The Resolution of Sovereign Debt Crises

Jeannette Abel

doi:10.5771/9783845290225

Summary

The insolvency of states is by no means a rare or new phenomenon. Nevertheless, it still seems to be common sense that “states don’t go bust". So far, there are no regulated bankruptcy proceedings for states, although there is no lack of proposals for such proceedings on an international level. The present work deals with the current mechanisms for solving sovereign debt crises, presents their weaknesses and indicates options for dealing with such crises in the future. In this respect, the work focuses on crisis resolution measures at European level: the aid packages for Greece, the EFSM, the EFSF and the ESM. These are examined for their appropriateness as well as whether they contain elements of insolvency law. Ultimately, possible insolvency proceedings for states at EU level and their implementation options are discussed.

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Bibliographic data

Publication year: 2018
Publication date: 31.01.2019
ISBN-Print: 978-3-8487-4765-8
ISBN-Online: 978-3-8452-9022-5
Publisher: Nomos, Baden-Baden
Series: Schriften zur Restrukturierung
Volume: 10
Language: English
Pages: 492
Product type: Book Titles

Titelei/Inhaltsverzeichnis No access Pages 1 - 22
Introduction No access Pages 23 - 29
1. 1. 1. 1) Official sector involvement in the past No access
    2. 2) The current role of the official sector No access
    3. 3) Criticism about the official sector’s path No access
  2. 1. 1) Restructuring of debt owed to multilateral institutions No access
    2. 2) Restructuring of debt owed to sovereign bilateral lenders No access
    3. 3) Restructuring of debt owed to financial institutions No access
    4. 1. a) Launching an offer No access
      2. b) Procedural steps of a bond restructuring No access
      3. c) Necessity of a restructuring of domestic bond contracts? No access
2. 1. I. Over-borrowing and debt dilution No access
  2. II. Lack of private interim financing No access
  3. III. Bailouts and moral hazard No access
  4. 1. 1) Illegitimacy No access
    2. 2) Capture No access
  5. V. Chaotic market reactions No access
  6. 1. 1) Fragmentation No access
    2. 2) Selectivity and discrimination No access
    3. 3) Interim result No access
  7. 1. 1. a) Need for a change of the insolvency culture No access
      2. b) Threats of over-indebtedness and financial assistance No access
    2. 2) Delay No access
    3. 3) Interim result No access
  8. 1. 1. (1) The grab race No access
        (2) The holdout problem No access
        bb) Interim result No access
      2. b) The collective representation problem No access
      3. c) Interim result No access
    2. 1. a) Exit consents No access
      2. (1) Majority Action Clauses (MACs) No access
        (2) Aggregation Clauses No access
        (1) Clauses providing for a trustee No access
        (2) Clauses providing for a fiscal agent No access
        cc) Clauses addressing the grab race No access
        dd) Clauses primarily addressing the rush to the exits No access
        ee) Clauses providing for a fair restructuring and a facilitation of restructuring negotiations No access
        (1) Sharing Clause No access
        (2) Negative Pledge Clause No access
        (3) Pari Passu Clause No access
        (4) Cross Default Clauses No access
        (5) Disenfranchisement No access
      3. c) Experience with these clauses in recent debt restructurings No access
  9. IX. Imbalances of interests No access
  10. X. Crisis resolution negotiations are too lengthy and produce uncertain, sometimes unfair, outcomes No access
  11. XI. Derivatives contracts No access
3. C. Overall-assessment: current international financial architecture No access
1. 1. 1. 1. a) Art. 121 TFEU No access
      2. b) Art. 126 TFEU No access
    2. 1. a) The Stability and Growth Pact (SGP) No access
      2. b) The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) No access
      3. c) The Two Pack No access
    3. 1. a) Art. 123 No access
      2. b) Art. 124 No access
      3. c) Art. 125 No access
  2. 1. 1. a) Art. 122 (1) No access
      2. b) Art. 122 (2) No access
    2. 1. aa) Measures in accordance with the Treaties No access
        bb) Financial assistance No access
        cc) Protective measures No access
      2. b) Art. 144 No access
  3. III. Overall-assessment: legal framework No access
2. 1. I. The “aid package” for Greece No access
  2. 1. 1) European Financial Stabilisation Mechanism (EFSM) No access
    2. 2) European Financial Stability Facility (EFSF) No access
    3. 3) Involvement of the International Monetary Fund No access
    4. 1. a) Financial assistance programme for Ireland No access
      2. b) Financial assistance programme for Portugal No access
      3. c) Second financial assistance programme for Greece No access
  3. 1. 1) Membership and purpose No access
    2. 2) Institutional organization No access
    3. 3) Capital structure No access
    4. 4) Funding No access
    5. 1. aa) Loans No access
        bb) Financial assistance for the recapitalization of financial institutions of an ESM Member No access
        cc) Precautionary financial assistance No access
        dd) Primary and secondary market support facilities No access
      2. b) Procedure No access
    6. 1. a) Admissibility No access
      2. aa) Objective and general remarks No access
        bb) Scope of the model CAC No access
        cc) Modification of bonds No access
        (1) Modification of a reserved matter of a single series No access
        (2) Cross-series modification of reserved matters No access
        (3) Non-reserved matter modification No access
        (4) The quorum No access
        ee) Disenfranchisement No access
        ff) Zero coupon and index-linked obligations No access
        (1) Zero coupon obligations No access
        gg) The calculation agent No access
        hh) Bondholder meetings No access
        ii) Transparency No access
        jj) No single jurisdiction No access
        kk) No central court No access
        ll) Technical amendments No access
        mm) Non-acceleration and collective enforcement No access
      3. c) Preferred creditor status of the ESM and of bilateral official lenders lending in coordination with it No access
    7. 7) Involvement of the IMF No access
    8. 8) Consistency with the legal framework of the EU Treaties No access
    9. 9) Transitional arrangements No access
    10. 10) Dispute resolution No access
    11. 11) Participation of non-euro area Member States No access
    12. 1. a) Spain No access
      2. b) Cyprus No access
  4. 1. 2) Purchase of debt instruments No access
    2. 3) The ECB’s role within the “Institutions” No access
3. 1. 1. 1) The procedure as such No access
    2. 1. a) Application to a neutral authority No access
      2. b) Parties eligible to initiate a procedure No access
      3. c) Responsibility to initiate the procedure No access
      4. d) Entry criteria No access
      5. e) Interim result No access
    3. 3) Stay on creditor attachments No access
    4. 4) Post commencement financing – Can financial assistance under the crisis resolution mechanisms be considered as “new money”? No access
    5. 1. a) Investigation of financial affairs No access
      2. b) The right to gather information No access
      3. c) Responsibility to draft a plan No access
      4. d) Mediation between the debtor and its creditors No access
      5. aa) Running the State through technical assistance? No access
        bb) Running the State by imposing conditionality and changes thereto? No access
      6. f) Raising of new funds to rescue the Member State No access
      7. g) Interim result No access
    6. 1. a) Supervising function of the Council No access
      2. b) Guiding function of the Council No access
      3. c) Interim result No access
    7. 1. a) Legal enforceability of the preferred creditor status? No access
      2. b) Will the preferred creditor status of the ESM be able to gain acceptance among private creditors? No access
      3. c) De-facto preferred creditor status of all other creditors than holders of bonds issued after January 1, 2013 No access
      4. d) Interim result No access
    8. 1. aa) Establishment of a (contractual) responsibility to initiate a restructuring? No access
        bb) Is PSI a prerequisite for the granting of financial assistance under certain circumstances? No access
        cc) Establishment of a quasi-responsibility through political pressure? No access
        dd) Entry criteria No access
        (1) Initiation by the original creditors? No access
        (2) Quasi-initiation by the ESM boards? No access
        (3) Quasi-initiation by the Council? No access
        (4) Quasi-initiation by the Institutions? No access
        (5) Interim result No access
      2. aa) Binding creditors to an offer No access
        bb) Framework to cast votes No access
        cc) Identification of claims No access
        dd) Employment of intermediaries No access
        (1) Disclosure of the financial situation No access
        (2) Disenfranchisement No access
        (3) Vote-packaging clauses No access
        (4) Fairness of the modification procedure as such – Balance of interests No access
        (5) Interim result No access
        ff) Equality between creditors of the same priority rung No access
        gg) Avoidance of preferences No access
        hh) Clauses substituting a stay No access
        ii) Choice of law and dispute resolution No access
        jj) Establishment of additional standards for the procedure by recital 12? No access
        kk) Lack of an enforceable priority ladder for private sector debt No access
      3. c) Overall-assessment: ESM Private Sector Involvement No access
    9. 1. aa) Loans No access
        bb) Financial assistance for the recapitalisation of financial institutions No access
        cc) Precautionary financial assistance No access
        dd) Primary and secondary market support facility No access
      2. b) Creditor concessions No access
      3. c) Interim result No access
  2. 1. 1. aa) A responsibility to file? No access
        bb) Timing No access
      2. b) Disclosure No access
      3. c) Moratorium? No access
      4. d) Employment of intermediaries No access
      5. aa) The use of CACs No access
        bb) “Carrot features” No access
        cc) Threat of non-payment No access
        dd) Interim result No access
      6. f) Priority ladder No access
      7. g) Equality No access
      8. h) Duration No access
      9. i) Overall assessment: Greek debt restructuring No access
    2. 2) Amendment of the financial assistance programme for Greece on November 26/27, 2012 and subsequent easing of the financial terms of other programmes No access
    3. 1. a) Provision of interim financing through levelling the financing costs No access
      2. b) Interim financing in case of a restructuring No access
      3. c) Interim financing through discharging financial institutions of risky investments No access
      4. d) Interim financing through a shortage of supply No access
      5. e) Interim financing through the announcement of unlimited bond purchases? No access
      6. f) Interim result No access
  3. III. Overall Assessment: crisis resolution in the Eurozone in the light of insolvency law No access
4. 1. I. Avoidance of over-borrowing and debt dilution No access
  2. 1. 1) Threat of lacking interim financing in the future No access
    2. 2) Restructuring of official sector debt No access
    3. 3) Interim result No access
  3. 1. 1) The ESM’s moral hazard problem No access
    2. 2) Limitation of debtor moral hazard through conditionality? No access
    3. 3) Interim result No access
  4. 1. 1. a) The ESM: at the crossroads to Art. 121 et. seqq. TFEU? No access
      2. b) The role of the Institutions No access
      3. c) The procedure under the model CAC No access
      4. d) The preferred creditor status of the ESM No access
    2. 2) Capture No access
    3. 3) Interim result No access
  5. 1. 1) Creation of insecurities through the unpredictability of the ESM’s path No access
    2. 2) Avoidance of insecurities through the omission of the possibility of PSI from the T/ESM? No access
    3. 3) Interim result No access
  6. 1. 1) The problem of fragmentation, selectivity and discrimination in case only financial assistance is granted No access
    2. 2) The problem of fragmentation, selectivity and discrimination in case of restructurings No access
    3. 3) Interim result No access
  7. 1. 1) Taboo of sovereign debt restructurings in the euro area No access
    2. 2) Delay of sovereign debt restructurings in the euro area No access
    3. 3) Interim result No access
  8. VIII. Tackling the coordination problem No access
  9. 1. 1) Balance of interests in case only financial assistance is granted No access
    2. 2) Balance of interests under the model CAC procedure No access
    3. 3) Interim result No access
  10. X. Avoidance of lengthy crisis resolution negotiations with uncertain, sometimes unfair, outcomes No access
  11. XI. Tackling the problem of derivatives (CDS) contracts No access
  12. XII. Overall assessment regarding the appropriateness of crisis resolution in the Eurozone No access
  13. XIII. EU proposals for future crisis resolution in the Eurozone: A European Monetray Fund No access
1. 1. I. Description of State contingent debt contracts No access
  2. 1. 1) Vulnerability of statistics to manipulation No access
    2. 2) Non-contingent debt contracts No access
  3. III. Interim result No access
2. 1. I. The IMF Lending Into Arrears (LIA) Policy No access
  2. II. The Code of Conduct of the Bank of France No access
  3. III. The IIF Principles No access
  4. IV. Assessment No access
3. 1. 1. 1) European Monetary Fund (2010) No access
    2. 2) European Sovereign Debt Restructuring Regime (2013) No access
    3. 3) Viable Insolvency Procedure for Sovereigns (2014) No access
    4. 4) The Porposal of the German Council of Economic Experts (2016) No access
  2. 1. 1. a) Enhancement of CACs in order to deal with the lack of private interim financing No access
      2. b) Enhancement of CACs in order to avoid debt dilution No access
      3. c) Addressing the problem of a lacking priority ladder as a whole by contractual clauses No access
      4. d) Supplementation of CACs by a legally enforceable priority ladder No access
      5. e) Interim result No access
    2. 2) Not all bonds involve CACs No access
  3. 1. 4) CACs cannot guarantee sufficient debt relief No access
    2. 5) CACs cannot guarantee quick restructuring negotiations No access
    3. 6) CACs cannot avoid delay in the initiation of a restructuring No access
    4. 1. a) Conflicts of interpretation No access
      2. aa) Balancing the interests of the debtor and its creditors No access
        bb) Acknowledgement of other parties’ interests No access
      3. c) Interim result No access
    5. 8) CACs cannot avoid chaotic market reactions No access
    6. 1. aa) Enhancement through an improvement of the communication process No access
        bb) Supplementation by a facilitation framework No access
      2. b) Assessment of enhancement proposals No access
      3. c) Interim result No access
    7. 10) CACs cannot guarantee that a restructuring is captured by the right people and cannot provide for legitimacy No access
    8. 11) CACs cannot avoid moral hazard No access
    9. 12) CACs cannot address the problem of CDS contracts No access
    10. 13) Interim result No access
4. 1. I. Approaches that involve the establishment of an ad hoc resolution institution No access
  2. II. Approaches that address the collective action problem by the adoption of legal or procedural measures No access
  3. III. Mere extension of maturities No access
  4. IV. Interim result No access
5. E. Model restructuring procedure No access
6. 1. 1. 1) Different proposals No access
    2. 2) Assessment regarding their appropriateness to tackle a crisis situation as a whole No access
  2. 1. 1) Avoidance of over-borrowing and debt dilution No access
    2. 2) Addressing the problem of lacking private interim financing No access
    3. 3) Avoidance of moral hazard No access
    4. 4) Avoidance of chaotic market reactions No access
    5. 5) Comprehensiveness and equality between different creditor groups No access
    6. 6) Avoidance of delays and general welfare improvement No access
    7. 7) Legitimacy and capture No access
    8. 8) Effective tackling of the coordination problem No access
    9. 9) Balancing of interests of all parties involved No access
    10. 1. a) Speeding up negotiations No access
      2. b) Guaranteeing sufficient debt relief No access
      3. c) Interim result No access
    11. 11) Addressing the problem of CDS contracts No access
7. G. Overall-assessment: restructuring approaches No access
1. 1. 1. 1) Is sovereignty a real obstacle? No access
    2. 2) Structural singularities resulting from sovereignty No access
    3. 3) Possibility of a partial transfer of corporate bankruptcy procedures No access
    4. 4) Interim result No access
  2. 1. 1) The fear of unbearable costs of restructurings No access
  3. 1. 3) Interim result No access
  4. III. No necessity for a restructuring mechanism because of CACs No access
  5. IV. It’s too hard No access
  6. V. It cannot be independent and it’s too hard to assess the State’s ability to pay No access
  7. VI. Overall assessment: obstacles to the establishment of a full-fledged restructuring mechanism No access
2. 1. I. Objectives No access
  2. 1. 1) No simple transfer of Chapter 9 to the sovereign context No access
    2. 2) General principles of insolvency law as the source of the procedure No access
    3. 3) Financial assistance as a second pillar to supplement the insolvency procedure No access
  3. III. Scope of eligible debtors –Implementation in the EU as a whole or only in the Eurozone? No access
  4. IV. Scope of claims No access
  5. 1. 1) Automatism or application? No access
    2. 2) Parties able to initiate a procedure No access
    3. 1. a) Necessity of an entry criterion? No access
      2. b) The suitable commencement criterion No access
      3. c) The specific design of the commencement procedure No access
  6. VI. Disclosure No access
  7. VII. Standstill No access
  8. VIII. Avoidance of preferential payments by the debtor No access
  9. IX. The right of choice between the performance and rejection of executory contracts No access
  10. 1. 1) Odious debts No access
    2. 2) State necessity No access
    3. 3) Interim result No access
  11. XI. Creditors’ representatives No access
  12. 1. 1) Powers of the neutral authority No access
    2. 2) Design of the neutral authority No access
    3. 3) The right forum No access
  13. XIII. Priority financing No access
  14. XIV. Ladder of priorities No access
  15. 1. 1. a) Parties eligible to make a proposal No access
      2. b) Plan content No access
    2. 2) Negotiations No access
    3. 1. a) Majority voting No access
      2. b) Creditor classes No access
      3. c) Possibilities in case of non-approval No access
      4. d) Cram-down No access
      5. e) Hearing rights No access
  16. XVI. Plan effects and post-approval duties No access
  17. XVII. Transitional provisions No access
3. 1. I. Claims affected by the implementation No access
  2. 1. 1) Contractual No access
    2. 2) Multilateral treaty among the Member States of the euro area No access
    3. 3) Regulation No access
    4. 4) Directive No access
    5. 5) Model law and domestic regulation of the procedure No access
    6. 6) Synthesis No access
4. D. Model Law No access
Conclusion No access Pages 489 - 492