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Greece: Court rules against “haircut” on bonds human rights challenge

Judges ruled today that the “haircut” on bonds held by individuals geared to restructuring the Greek public debt during the crisis did not violate their property rights.

In its Chamber judgment in the case of Mamatas and Others v. Greece (application nos. 63066/14, 64297/14 and 66106/14) the European Court of Human Rights held, unanimously, that there had been:

no violation of Article 1 of Protocol No. 1 (protection of property) to the European Convention on Human Rights;

no violation of Article 14 (prohibition of discrimination) of the Convention, in conjunction with Article 1 of Protocol No. 1 to the Convention.

The case concerned the forcible participation by the applicants, who are private individuals holding Greek State bonds, in the effort to reduce the Greek public debt by exchanging their bonds for other debt instruments of lesser value.

In 2012, a new law amended the conditions governing the bonds by dint of Collective Action Clauses enabling bond-holders to conclude a collective agreement with the state, deciding by an enhanced majority. That majority having been obtained thanks, in particular, to the participation of the institutional investors (banks and credit organisations), the new conditions came into force in respect of all bond-holders, including the applicants, despite the latter’s refusal.

Their bonds were cancelled and replaced by new securities worth 53.5% less in terms of nominal value.

This forcible participation amounted to an interference with the applicants’ right to respect for their property for the purposes of Article 1 of Protocol No. 1 to the Convention.

Nevertheless, that interference pursued a public-interest aim, that is to say preserving economic stability and restructuring the national debt, at a time when Greece was engulfed in a serious economic crisis.

The court therefore held that the applicants had not suffered any special or excessive burden, in view, particularly, of the States’ wide margin of appreciation in that sphere and of the reduction of the commercial value of the bonds, which had already been affected by the reduced solvency of the State, which would probably have been unable to honour its obligations under the clauses included in the old bonds before the entry into force of the new Law.

The court also considered that the collective action clauses and the restructuring of the public debt had represented an appropriate and necessary means of reducing the public debt and saving the State from bankruptcy, that investing in bonds was never risk-free and that the applicants should have been aware of the vagaries of the financial market and the risk of a possible drop in the value of their bonds, considering the Greek deficit and the country’s large debt, even before the 2009 crisis.

The court also found that the bond exchange procedure had not been discriminatory, in particular because of the difficulty of locating bond-holders on such a volatile market, the difficulty of establishing precise criteria for differentiating between bond-holders, the risk of jeopardising the whole operation, with disastrous consequences for the economy, and the need to act rapidly in
order to restructure the debt.

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