Committee for the Abolition of Illegitimate Debt

A- Origins and causes of the Greek crisis and the “Memoranda” cure

The Greek crisis is the product of a confluence of three factors:

a) the general crisis of neoliberal capitalism, due to the systematic failure of financial deregulation and labour “liberalization”.

b) the unbalanced construction of the European Monetary Union and the gradual abandonment of the European social model towards a neoliberal system of social regulation.

c) A corrupt political system which was in deep crisis even before the bail-out, suffering from a distorted relationship between the political and economic elites and a corrupt network of clientelistic policies.

However, despite the pathology of its political system, the Greek crisis should be more widely seen as part of the general crisis of European capitalism, which has surfaced with different facets in various countries, reflecting specific national structural weaknesses: banking overexposure in Ireland, the real estate bubble in Spain, or excessive public debt in Greece.

It is more than everything else a crisis of the imbalance between economic integration and monetary union in the European Union. A single currency, by definition, does not allow currency fluctuation, even when individual countries in the monetary union would benefit from changes in relative values. Therefore, all other things being equal, in a time span and due to the inability of devaluation Devaluation A lowering of the exchange rate of one currency as regards others. , a product produced by the weaker economy is becoming more expensive than a similar one produced by the stronger. In consequence, the trade deficit between the respective states is increasing. (This happens not only in monetary unions with single currency but any time a weaker economy pegs its currency to a stronger one, as in the case of Mexico and Argentina vis-à-vis the US $). For this reason, economists, such as M. Feldstein, have from the beginning warned that the euro would inevitably lead to persistent trade imbalances between the more competitive core countries –especially Germany- and the less competitive countries of the South. Therefore, the deficits of the latter are just the other side of the coin of the surpluses of the former.
Hence, the current economic imbalance of the Union is an externality, not imputable to national politics of the “profligate” southern states but, instead, one imposed to them by the inherent dynamics of the single currency. The same trend is happening in a Federation: There is a flux of capital from weaker to stronger subnational economies, e.g. from Wyoming, to New York. But then, at the end of the economic year, the fiscal union mechanisms ensure through taxes and transfers a partial compensation of Wyoming’s losses. The structural funds in the EU could play a similar role, but they cannot, due to their limited resources.

In Greece, the recipe of the so called “Memoranda” imposed by its lenders, did not address neither the national nor the more general causes of the crisis. Besides some self-evident technical reforms against tax evasion, it has just repeated the same general dictates of the neoliberal orthodoxy. In essence, the recipe called for horizontal reduction of all public expenses, primarily of social expenditures. It also called for a thorough deregulation of labour law legislation, and a massive transfer of wealth from the public to private sector through privatizations of public enterprises. These privatizations are to take place regardless of the strategic nature of public enterprises or their financial utility for the budget.

With regard to the cutbacks of welfare services, the Memoranda are not just repeating the usual neoliberal mantras, but they are overtly manipulating data. The supporters of the Memoranda claim for instance, that ‘Greece’s level of social spending (as a share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of GDP 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. ) remains well above the euro area average’ [1], calling thus for further reductions in the order of 1.5 per cent of GDP to be taken between 2013–14. This is a colossal inaccuracy, to use a euphemism. In 2008 Greek social expenditure was only 81 per cent of the EU-15 average [2] and since then, due to the crisis and the austerity measures, it has plummeted. Actually, the European Commission expects that social spending in Greece would be cut by 18 per cent in 2012 [3].

Equally ideological and untrue are the allegations that Greek citizens have a moral share of responsibility for the crisis, due to their profligacy and licentiousness. They have been likened to the frivolous grasshoppers of the south wanting to live at the expense of the northern, Protestant ants. Not only is the private debt of Greek households considerably smaller than the European average [4] , but the average working hours are higher in Greece than in any other European Union member country.

In this framework, the Memoranda could be seen as just one more episode of the prevailing ‘Sado-Monetarism’ [5] of the EU economic orthodoxy, or as a part of the more general neoliberal Washington consensus, imposed by the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org so far to many countries of the Third World. However, their agenda cannot be legally implemented within the existing constitutional boundaries. The Memoranda imply that the ‘troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

IMF : https://www.ecb.europa.eu/home/html/index.en.html ’ of the EU, the IMF and the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx will have the responsibility for defining and implementing economic, financial and social policies, which are innately contrary to the fundamental principle of a social state. Hence, this transfer of sovereignty does not merely put the Greek government and parliament under a direct political control of their debtors, but violates gravely the constitutional order.

B- The austerity measures are contrary to the Constitution of Greece and the International Law

The austerity measures imposed to Greece by the “ Memoranda“, their executive legislation and the related international loan treaties constitute a grave deviation from constitutional, European and international legality, both at procedural and substantive grounds: At the first level, neither of the two loan treaties has been ratified by the parliament, contrary to the explicit provision of article 36 par. 2 of Greek Constitution. The reason for that was that both treaties contained some so exorbitant clauses regarding national sovereignty that would make it impossible for an important number of MPs to vote for them.

More specifically, the 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). of respect and protection of national sovereignty within constitutional and international law have been violated by the inclusion in these treaties of a waiver of immunity on reasons of national sovereignty: Besides the de facto transfer of the economic sovereignty to the “troika” for all important decisions, since a refusal to comply will result in failure to collect the next installment of the loan, the treaties include also an explicit waiver of immunity, which, according to the Legal Opinion attached therein, expands also to issues of “national sovereignty”. This goes much further than the generally accepted waivers of immunity from execution known by international law.

More importantly, the austerity measures violate several structural constitutional principles (such as the principles of equality of public burdens and of social state of law -article 4 para 5 and article 25 para. 1 of Greek Constitution) and fundamental social rights (articles 21, 22 and 23 of the Constitution). They also violate essential guarantees of the EU Charter of fundamental rights and International Labour Law. For instance, the executive legislation of the memoranda have imposed important reductions of salaries not only of civil servants or of staff employed in public sector under private law but also of private employees, encroaching on the collective agreements in force. This is a clear violation of collective autonomy, which is guaranteed by article 22 par. 2 of Greek Constitution [6] and a number of international treaties, i.e. art. 8 of the International Labour Convention no 151 of 1978 and art. 6 of European Social Charter [7].

However, Greece has not a constitutional court, and the ordinary courts have till now, in their majority, upheld the respective laws as constitutional, accepting that the measures are justified by the state of necessity that faces the Greek economy. Only recently the Supreme Court of Audit (Cour des Comptes) has unanimously declared unconstitutional the last wave of pensions reductions and the Court of Cassation unconstitutional the cutbacks of judges’ salaries.

(This stance of the Greek courts starkly contrasts with the decisions by constitutional courts in other countries issued after judicial scrutiny of austerity measures imposed by the International Monetary Fund (IMF). In the previous decade, when IMF was active in South America, there were several decisions invalidating legislation restricting social security rights. For instance, in Colombia the Constitutional Court annulled the staturoty provision that rose the age of retirement from 60 to 62 years [8]. In Argentina, the Constitutional Court has invalidated a pension cutback of 13 percent [9]. More recently, the Constitutional Courts of Latvia [10] and Romania [11] issued similar, well-founded decisions, facing pension cuts. The Constitutional Court of Latvia has explicitly reaffirmed, as in some of its previous judgments [12], that “the State itself is responsible for the system of social and economic protection (types and amounts of allowances) and its maintenance. This system is dependent on the economic situation in the State and the available resources.” However, “even if the State reduces the pension disbursement amounts for a period of time in the situation of rapid economic recession, there is still a definite body of fundamental rights that the State is not entitled to derogate from [13] .” [14]. Romania’s Constitutional Court ruled along a similar line of argumentation, based on the interpretation of article 47 par. 2 of the Constitution, protecting the right to social security. The Court solemnly pointed out that “the state has a positive obligation to take all measures necessary to achieve that objective and to refrain from any conduct likely to encroach the right to social security”.)

It is noteworthy that the European Commission recognized in its last Review of the Program the unconstitutionality of the last austerity measures, stating that “important budgetary measures are likely to be challenged in courts, which could lead to the need to fill a fiscal gap emerging as a consequence” [15]. Hence, the Commission is not preoccupied by the illegality of the measures, but it mentions it just as a compelling factor for introducing a new wave of them!

Although the legal dimension is important, it should not hide the basic political essence of the Memoranda, which is to serve a double objective: The first is the one overtly admitted, to help the debtors take back their money. The second is to implement a vast programme of social engineering with two prongs: a) to shrink and remodel the state according to neo-liberal postulates and b) to reconstruct the Greek society by deregulation of the labour and other protective legislation.

Therefore, the most destructive impact of the Memoranda was at the level of labour law. After all, the deregulation of the latter is one of the structural reforms that the IMF intends to impose on all countries it ‘helps’. The reform (a genuine counter-revolution) comprised a complete annulation or premature termination of all collective labour agreements. Even the national collective agreement has been unilaterally modified, so as to reduce the minimum legal salary.

Obviously, as nobelist Amartya Sen recently remarked in New York Times:
‘Such indiscriminate cutting slashes (constitute) a counterproductive strategy, given huge unemployment and idle productive enterprises that have been decimated by the lack of market demand’
Moreover, the abrogation of the law permitting trade unions to ask for an arbitration award if the employers refused to negotiate wages, in association with the statutory imposed termination of the collective agreements, means practically the end of all collective agreements in the immediate future.

Even with regard to the reform of the public sector, the Memoranda failed to be the ‘handmaiden of change’, as hoped by its proponents. They have imposed an horizontal reduction of personnel, which has just deteriorated the structural problems of Greek administration. The only public agencies that have been terminated by the new legislation were those mostly needed(i.e., the Organization of Social Housing and the Public Institute of Geology and Mineral Exploration (IGME), vital for future investments and the exploitation of physical resources). Thus, instead of improvement, the gaps of a skewed organization were accentuated rather than diminished.

The few advocates of the Memoranda are presenting them as the remedy to the institutional vicissitudes of the country. Actually, the truth is that none of these has been touched by the (counter)reform. The gaps in welfare protection remain, and the Greek administration has been always irrationally organized and badly coordinated.
Moreover, the unilateral way that these measures has been imposed to the Greek political system by the Troika represents a real danger not only for the economy but for the Democracy, as well.

To quote again Amartya Sen :
‘Both democracy and the chance of creating good policy are undermined when ineffective and blatantly unjust policies are dictated by leaders. The obvious failure of the austerity mandates imposed so far has undermined not only public participation — a value in itself — but also the possibility of arriving at a sensible, and sensibly timed, solution.’

C- The way out of the crisis

What are the legal remedies that Greece has against the demands of its lenders?
First of all one should examine if the Greek debt is an illegitimate, “odious” debt.
Departing from the classical definition of Sack, according to the current theory of international law [16] a debt is generally assumed as odious if:
(a) it was contracted against the general consent of the nation
(b) it was not used for the needs of the population of the borrower State or/and its clauses involved clear misconduct by the lender
and (c) the creditor was aware of these two facts

These preconditions seem to exist in the case of Greece. Although one cannot claim that the Greek regime, despite its pathologies, is not democratic, it is clear that the accumulation of debt through the loan treaties is rejected by the vast majority of the population (ranging at the polls from 60% to 81%). Even the existing governing coalitions has been elected under the promise of renegotiating it.

Moreover, it is a debt which does not benefit the population of Greece. Almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the lenders pockets. Actually, the European authorities are effectively lending Greece money so Greece can repay the money it borrowed from them [17]. Therefore, the debt has swelled as a result of interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. and negotiating conditions imposed by creditor countries. It was 120% of GDP when Greece entered the Stability Mechanism, it is already 189% of the GDP and is projected to reach 200% of the GDP in next years.
Finally, one could claim that lenders were aware of the previous facts. They have, despite that, imposed “unacceptable” conditions, involving clear misconduct and violating the national law of the borrower [18].

However, the odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts. doctrine is yet to be recognized by international law. It is true that a 2007 United Nations Conference on Trade and Development UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

(UNCTAD) discussion paper authored by Robert Howse identified 12 instances in which the odious debt doctrine had been invoked and in none of these was a claim rejected on the grounds that no such doctrine existed under international law. Still, what usually the courts dismiss the applicability of the doctrine in the concrete cases they examine. For instance, at the United States v. Iran (1996) Case B, the Iran-US Claims tribunal dismissed the applicability of odious debt, although without taking “any stance in the (related) doctrinal debate”.

So, as it neither yet recognized by an internationally treaty, nor reconfirmed at the case law, it would be hard to claim it is a customary rule. Moreover, the creditors’ knowledge of the “odiousness” of the Greek debt, although basically true, it would be politically difficult to be supported before the public audiences of lenders, eg. the German electorate, which has formed a completely different story about the loans “they” give to the European South.

Under the light of these remarks, I consider preferable a combined use of a Human Rights approach to the debt with the principle of State necessity. They have both support on international instruments and case law. For instance, in its General Comment No. 2, on article 22 of the International Covenant on Economic, Social and Cultural Rights, the Committee on Economic, Social and Cultural Rights has indicated that “[i]nternational measures to deal with the debt crisis should take full account of the need to protect economic, social and cultural rights through, inter alia, international cooperation”. In the same line, the Maastricht Guidelines on Violations of Economic, Social and Cultural Rights deem a human rights violation of omission, “[t]he failure of a State to take into account its international legal obligations in the field of economic, social and cultural rights when entering into bilateral or multilateral agreements with other States, international organizations or multinational corporations” [19] .

In this framework, the European Committee of Social Rights has recently declared contrary to Article 4 of the European Social Charter (right to a fair remuneration) a number of provisions of the first package of austerity measures imposed to Greece [20].

Human Rights instruments should be used in conjunction with the “State of Necessity” principle. This principle is recognized by the 1969 Vienna Convention on the Law of Treaties, as well as by international customary law, and as such is applicable to all debtors and creditors. There is a state of necessity when there is a grave danger to the existence of the State itself, its economic survival, the continued functioning of its essential services and the maintenance of internal peace [21].

In simple words the principle implies that the basic priorities of a State are towards its citizens and if it cannot simultaneously satisfy its lenders’ claims and its basic social functions must give priority to the latter. As the government of South Africa has put it “A State cannot be expected to close its schools and universities and its courts, to disband its police force and toneglect its public services to such an extent as to expose itscommunity to chaos and anarchy merely to provide the money where with to meet its money lenders, foreignor national. There are limits to what may be reasonably expected of a State in the same manner as with an individual. If, in such a contingency, the hardships of misfortune are equitably divided over nationals as well as foreigners and the latter are not specially discriminated against, there should be no reason for complaint  [22].”

What is important is that the principle is accepted by recent decisions of international and constitutional courts. For instance, the International Centre for Settlement of Investment Disputes –ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6^th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.

https://icsid.worldbank.org/apps/ICSIDWEB/Pages/default.aspx -) of World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

in recent decisions of 2010 related to the Argentinian default –and contrary to its previous jurisprudence- has accepted the state of necessity as customary rule of international law [23]. Similar decisions have been taken by the Italian Court of Cassation [24], the German Constitutional Court [25] and the European Court of Human Rights [26].

Till now, the “State of necessity” has been used by the Greek government as an argument before national courts in order to justify the unconstitutionality of the austerity measures. It can be used the other way around, as an argument taken by the International Law in order to reject their implementation.

Actually, this was in 1938 the argument of the Greek government in its dispute with Belgium the case Societé Commerciale de Belgique:
“There occur from time to time external circumstances beyond all human control which make it impossible for Governments to discharge their duty to creditors and their duty to the people; the country’s resources are insufficient to perform both duties at once. It is impossible to pay the debt in full and at the same time to provide the people with a fitting administration and to guarantee the conditions essential for its moral, social and economic development. (...) Doctrine recognizes in this matter that the duty of a Government to ensure the proper functioning of its essential public services outweighs that of paying its debts. No State is required to execute, or to execute in full, its pecuniary obligation if this jeopardizes the functioning of its public services and has the effect of disorganizing the administration of the country. In the case in which payment of its debt endangers economic life or jeopardizes the administration the Government is authorized to suspend or even to reduce the service of debt” [27].

D- Instead of a Conclusion

We the lawyers are trying to find legal remedies to all problems, because this is our profession. But the crisis is not a legal question, it is not even primarily an economic question, it is above all a political one. It is a question of how the important decisions regarding the distribution of wealth are going to be taken. And I must confess that at the beginning of the crisis I was very pessimistic about the future because in Greece reigned a climate of fear; a climate that the government tried to cultivate, according to which there was no other alternative, no other option than to submit to what our creditors demands; that as a country that can’t sustain itself we must abide and obey to the demands of them. But fortunately in last year we have seen the rise of a very genuine and massive political movement, an independent movement that has escaped this trap of fear and tried to reinvent democratic solutions.

It is still an amorphous movement and it mainly has negating features, without a very clear and precise agenda. I am very optimistic that it is going to evolve not only to a movement of resistance but a movement that is going to produce concrete political and economic alternatives. The basic failure of the austerity policieslays in their rejection by the vast majority of the people. The Greek guinea pig has escaped and that means that the social experiment of shock and awe has failed.

I also hope that we will have a paneuropean movement along the same lines. As British prime minister of 19^th Century, Benjamin Disraeli said, within every nation there are two nations, the poor and the rich, and their interests are never the same. So as we have a commonality of problems, we, who are not rich, have very important and vested interests to have a common ground and common policies against this neoliberal assault on our rights.