Greece, Cyprus and Spain are facing claims from speculative investors worth more than €1.7 billion in a series of eurozone-related investor-state disputes that could spiral dramatically under a proposed EU-US trade deal known as TTIP, a new report says.
The study ‘Profiting from Crisis’, is launched today (10 March) by campaigning group Corporate Europe Observatory and the Trans-National Institute, as the EU begins a public consultation on the regulatory implications of any agreement.
The paper finds that “a growing wave” of corporate lawsuits from investors burned in Europe’s recent economic crisis risks repeating the banking sector bail-out that precipitated it. Many of these litigants are “circling vultures” looking for short-term bargains and not long-term investments, the report claims.
“At a time when ordinary people across Europe have been stripped of many basic social rights, it is perverse that the EU supports an international investment regime which provides VIP protection to largely speculative foreign investors,” said Cecilia Olivet, the report’s co-author.
The study lists several cases to back up its claims. In Cyprus, Marfin Investment Group, a Greek-listed private equity-style investor is currently seeking €823 million in compensation for 'haircut’ losses caused by Cyprus’s nationalisation of the Laiki Bank.
Slovakia’s Poštová Bank bought Greek debt after the bond value had already been downgraded and, despite being offered a generous debt restructuring package, then sued Greece for a better deal under the Bilateral Investment Treaty between the two countries.
In Spain, the report says that arbitration disputes by corporate investors have claimed more than €700 million, a sum which, augmented by lawyers’ fees, will need to be paid for out of the public purse.
Activists fear that even the sums involved in these cases could be dwarfed by awards that could follow the inclusion of ‘fair and equitable treatment’ clauses in the Trans-Atlantic Trade and Investment Partnership (TTIP) allowing action by investors against alleged breaches of their ‘legitimate expectations’ of profit.
“Speculative investors are already using investment agreements to raid the cash-strapped public treasuries in Europe’s crisis countries,” said Pia Eberhardt, a campaigner for Corporate Europe Observatory. “It would be political madness to grant corporations the same excessive rights in the even more far-reaching EU-US trade deal.”
The new report cites figures indicating that 75,000 cross-registered firms with subsidiaries in the EU and US could launch investor-trade actions under the proposed TTIP agreement.
“This danger is even more present given that EU and US businesses know very well how to work the system, having already launched the majority (64%) of all investor-state disputes known globally,” the paper says. “The notoriously litigious US law firms may already be getting their knives out to join them in fighting regulations they dislike on both sides of the Atlantic.”
More than half of all foreign direct investment in the EU area would be covered by the TTIP, the paper says, much of it coming from Wall Street companies.
Bullishness by US negotiators and increasing concerns in the EU about potential regulatory implications have temporarily halted the Trans-Atlantic negotiations, for public consultations.
Meanwhile, investment lawyers such as the US-based K&L Gates are already recommending that corporations use the threat of investment arbitration as “a bargaining tool” in debt restructuring negotiations with governments.
The number of investment arbitration cases rocketed from 38 in 1996 to 450 known cases in 2011, according to a past Corporate Europe Observatory report, with average costs similarly spiking to $8 million per dispute.
Leverage against foreign governments
The UK-based firm Clyde & Co also advises using the “potential adverse publicity” of an investment claim as “leverage in the event of a dispute with a foreign government.”
Such suggestions reinforce recent warnings from the European parliament’s environment committee that “there is a real risk of a negative impact of [investor-state] provisions… in an eventual TTIP on the regulatory freedom of the EU or Member States’ space for acting in the public interest, including in the area of the environment.”
The Swedish energy company Vattenfall is currently suing the German government for its decision to phase out nuclear power in a suit expected to amount to €700 million.
On the other side of the environmental debate, in Spain, 22 companies – mainly private equity funds – are suing the government at international tribunals over a decision to cut renewable energy subsidies.
“While the cuts in subsidies have been rightly criticised by environmentalists,” the report says, “only large foreign investors have the ability to sue, and it is egregious that if they win it will be the already suffering Spanish public who will have to pay to enrich private equity funds.