Restructuring Responsibility for Greece’s Sovereign Debt


Greece is a nation in crisis.  Riots and unemployment have become the norm in the streets of Athens.[1]  For those following the Greek crisis from the outside, the media reports have conveyed well the idea that this suffering is really Greece’s own doing.[2]  The general sentiment being that Greeks have enjoyed government handouts and low taxes for long enough.   If the Greeks had just paid taxes like the Germans, they would not be in this situation.  Or so the argument goes.

There is no doubt that bad leadership, dubious economic policies, and a rampant culture of tax evasion have all contributed to Greece’s current debt woes.[3]  But there is also the other side of the coin which has received less media coverage.  Greece’s original creditors – the large financial institutions in Europe, mainly in France and Germany, were not oblivious to these happenings in Greek politics and economics.  In fact, these same financial institutions were instrumental in helping Greece obfuscate its true debt position, so as to help it acquire more sovereign debt. As one commentator noted: “The lobby of the elegant Hotel Grande Bretagne of Syntagma Square swarms with north European lawyers and bureaucrats and their assistants laden with files.  It is they who now determine Greece’s future.  Many come from the law firms that advise the giants of global finance and the EU, the very institutions that helped create the Greek debt crisis.”[4]

In moral terms, this is a bizarre turn in events – the original architects (in part) of the harm in Greece are now the highly paid architects of the remedy.  Yet, in the sovereign debt world, this chain of events is not extraordinary.  In the sovereign debt arena, creditors have traditionally assumed little to no responsibility for an over committed/defaulting sovereign debtor.  The legal framework for sovereign debt prescribes few rules, other than the expectation that sovereign debtors repay their loans.[5]  As a result, if a creditor is irresponsible or even malicious in lending to a sovereign debtor, the law can still demand repayment.  Coupled with the political and economic considerations that often lead debtors to repay notwithstanding dubious loans (because, for example, debtors may seek access to credit in the future), a creditor’s bargaining capacity in the event of default is great, to the detriment of a debtor nation’s populace.

This paper considers the restructuring efforts in Greece in light of the current legal framework for sovereign debt.  Part 1 describes the legal aspects of sovereign debt and the informal framework for debt defaults, Part 2 details the case of Greece – how it amassed unsustainable sovereign debt, and current bailout/restructuring efforts, Part 3 considers the implications of the current efforts for dealing with Greece’s sovereign debt woes.  While there is much controversy currently surrounding the issue as to whether Greece should leave the Eurozone or not, this paper does not enter this debate.  The paper limits itself to sovereign debt restructuring, and policies adopted in the case of Greece.  In the end, the paper concludes that Greece, like other nations who have similarly suffered violent, internal conflicts, would benefit from some form of truth and reconciliation audit to properly understand the causes of and responsibilities for its crisis.  Only with this deeper level of detail and understanding can responsibility for Greece’s sovereign debt woes be correctly attributed.

[1] Kerin Hope, Riot police clash with Athens protesters, 26 September. 2012. <;; Unemployment in Greece hit 25% in July 2012, and was higher than 54% among young Greeks.  See, Greece unemployment hits a record 25% in July, BBC news 11 October. 2012. <;.

[2] See, eg, ‘Eurozone Crisis Explained’, BBC News (online), 22 August 2012 <;; James Surowiecki, ‘Dodger Mania’, The New Yorker (online), 11 July 2011 <;; Niki Kitsatonis, ‘Greece Urged by European Official To Do More’, The New York Times (online), 15 March 2012 <;.

[3] Jason Manolopoulos, Greece’s ‘Odious’ Debt   (Anthem Press. 2011).

[4] Loretta Napoleoni, The Slow Shredding of Western Democracy, Financial Times 12 April. 2012.

[5] Yvonne Wong, Sovereign Finance and the Poverty of Nations: Odious Debt in International Law   (Edward Elgar. 2012). 20-39.