There is a seemingly endless stream of cases originating from the Greek crisis, which has preoccupied the national, European, and international courts and bodies alike. The judgment delivered by the European Court of Human Rights (ECtHR) in the case of Mamatas and Others v Greece is of the utmost legal and political significance.
The case concerned the Private Sector Involvement (PSI) Agreement: the ‘haircut’ imposed on Greek government bonds for the purposes of reducing the volume of Greek debt. Greek government bonds held by private investors were exchanged for short-term notes issued by the European Financial Stability Facility and new long-term Greek government bonds, which equated to a reduction of 53.5% in nominal terms and around 75% in net present value terms. The PSI programme applied to bonds held by natural and legal persons alike (including ‘micro-investors’) without seeking their consent because the PSI agreement allowed the restructuring of these bonds with the consent of a qualified majority of bondholders through the inclusion of Collective Action Clauses (CACs) in the bonds. Most of these bonds contained no CACs and could have otherwise only been restructured with the unanimous consent of all bondholders.
The applicants sought to argue that there had been a violation of the right to property contained in Article 1 of the First Added Protocol to the European Convention on Human Rights (ECHR), taken alone or in conjunction with Article 14 of the ECHR (prohibition of discrimination). The ECtHR noted that states enjoyed a wide margin of appreciation with respect to measures taken to combat the economic crisis and that their policy choices should be respected unless vitiated by a manifest error of assessment (§88-89). It held that Greece could legitimately take measures in order to attain the objectives of preserving economic stability and restructuring public debt (§103). As regards the proportionality of the interference with the applicants’ rights, the losses incurred by them were not large enough to amount to the ‘termination’ of or an ‘insignificant return’ on their investment (§110). The appropriate comparator was the market value of those bonds when the PSI Agreement was enacted (§112). Further, the state would have otherwise been unable to honour its obligations to them (§112).
The forcible participation of the applicants in the PSI programme did not affect the proportionality of the interference (§113). The applicants could have sold the bonds on the market (§114) and the inclusion of CACs was common practice in international transactions (§115). Moreover, it would have been impossible to reduce the volume of Greek debt, had Greece been required to seek a consensus among all bondholders or to limit the PSI programme to only those who had consented to the ‘haircut’ (§115). Furthermore, Greece’s debtors had required that such a ‘haircut’ be imposed on bonds held by private investors. Had the CACs not been included, those voluntarily participating in the ‘haircut’ would have incurred greater losses, and others would have been deterred from participating. The inclusion of CACs was a measure which was appropriate and necessary for the purposes of reducing the Greek debt and averting the risk of insolvency (§116). The applicants should have been aware of the relevant risks (§117-120). Nor was there unlawful discrimination, as the inclusion of bonds held by the applicants was justified by the difficulty of locating the affected parties; the difficulties involved in laying down the precise criteria for differentiating between bondholders; the risk of jeopardising the effectiveness of the programme; and the need to respond rapidly to the situation (§133-142).
There is no doubt that similar disputes will arise in the future. For example, shareholders, bondholders and depositors might have to foot the bill to keep an ailing bank afloat. If these are effectively wiped out, would such an interference with their property rights perhaps constitute a ‘termination’ of or an ‘insignificant return’ on their investment? What is more, the Court’s refusal to accord more protection to ‘micro-investors’ with investments under €100.000 does not bode well for depositors, the threshold for protection being the same under EU law (§137). The effect of the Court’s ruling is to sanction the restructuring of sovereign debt, but the limits to what can be asked of private investors are thus far rather imprecise.