Summary of the “Dexia” Appeal brought by the CADTM and ATTAC against the Belgian State

6 February 2012

On December 23, 2011 CADTM Belgium, ATTAC Brussels 2 and ATTAC Liege, represented by their lawyers Pierre Robert and Olivier Stein, implemented proceedings against the Belgian Council of State to cancel the Royal Decree of 18 October 2011 that granted a State guarantee of certain loans to Dexia SA and Dexia Credit Local SA. [1] The amount covered by this guarantee amounted to 54.45 billion euros (exclusive of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and accessories), equivalent to 15% of Gross Domestic Product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(GDP) of Belgium. Note that the French state, which together with Belgium and Luxembourg guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). borrowings of Dexia SA and Dexia Credit Local SA for a total of 90 billion (as part of the second rescue the Dexia group occurred in October 2011), is committed to a much lower sum: 32.85 billion euros, which represents less than 2% of its GDP.

Why do we need to cancel this guarantee?

In economic terms, note first that the granting of guarantees results in the increased cost of debt refinancing Debt refinancing Taking out new loans to reimburse current debts. because markets demand higher pay to reflect the risk posed by the requirement of a guarantour. Should the guarantee be required, the warranty will considerably worsen the state of Belgian public finances because of its excessive amount. To finance the activation of guarantees, the Belgian State must resort to additional borrowing, which will automatically increase the Belgian public debt. Markets will exert blackmail on Belgium by requiring interest at an ever higher rate. This will lead the European Commission to bring new austerity measures against the population. As if this were not enough, the granting of this warranty is real, not conditional. The royal decree also stipulates that ’the guarantee is payable Payable A sum of money that one person (debtor) or group of people owes to another (creditor). at first request. [2]This order reinforces the so-called moral hazard Moral hazard The effect on a creditor’s or an economic actor’s behaviour when they are covered against a given risk. They will be more likely to take risks. Thus, for example, rescuing banks without placing any conditions enhances their moral hazard.

An argument often used by opponents of debt-cancellation. It is based on the liberal theory which considers a situation where there is a borrower and a lender as a case of asymmetrical information. Only the borrower knows whether he really intends to repay the lender. By cancelling the debt today, there would be a risk that the same facility might be extended to other debtors in future, which would increase the reticence of creditors to commit capital. They would have no other solution than to demand a higher interest rate including a risk premium. Clearly the term “moral”, here, is applied only to the creditors and the debtors are automatically suspected of “amorality”. Yet it is easily demonstrated that this “moral hazard” is a direct result of the total liberty of capital flows. It is proportionate to the opening of financial markets, as this is what multiplies the potentiality of the market contracts that are supposed to increase the welfare of humankind but actually bring an increase in risky contracts. So financiers would like to multiply the opportunities to make money without risk in a society which, we are unceasingly told, is and has to be a high-risk society… A fine contradiction.
 [3] (See below).

In democratic terms, the Royal Decree is a real danger because it gives the Minister of Finance the power to undertake in an opaque and out of control way, Parliamentary conventions that guarantee certain creditors of Dexia SA and Dexia Credit Local SA (designated by the Minister himself), until 2021 and which will have an effect until 2031.

Why the Royal Decree that provides a guarantee from the Belgian state is illegal?

This order is illegal for five main reasons:

1) It violates the principle of separation of powers and several articles of the Belgian Constitution [4]

The state guarantee granted to Dexia has never been voted for by the Federal Parliament, though this would normally within its jurisdiction. Note that in France, a law on these guarantees was voted for on 2nd November 2011.

2) It violates the general principle of law that the jurisdiction of the executive is limited to current affairs

This order was issued by the Government under the jurisdiction of current affairs. However, the guarantee in question that potentially ties up the Belgian State for twenty years in a sum of more than 54 billion should be considered highly political and not within the definition of current affairs.

3) It violates Article 3 of the Consolidated Laws of the State Council

Even invoking the urgent need to make the order, the King also had the obligation to request Notice of the Section on Legislation of the State Council. But he did not. As the Notice of the Section on Legislation of the State Council is an essential procedural under penalty of nullity, the Royal Decree is null and void.

4) It violates the principle of publicity of the state budget

Article 36/24 of the Act of 22.2.1998 establishing the Organic Statute of the national bank (as amended by Royal Decree of 03.03.2011), on which King relied to make this Royal Decree, must also provide notice of a national bank. But this was not published. In addition, no legal provision is able to force the Government to make public the contents of the signed agreements under which the Minister of Finance was impugned.

5) It violates Article 36/24 of the Act of 22.2.1998 that established the Organic Statute of the National bank, as amended by the Royal Decree of 03.03.2011, as well as several articles of the Belgian Constitution. [5]

Under Article 36/24 of the Law of 02.22.1998, the King may in cases of ’sudden crisis in the financial markets or serious threat of systemic crisis ’exercise special powers. Therefore, the question is whether the guarantee was necessary for the preservation of stability of the Belgian financial system. To answer this question, we must take into account reasonably foreseeable effects caused by this warranty. We can identify two major effects

Firstly, it creates a potential liability of up to over 54.45 billion euros, via the activation of the guarantee for the same amount. This would be very likely to, with pressure from the European Commission and financial markets, force Belgium to reduce the public debt and adopt austerity measures that will hit the population full force.

Secondly, as mentioned above, this order causes, moral hazard. Moral hazard is the possibility that an insured person may increase his risk-taking above and beyond the norm where it would lead to the entirely negative consequences of a disaster. By empowering the Minister of Finance to provide no real guarantee claims against Dexia SA and Dexia Credit Local SA, the Royal Decree sends a clear signal to financial organizations tempted by a speculation that may potentially bring their strong gains in the future. It tells them, in fact, that governments always intervene as a last resort. It causes a moral hazard in doing so. This Royal Decree therefore ensures practices that have contributed greatly to provoking, maintaining and deepening the economic crisis. It encourages those banks and private financial institutions, seeking to improve their profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. margin without changing their high risk behavior, to feel protected by the knowledge that they are supported by the Belgian State. Under these conditions, other bank bailouts are expected.

The action for annulment does not concern the new Dexia Bank Belgium

According to Jos Clijsters, Chairman of the Executive Committee of Dexia Bank Belgium, ’is now an independent bank, whose shares are not publicly traded and is 100% owned by the federal government through the Corporation Federal Participation and Investment. In ownership terms, Dexia Bank Belgium no longer has any connection with the Dexia Group, which is still publicly traded. ’ [6](end of citation)

What are the alternatives to the guarantees granted to Dexia SA and Dexia Credit Local SA?

The applicant associations are fully aware of the threat of bankruptcy for Dexia and its impact on the entire financial system, and therefore the need for the Belgian government to act quickly. But the guarantees given do not solve the problem, they worsen it. Therefore it is necessary to cancel the Royal Decree of 18 October 2011. The absolute lack of transparency in the organization of the rescue of Dexia does not state the programme for advancement precisely, or the alternative measures that the State should have taken at the time. The annulment of the guarantee will launch a real democratic debate that will provide the opportunity to advance genuine alternatives. We must break the cycle of rescuing banks which leads to an increase in illegitimate debt. The crisis clearly shows that structural changes are absolutely necessary to ensure that the pursuit of maximum private profit bonus that routinely undermines the economic and social rights of the majority of the population, and flouts democracy, does not go unpunished.


[1This action does not then consider the purchase of 100% of Dexia Bank Belgium (DBB) by the Belgian government last October. Belgian citizens’ savings deposited with Dexia also are guaranteed and are not challenged by that action.

[2Article 3 of Royal Decree

[3Moral hazard is a perverse effect may appear in certain situations in a relationship between two agents or two contracting parties: it is precisely the prospect that an agent, isolated from a risk, behaves differently if it was totally himself at risk. Banks knowing that they will benefit from the guarantee of the state are encouraged to continue their risky behavior.

[4This refers to sections 33, 74, 3, 105, 108 and 174 of the Belgian Constitution.

[5This refers to sections 33, 74, 3, 105 and 108 of the Constitution

[6Extract from the letter dated December 5, 2011 sent by Dexia Bank Belgium (DBB) to its customers and signed by_ Jos Clijsters, chairman of its executive committee.




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