EXCLUSIVE / United Nations bosses have criticised the European Union for backing an international court where companies can sue countries, while blocking global rules to help bankrupt nations, such as Greece and Ukraine solve sovereign debt problems.
Richard Kozul-Wright, director at the United Nations Conference on Trade and Development (UNCTAD), said support for investor-state dispute settlement (ISDS) but not for state-investor was “incongruous”.
The European Commission has recognised that international agreement on processes for ISDS and trade is the best way forward, he said, but refutes to think the same for sovereign debt. That is “inconsistent,” said Kozul-Wright.
Trade Commissioner Cecila Malmström has backed a multilateral international investment court, in an effort to head off public opposition to the ISDS clause in the proposed EU-US trade deal, the Transatlantic Trade and Investment Partnership (TTIP).
ISDS, which is wanted by the US, is controversial, because it allows investors to take governments to international arbitration tribunals rather than to domestic courts. The mooted multilateral permanent court would replace the ISDS clause in TTIP.
Kozul-Wright attacked the EU, International Monetary Fund, and World Bank, the “troika”, which together bailed out Greece, Ireland, Portugal, Cyprus and Ukraine on conditions of implementing austerity policies and reform.
“We are quite offended by the way in which the international financial institutions and the European Union institutions essentially deny any role for the United Nations in this kind of issue,” he said yesterday (12 May) in Brussels.
“It’s not just on debt issues either it’s on a whole set of very fundamental economic issues where the attempt to define us as illegitimate actors is the political strategy of choice,” he added at an event hosted by NGO the European Network on Debt and Development (Eurodad).
UN to draft framework
Sacha Llorenti is Bolivia’s ambassador to the United Nations and is chairman of the UN General Assembly Ad Hoc Committee on Sovereign Debt Restructuring Processes.
The committee is working to create a framework to be backed by governments that would set down rules and processes for handling countries going bust in a fair and predictable way. Campaigners say it will move the forum for national bailouts away from the troika and towards a more inclusive UN system.
The framework would be based on principles of legitimacy, impartiality, transparency, good faith and sustainability, according to Llorenti. MEP Stelios Koulglou, of Greece’s Syriza party, told the event his country’s bailout by the troika failed on all those counts.
Despite the EU being the region with the most debt crises in the world, Llorenti said, it had not yet engaged in the process. Sustainable debt was also part of the Sustainable Development Goals, a drive for worldwide commitment the EU supports, he said.
“There are some countries that say this issue should not be discussed at UN, just the IMF […] developing countries are doing our part, you the EU have to do your part as well,” he added.
Struggle for control
UN sources said the reason for EU reluctance to join discussion was because of worries over losing control of its sovereign debt bailouts.
Llorenti, who is visiting Brussels to drum up support for the national insolvency procedures, underscored the fact.
Last September, the UN General Assembly approved a resolution to work towards the legal framework. Argentina proposed the resolution after it was pushed into default by lawsuits in US courts from hedge funds, which bought its sovereign debt.
124 voted in favour, 11 countries against and 41 abstained. Six EU countries – the UK, Germany, Czech Republic, Finland, Hungary, and Ireland – voted against. The EU, which was furious after Argentina nationalised oil assets belonging to Spain’s Repsol, has an observer seat at the UN.
“If you want to know the real reason these 11 countries said no, it’s because they have less than 10% of votes at the General Assembly but 45% of votes in the International Monetary Fund,” said Llorenti.
At the very first meeting of the new Committee, not a single EU country attended. That decision was criticised by Argentina’s Ambassador to the EU Hernán Lorenzino, who was also at the Eurodad event.
But Llorenti stressed the door was still open to EU countries. “It wouldn’t be a good signal for the rest of the world if the region in the world with the most debt crisis is not part of this democratic discussion,” he said.
The EU does not have an orderly state insolvency procedure on its own rulebook, said Bodo Ellmers of the European Network on Debt and Development (Eurodad).
Instead current international arrangements are ad hoc and the lack of proper national bankruptcy procedures has long been acknowledged as a gaping hole in the financial architecture, he said.
“The EU is in urgent need of better insolvency regimes […] vulture funds have already started to buy up bad loans in countries affected by the euro crisis, and if action is not taken we could see a repeat of the Argentina case within the EU,” he added.
The European Commission said, “EU policy is to cover all assets having the characteristics of investment. EU texts include a prudential carve out to ensure the full right to regulate to protect the integrity of the financial systems. CETA [the EU-Canada trade deal] also contains a dedicated annex ensuring that non-discriminatory sovereign debt restructurings will not be subject to ISDS.”
Negotiations on investment in TTIP were suspended in January 2014. They will only resume once the Commission believes its new proposals guarantee, among other things, that the jurisdiction of national courts won’t be limited by special regimes for investor-to-state disputes.
In September last year the UN General Assembly approved a resolution to work towards a legal framework to set our procedures for helping bankrupt nations solve their sovereign debt issues. Argentina proposed the resolution after it was pushed into default by lawsuits in US courts from hedge funds, which bought its sovereign debt.
124 voted yes, 11 countries against and 41 abstained. Six EU countries – the UK, Germany, Czech Republic, Finland, Hungary, and Ireland - voted against.
On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.
Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available €2 billion in unused EU structural funds to Greece.
Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.
Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the Troika of EU, ECB and IMF inspectors, which are now called "the institutions".
- July 2015: TTIP 10th round of negotiations