On The Odiousness of Greek Debt

• DOI: http://doi.org/10.1111/eulj.12184
• Published date: 01 July 2016
• Date: 01 July 2016

On The Odiousness of Greek Debt

Ilias Bantekas* and Renaud Vivien**

Abstract: Unlike the popular narrative, which suggests that the Greek debt crisis was the

result of lavish spending , this article demonstrat es that the ‘crisis’was generated by a

transformation of pure ly private debt into public d ebt. This f‌inding is supporte d by the

preliminary report of the Greek Parliamentary Committee on the Truth of the Greek Debt,

which clearly showed that the exponential increase of pri vate debt in Greece risked the

collapse of the privatef‌inancial institutions exposedto it, namely Greek, French and German

banks. This resulted in pressure on t he Greek government to recapital ise and nationalise

Greek banks through Eurozone and IMF funding. This funding, which came to be known

as ‘bailout for Greece’was nothing more than the rescue of private banks through EU tax-

payers’money, only 5% of which went into the Greek economy. The article shows that the

process by which thedebt was transformed, as well as the post-crisis bailout were odious, il-

legal and illegitimate and the ensuing debtitself was unsustainable and whollyagainst funda-

mental human rights.

I Introduction

In this article, we provide a constitutionaland economic analysis of the Greek f‌iscal crisis

on the basis of the economic andlegal f‌indings of the committee establishedin early 2015

by the Greek Parliament to audit Greek debt (the Greek Debt Truth Committee).

The Committee was mandated to consider the historical condition s under which the

stock of Hellenic debt was cumulated, and in particular, the consequences that the post-

2010 programmes of f‌inancial assistance tothe Hellenic Republic have had on the Greek

socio-economic structure. Despite the fact that the Committee was off‌icially terminated

before it could complete its work (a casualty of the convoluted process leadingto the third

programme of f‌inancial assistance to Greecesigned in August 2015), its interim report of

July 2015 should be of interest to both social scientists and legal scholars.

On the one hand, the report takes stock of the crystallisation and incipient

operationalisation of the concept of ‘odious debt’as a substantive and procedural legal

category of international law. On the other hand, the report renders public the empirical

and normative f‌indings that the Committee made in its few months of operation. Such

f‌indings challenge not only the standardpublic and scholarly narratives of the Greekcrisis

(and, by extension,of the Eurozone crisisas a whole), but also the verynarrative underpin-

ning the ‘government’of the Greek crisis, i.e. the actions taken and decisions adopted by

* Professorof International Law, BrunelUniversity School of Law.

** Legal Advisor CADTM, Co-general Secretary of CADTMBelgium. Both authors are members of the Truth

Committeeon Public Debt.

European LawJournal, Vol. 22, No. 4, July2016, pp. 539–565.

© 2016 John Wiley& Sons Ltd. 9600 Garsington Road,Oxford, OX4 2DQ, UK

and 350 Main Street,Malden, MA 02148, USA

European institution s to contain and overcome the f‌isc al crisis of the Greek state. In

particular, the Committee ascertained that

•the key driver of the growth an d accumulation of Greek sove reign debt was not

‘excessive public s pending’, but ratherthe high real interest rates paid by theHellenic

state in the eighties and nineties;

•the factor triggering the Greek f‌iscalcrisis, namely the massive differencebetween the

def‌icit estimate of early 2009 (3.7% GDP) and the revised estimates of late 2009 and

2010 (12.7% GDP in October 2009, 13.6% GDP in April 2010 and 15.4% GDP in

November 2010), was not so much the result of massive ‘electoral cycle’overspend-

ing, but of statistically and legally problematic revisionsof the way in which the costs

of arrears in hospitalspending, the losses of public enterprises and the liabilitiesstem-

ming from derivative contracts were to be accounted;

•the liquidity crisistriggered by def‌icit estimates revisions created theconditions under

which the nationalisation of the risks stemming from private cross border borrowing

(feeding the geometrical growth ofGreek public debt since the Hellenic State became

a Eurozone Member) and the reconf‌iguration of debt legal relationships (withsover-

eigns replacingprivate parties both as creditorand debtor) could be undertakenwith-

out any signif‌icant opposition.

The Committee concluded that post-2010 Greek debt could be regarded as odiou s

under international law. We ma y be tempted to think that such a f‌inding became

irrelevant the moment t he third Greek economic p rogramme was signed in Augu st

2015. That would be a too quick by half conclusion. Debate on the binding character of

Greek public debt is bound t o revive once it becomes impos sible to postpone

acknowledging that Greece will not be capable of paying its debt back.

The article is structured in three parts. In thef‌irst section we analyse the doctrineof ‘odi-

ous debt’. In the second section we consider the main economic and legal f‌indings of the

Committee, including the f‌inding that post-2010Greek debt is illegitimate, illegal and un-

sustainable. The last section holds the conclusions.

II The Legal Doctrine of ‘Odious Debt’

Sovereign indebtedness tends to be approached from two different and contrasting if not

antagonic perspectives in the international law literature. On the one hand, we f‌ind those

scholars thatfocus on issues of debt management,discussing chief‌ly, if not exclusively, the

practice of international f‌inancial institutions and ‘creditor’states.

1

These authors, many

of which specialise on the law of internationa l f‌inance and in international investment

law, tend to take for granted the legality and legitimacy of all sovereign debt, resulting

not only from the force of contracts (pacta sunt servanda), but also from the doctrine of

state continuity and, in a more economic key, from the reputation costs of not serving

the debt. On the other hand, we f‌ind scholars that set the analysis of sovereign debt in

its wider normative context. Debt is thus regarded not only as a contractual relationship

and a means of funding state expenditure, but also as a powerful policy and political tool

1

See e.g.R. M. Lastra and L. Buchheit(eds.), SovereignDebt Management(Oxford University Press,2014); P.S.

Kenadjan, K.A. B auer and A. Cahn (eds.), Collective Action Clausesand the Restructuring of SovereignDebt

(deGruyter, 2013); R.Olivares-Caminal,The Legal Aspects of SovereignDebt Restructuring(Sweet & Maxwell,

2009); A. Rieffel,Restructuring Sovereign Debt:The Casefor Ad Hoc Machinery (BrookingsInstitution Press,

2003).

The Odiousness of Greek DebtJuly 2016

© 2016 John Wiley& Sons Ltd.540