Debt. The property as a Human Right
Pedro Roldan VAZQUEZ
On 26 July 2016 the European Court of Human Rights decided in the case “Mamatas and other v. Greece” in favor of the country of Hellenic Republic and held, unanimously, that there had been no violation of Article 1 of Protocol No. 1 (protection of property) and no violation of Article 14 (prohibition of discrimination) of the European Convention on Human Rights. The Court, for reasons of public interest, validated the indiscriminate elimination by law of approximately 50% of sovereign debt, including bonds held by small investors. This forced participation implied an interference in the applicants’ right to have their property respected, but was justified in the preservation of economic stability and the restructuring of the national debt, at a time when Greece was engulfed in a serious economic crisis. According to the Court, the Greek government, like any other State party in circumstances of financial crisis, has a wide margin of appreciation to choose the appropriate measures in the sphere of right to property and in the reduction of the commercial value of the sovereign debt bonds.
Right to Property, Prohibition of Discrimination, Financial Crisis, Margen of Appreciation, Forced Exchange.
Preface
In this case the European Court of Human Rights (ECtHR) had to decide whether the forced and unilateral exchange of Greek debt bonds by other debt instruments of lesser value in detriment of mid-class private bondholders, constituted or not a violation of the European Convention of Human Rights (ECHR) as well as of its Additional Protocol Nr. 1.1
The applicants complained that the exchange of their bonds, as required by national law, led to a de facto expropriation that interfered with their right to respect their property according to Art 1.1 of the 1st Additional Protocol. They also complained that they had been discriminated in violation of Article 14 ECHR by the deal, since they had the same treatment as other major creditors with sums considerably higher than theirs, even with amounts of several billion euros.
Facts
The ECtHR examined the complaints of 6,320 people holding Greek sovereign bonds, whose value had ranged between € 10,000 and € 1.5 million.2 At some point during the Greek financial crisis (2009-2011), it became clear that the creditors would suffer a partial loss (the so-called "haircut") of their investments. The negotiations were initially conducted mainly with states and institutional investors such as banks, insurance companies and governmental funds. Soon after that there was, however, a need for private investors to also contribute and participate in the negotiations.3
In 2012 Greece then created a legal basis for the conversion of government bonds into longer-dated and lower-rated bonds by National Law No. 4050/2012. For such a conversion to take place, a majority of the holders of these bonds had to agree. The achievement of this majority also made possible the transformation of the complainants: although they had not agreed to the conversion, their bonds were converted. The bonds they received had a notional value that was 53% lower than their original bonds and, in addition, the term was much longer.4
