- This is a translation of the French article “Les défauts du défaut – Quelques clefs pour comprendre la crise de la dette souveraine”, published by the French think-tank, En Temps Réel. The article is available in French at http://entempsreel.com/2011/11/18/les-d%C3%A9fauts-du-d%C3%A9faut-quelques-clefs-pour-comprendre-la-crise-de-la-dette-souveraine-cahi. The article was translated by Manuel Fernandez and Roland Susman.
- The circumstances and the issues considered by this article are continuing to evolve and develop. The drafting of this article was completed on 16 November 2011.
- See, eg, IMF, Regional Economic Outlook, Europe, October 2011 or IMF Fiscal Monitor, September 2011.
- IMF, World Economic Outlook, September 2011, 192.
- IMF, Global Financial Stability Report, September 2011, 16.
- IMF, Fiscal Monitor, September 2011, table 3, 10.
- EBA, 2011 EU-Wide Stress Test Aggregate Report. A similar exercise, though leading to a less detailed publication, was led by the European Insurance and Occupational Pensions Authority. The results of this study have also been published (cf communication from the ACP, the French Banking Regulator, 4 July 2011). This study is based on the assumption of an increase in yields on each Member State's debt, as well as an increase in yields on the debt of a certain number of non-Member States.
- Cf A Blundel-Wignall and P Slovik, “A Market perspective on the European Sovereign Debt and Banking Crisis” [2010] Financial Market Trends, issue 2, pre-publication version, February 2011.
- ECB, 4 October 2011 communication, “Statistics in Euro Area Insurance Corporations and Pension Funds”, second quarter 2011.
- This figure takes into account the positive effect on banks' capital positions of the rise in value of better rated debt (such as German debt). Some, therefore, consider the figure to be too low.
- EBA, 26 October 2011 communication. Definitive figures should be published in November, based on 30 September bank figures (banks are to have published their capital position and exposure to sovereign debt on this date. This would allow the EBA to publish figures by bank and by country, as it did in July).
- These are international bodies which tend to take an Anglo-American approach to legal practice.
- Generally, they have the following, or similar, content: “ To the extent that the Republic may in any jurisdiction claim for itself or its assets or revenues immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise and whether on the grounds of sovereignty or otherwise) or other legal process and to the extent that such immunity (whether or not claimed) may be attributed in any such jurisdiction to the Republic or its assets or revenues, the Republic agrees not to claim and irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction”.
- Prospectus Directive, 2003/71, Art1, para 2(b).
- Market Abuse Directive, 2003/6, Art 7.
- Publicity of the issue, tax, negative pledge clause, default and acceleration, securities buy-back by the issuer, collective action clause, applicable law and jurisdiction.
- ICMA suggested standard clause: “The bonds should entitle the bondholders to demand immediate repayment, prior to te contractual maturity date, if: (i) the Issuer fails to pay any amount due under the bonds within 30 days of the due date for such payment; or (ii) the Issuer defaults in the performance of any of tis other obligations under the bonds and (if the default is capable or remedy) fails to remedy the default within 30 days of being notified of it by any bondholders. Acceleration of payment should be permitted provided holders of at least 25 per cent of the outstanding principal amount of the bonds vote in favour or such action.”
- For instance: “The Notes constitute direct, unconditional, unsecured and unsubordinated obligations of the Republic and will at all times rank pari passu and without any preference among themselves. The full faith and credit of the Republic is pledged for the due and punctual payment of the principal of, and interest on, the Notes and the performance of the Republic's obligations under the Notes. The payment obligations of the Republic under the Notes will at all times rank at least equally with all the other present and future unsecured and unsubordinated indebtedness of the Republic.”
- All these concepts are defined in detail by the ISDA contract.
- ISDA, press release, 31 October 2011: “Neither of these has yet occurred with regards to the Greek sovereign debt situation. No debt issued by the Hellenic Republic has been modified to date, nor have the formal terms for any such modification under the Eurozone proposal yet been released. No market participant has yet made such a request to the DC.”
- Interview, JC Trichet, Le Point, 22 July 2011.
- Interview, JC Trichet, Süddeutsche Zeitung, 23 July 2011.
Law and Financial Markets Review
Volume 6, 2012 - Issue 2