The EU’s top court ruled on Thursday (23 May) against demands for the European Central Bank to compensate private investors affected by the restructuring of the Greek public debt in 2012.
Investors suffered losses as a result of Greece’s decision to renegotiate the nominal value of its national bonds with bondholders, in the context of the second bailout, in one of the biggest sovereign-debt restructurings in history.
A majority of the investors agreed but the Athens government decided to extend the effects of such a decision also to creditors who did not give their consent to the deal. When Greece asked the ECB for its opinion, the lender did not make any objection.
Bondholders affected by the decision brought a case against the ECB to the General Court of the EU, seeking the restitution of the financial losses, alleging that the Greek government’s decision was unlawful.
The European Court of Justice (ECJ) backed Frankfurt’s judgement on Thursday and argued that the restructuring was neither disproportionate nor an infringement of the right to property of those investors, even if the authorities did not have their consent.
The Court stressed that in any case, the bank is not liable for the Greek government decision.”The opinions of the ECB do not bind the national authorities,” the ECJ said in its ruling. The contractual relation is established between the Greek government and the bondholders, not with the European lender.
“The ECB’s competence to give opinions does not confer on the applicants a right to have that body claim a breach of a contractual right which they hold in respect of the Hellenic Republic,” the Court argued.
But the Court went even further and noted that restructuring the Greek public debt did not incur any infringement, arguing that state bonds always carry the risk of financial loss.
If unforeseen circumstances arise, the Court highlighted, states are entitled to renegotiate the conditions of the bonds.
The EJC recognised that the devaluation of the bonds held by those creditors who did not participate in the negotiation could have given rise to an infringement of the right to property of the bondholders.
However, the Court noticed that the circumstances surrounding the decision “were truly exceptional.” Given the size of the Greek public debt, “in the absence of its restructuring, a short-term, at least selective, the default of the Hellenic Republic was a credible prospect,” the ECJ said.
In light of the context, the ECJ considers that the devaluation of the public bond did not constitute “a disproportionate and intolerable intervention” or an “infringement of the applicants’ right of property.”
Furthermore, the EU top court considered that the measure was not disproportionate as it aimed at ensuring stability in the Greek banking system but also in the euro area as a whole.
Thus the decision is considered to have been in the public interest. Accordingly, the EJC rejected the applicant’ claim for compensation.