Nov 12 2015

The Ultimate Sovereign Debt Showdown: Russia & Ukraine likely to battle it out in court!

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Posted in: Russia, Ukraine

By Kanad Bagchi

Against the backdrop of acute political instability, civil war, the loss of Crimea, and a debilitating state of public finances, Ukraine remarkably secured a debt restructuring deal with its international bondholders on 27th August 2015, potentially augmenting its case for a $40bn bailout from the International Monetary Fund. The restructuring package envisaged a principal reduction of around 20% of the total $18bn debt outstanding along with a debt rescheduling arrangement until 2019. The deal has been vociferously hailed as a ‘significant milestone’ and one, which is likely to restore the ‘debt sustainability’ of the Ukrainian government. Amidst a cohort of international financial institutions, including Franklin Templeton, BTG Pactual, Rowe Price et al, agreeing to the haircut, Russia, which holds $3bn worth of those US dollar dominated bonds (just ‘bonds’ hereafter), refused to participate in the negotiations and insisted on being repaid in full. Both countries, having dilly-dallied for weeks since the initial restructuring deal, are now considering to resolve their dispute over the debt in a London court. In this regard, the bond agreements are governed by English law and are subjected to the jurisdiction of British Courts. Political skirmishes aside, this post considers some of the intricate questions connected with sovereign debt enforcement in general and speculates on the likely set of legal issues arising out of the present dispute in particular.

One of the main sticking points of the present controversy relates to the nature and scope of the bonds that were issued by the Ukrainian government, and in particular whether these count as official or private debt. The distinction is important for two specific reasons. First, Russia can validly insist on restructuring of official debt under the umbrella of the Paris Club, as opposed to the recently agreed private creditor-debtor arrangement. Second, legal defenses available to Ukraine in a debt enforcement action by Russia would vary substantially depending on the form and substance of the bonds and whether these are categorized as official or private debt.

Bilateral State Loan or Private Debt?

If the matter reaches the English courts, a ruling on the status of the debt becomes imperative. For starters, the Russian government acquired the entire 3 billion worth of Ukrainian government issued bonds, as a partial fulfillment of a previously agreed loan disbursement to the erstwhile government of Ukraine under President Viktor Yanukovych. Reports suggest that an artificially low interest rate of 5% was agreed on the bonds, when the market, admittedly was demanding far higher rates. In addition to that, a debt acceleration clause giving Russia the option of immediately reclaiming the entirety of the funds, in the event of Ukraine’s debt to GDP ratio exceeding 60%, posits an unusually compromising financing arrangement, further confounding the distinction between private and official debt. In the author’s opinion, the peculiarities of the transaction highlight the fact that the bond issue and its purchase was both creditor specific and materially distinct, in as much as the Russian initiative lacked a purely commercial motive and a profit rationale. Such unconventional issues of securities add a strategic, if not a completely official flavor to the transaction, thereby admitting a characterization of the bonds as official sector debt, regardless of its form. That said, the present indeterminacy has nonetheless stimulated an intensely polarized debate amongst academics and practitioners alike and one hopes that a court decision will infuse more clarity and coherence on an issue, which is both novel and unprecedented. (For a fuller exposition of the debate, see here and here).

Can Ukraine Validly Resist Debt Enforcement by Russia Assuming that Debt is ‘Official’?

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Posted by: Posted on November 12, 2015 by Eurocrisis in the Press   Tagged with: , ,

Nov 8 2015

How visible are Britain’s EU renegotiation demands across Europe’s twitterspheres?

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Posted in: Europe, Max Hänska, United Kingdom

By Max Hänska and Stefan Bauchowitz

David Cameron warned EU leaders to meet Britain’s demands, as he faced mounting pressure to outline his terms for keeping the UK in the EU. He is expected to set out these demands in greater detail on Tuesday. George Osborne began to set out what Britain sought from its renegotiations in a speech delivered to German business leaders at the BDI (Federation of German Industries) in Berlin on Tuesday 3 November. As the prelude to Britain’s EU referendum the renegotiations have gained in significance, particularly as the lead for ‘staying in’ has narrowed in the polls.

With Britain’s referendum, the EU faces the possibility of a Brexit just month after it narrowly avoided a Grexit. It seems reasonable to expect that Europe would pay substantial attention to these renegotiations and the concessions Britain is demanding of other EU members for its continued membership. A useful way of studying the amount of attention paid to Britain’s demands, is by examining their EU-wide public visibility. The extent to which actors or issues relevant to one EU member are visible across the rest of the EU is sometimes described as horizontal Europeanization of national public spheres. Following this line of inquiry, we investigate the visibility of Osborne’s speech and the UK’s demands across Europe’s twitterspheres.

Following the same methodology outlined in our previous post, we collected tweets matching a set of relevant keywords on Tuesday 3 November, covering the time of Osborne’s speech, through twitter’s streaming API. We used the Google Maps Geocoding API to map user-specified locations to countries. The data presented includes total volume of tweets by country. To get an idea of how many tweets from the UK and other EU countries we should expect in general, irrespective of the issue, we collected a random sample during a comparable timeframe from the streaming API’s sample endpoint.

Figure 1: Share of tweets, renegotiation vs. random sample

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Posted by: Posted on November 8, 2015 by Eurocrisis in the Press   Tagged with: , , , ,

Nov 2 2015

As Europe looks fearfully outside, its liberal democracy is under attack from within

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Posted in: Europe, Nationalism

By Cas Mudde

Liberal democracy in Europe is under threat once more. This time, however, the threat comes from within the European elite. What can be done to remedy this situation? 

If one believes the international media, then the “refugee crisis” is pushing Europe further and further into the hands of the far right. As refugee centres burn and tens of thousands of people demonstrate against an alleged “Muslim invasion”, far right parties across Europe are at record highs in opinion polls and are winning in local and national elections.

Earlier this month the Swiss People’s Party (SVP) won 29.4% of the vote in the Swiss national elections, the largest victory of any far right party in Western Europe since 1945. In the Netherlands and Sweden, long seen as immune to far right parties, the Party for Freedom (PVV) and Sweden Democrats (SD) are soaring in the polls. From Denmark to Germany (planned) refugee centres are being targeted by arsonists and protesters.

Against this angry mob, given voice by charismatic leaders like Marine Le Pen and Heinz-Christian Strache, stands an apathetic and flustered political elite. While German Chancellor Angela Merkel tried to defend a welcoming approach to the refugees, she was met with silence or opposition from her centre-left and centre-right colleagues across the continent.

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Posted by: Posted on November 2, 2015 by Eurocrisis in the Press   Tagged with: , , ,

Oct 26 2015

Brexit will give neither Hitchens nor Mason the Europe they desire

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Posted in: United Kingdom

By Denis MacShane

Recently I had the pleasure of debating Europe with Peter Hitchens of the Mail on Sunday at the Dulwich Literary Festival. Hitchens advanced the well-worn Brexit arguments about Europe being run by faceless unelected bureaucrats, imposing its vicious will on poor countries like Greece, and that there was absolutely no democratic control over what it does.

In fact, variation of these arguments have been advanced by national sovereignty critics of European integration ever since Churchill called for the creation of ‘the United States of Europe’ seventy years ago. The late Denis Healey wrote the classic critique of European unity in 1950 in a Labour party pamphlet. He argued the left should reject “a system by which important fields of national policy could be surrendered to a supranational European representative authority.”

Peter Hitchens who began on the left reprised with style and eloquence these European_flag_outside_the_Commissionarguments. Now he is joined by one of our most prominent left commentators, Paul Mason, who writes in the Guardian’s G2 that Brussels embodies “the determination to dissolve political traditions into a monolith.”

Mason complains about the treatment of Greece and now the handling of the refugee crisis. I share his Hellenophile critique of the decision of the centre-right ruling group in Europe to insist on foolish and counter-productive budget balancing measures in Greece. Their rejection of the IMF’s correct insistence that Greek debt to northern EU banks – those that lent money to corrupt Greek political elites – should be written off. Unlike Paul I also think the Greek political class including the new Syriza elite have to accept some responsibility. I do not admire Greece’s refusal to show any EU solidarity in its approach to stabilising the western Balkans, where Greek’s ultra-nationalist stance is destructive.

The arrival this summer and autumn of waves of refugees/migrants undermines and does not confirm Paul’s thesis about the EU being a monolith. On the contrary we have seen the vigorous resistance of national governments and national public opinions against accepting anything proposed by the European Commission.

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Posted by: Posted on October 26, 2015 by Eurocrisis in the Press   Tagged with: ,

Oct 19 2015

Lies, damned lies and statistics on the UK’s EU membership

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Posted in: United Kingdom

By Iain Begg

The launch in the last few days of groups to campaign for and against UK membership of the European Union has, predictably, seen the publication of claims and counter-claims about the costs and benefits. Anyone hoping for clarity from these data is, however, bound to be disappointed, as the numbers being bandied about are, with few exceptions, more likely to be misleading or downright wrong than helpful.

  • According to Britain Stronger in Europe ‘our economic partnership with Europe is worth £3000 per year to every household’ and part of the reason is that ‘the average person in Britain saves around £450 a year because trading with Europe drives down the price of goods and services’.
  • Meanwhile Vote Leave tells us that ‘Britain sends over £350 million to the European Union each week’ and goes on to highlight ‘£19.4 billion – the amount the UK would save by no longer having to contribute to the EU budget and invest in our priorities’.
  • Its competitor on the ‘no’ side, Leave.EU says that ‘leaving the EU could make the average UK household £933 better off. Freedom from excessive regulations and contributions to the EU budget will significantly lower costs for business and save the treasury billions of pounds per year’.

The first thing those of us asked to judge the veracity of the claims should become accustomed to saying is ‘it deLondon_Thames_Sunset_panorama_-_Feb_2008pends’. Nearly every figure relies on some sort of assumption and, unsurprisingly, if you want a negative figure, you assume the worst, and vice versa. As the persistent misrepresentation of the 3 million jobs associated with the EU as being ‘at risk’ outside the EU shows, politicians often blithely ignore the small print on estimates.

There are also little tricks of the trade that are used to stretch a point or to obfuscate what is being measured. Notice, for example, that one of the BSE (did anyone ponder the likely acronym?) figures quoted above is per person and the other is per household, but how they relate to each other is not explained. Notice, too, that the VL arithmetic is a tad dubious: £350 per week times 52 weeks is £18.2 billion, not 19.4.

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Posted by: Posted on October 19, 2015 by Eurocrisis in the Press   Tagged with:

Oct 16 2015

Why the EU gets in the way of refugee solidarity

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Posted in: Uncategorized

By Gregor Noll

Can the migration across the Mediterranean really be considered a security threat? The European Council, the Council of Ministers and implicitly also the Parliament are dealing with the flight over the Mediterranean from a narrowly protectionist perspective.

The actions that were decided by the European Council on 23 April 2015 essentially reproduce the policies that have proved to create, rather than reduce, risky migration strategies for those in need of protection and others. At the top of the agenda is fighting human “trafficking” (it is noteworthy that the Council uses an erroneous legal term for a phenomenon that constitutes human smuggling).

The second issue on the agenda is the decision to increase presence on the Mediterranean Women_and_children_among_Syrian_refugees_striking_at_the_platform_of_Budapest_Keleti_railway_station._Refugee_crisis._Budapest,_Hungarywith additional vessels, planes and personnel. To cooperate with countries of origin and transit is the third issue on the agenda, while a commitment to increase internal solidarity and responsibility is last on the action program.

All four issues – the criminalization of migration, tougher border control, pressure on non-EU states and finally an increase in solidarity – have always been seen as the solution to real and imagined migration crises in Europe since the fall of the Wall. At the same time the UN High Commissioner for Refugees has found that the number of refugees in the world has not been this high since the Second World War.

This reiteration has something forced about it; there is reason to seek the structural causes behind it in EU history and politics. At the same time we notice an escalation; the EU is planning to use force against smugglers and their property outside EU territory, in analogy with the operation Atalanta that targets pirates outside the Somali coast.

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Posted by: Posted on October 16, 2015 by Eurocrisis in the Press   Tagged with: ,

Oct 8 2015

Finnish competitiveness-raising policies and their discontents

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Posted in: Finland

By Paul Jonker-Hoffren

Although Finnish politics have been concerned about the country’s competitiveness for quite a while now, the public discussion reached a temporary climax with PM Juha Sipilä’s televised speech late September. In this widely discussed speech, he argues, through various clever rhetorical devices, that Finland’s competitiveness is at stake and that something has to be done about rising state indebtedness.

To some observers, the policies advocated seemed to come straight from the employers’ federations’ pen. For the Finnish labour movement, the key sticking point was not so much the content as the way this content was presented. The labour movement felt (quite 55fc89751c5ef.imagecorrectly) that the government intended to interfere with issues that are dealt with in Finland through collective agreements and negotiations between labour market actors – instead of through coercive legislation. As an immediate result of the Prime Minister’s speech, the labour movement organized a political protest in Helsinki, which was attended by some 10 000 people. This protest is significant, because it was the first large scale political protest against a government in years.

How did we get to this situation where the government feels compelled to enact radical legislation, which erases long-standing trust between negotiation partners as well as changing the rules of the game in Finnish labour market relations? Moreover, what happens next?

To understand the atmosphere of crisis in Finland, it is useful to recap some major developments in the Finnish economy since 2008. First, the pillar of Finnish exports, the pulp and paper industry has gone through a harsh restructuring. It seems that for the moment, pulp and paper exports to the rest of the world are doing relatively well. But earlier, many people lost their jobs with factory closings. Another big hit to the Finnish economy was the downfall of Nokia. And a final critical development was the sanctions regime against Russia (one of Finland’s main trading partners). I wrote about these issues here.

Furthermore, labour market relations have seen a specific development as well. In 2008, the employers’ side announced that it did not want centralized income policies anymore. This was followed by a period (2007-2011) of sectoral agreements, which, as empirical literature shows, leads to higher wage increases than central or local bargaining. In 2011 a leaner kind of centralized agreement was concluded, followed by the Growth and Employment Agreement of 2013, which featured extremely moderate wage increases. The core focus of that agreement was restoration of Finnish (export) competitiveness.

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Posted by: Posted on October 8, 2015 by Eurocrisis in the Press   Tagged with: , , ,

Oct 8 2015

UN General Assembly resolution on Basic Principles on Debt Restructuring Processes: a first step towards a global state bankruptcy regime?

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Posted in: Uncategorized

By Kanad Bagchi

In what was hailed as a ‘historic’ move, the United Nations General Assembly (“GA”) adopted its resolution concerning Basic Principles on Sovereign Debt Restructuring Processes on 10th September 2015 (“resolution”), despite persistent opposition from several member countries, including heavyweights such as the United States and European Union. The GA resolution essentially builds on its previous commitment made a year ago towards the adoption of a multilateral framework on sovereign debt restructuring. Although, the present resolution does not go as far as proposing for a definitive legal multilateral framework, it is nonetheless unflinching in its stance and comprehensive in its assessment. The resolution expounds on a set of nine basic principles, which arguably represent some of the most contentious issues in the realm of sovereign debt restructuring and continues to confound both creditors and sovereign debtors alike. In the backdrop of increasing anxiety and concern with respect to the debt vulnerabilities of both developing and developed countries, this piece argues that there is an urgent need to reconsider a statutory approach in addressing the question of debt unsustainability and consequent restructuring. In this regard, the resolution and the principles stated therein can provide for a perfect launch pad in igniting both debate and action at the international level, currently marked with skepticism and dissonance.

The Resolution and its Context

For the purposes of the present resolution, the GA had established an ad-hoc working committee comprising of experts from across the world to reflect on current infirmities plaguing debt workouts and propose a set of working principles so as to guide future policy action. The resolution wholeheartedly endorses the report in its entirety and recognises in full, the principles stated therein. At the outset, rather mindful of the sensitivities of countries in allowing for any incursion into their sovereignty, the resolution implores the ‘consensual’ aUN_General_Assembly_bldg_flagspproach towards restructuring to be implemented in pursuance of ‘national policies and circumstances’. It also underscores the importance of ‘good faith’ in debt restructuring negotiations between creditors and sovereign debtors in exploring sustainable results. It then goes on to declare nine principles, namely, sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring, which ought to guide debt-restructuring processes in the future. The author concerns himself with four of those principles in an effort to produce more clarity and coherence with the ultimate aim of shaping their scope and content. Continue reading →

Posted by: Posted on October 8, 2015 by Eurocrisis in the Press   Tagged with: ,

Oct 6 2015

#aGreekment in the Twittersphere

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Posted in: Euro, Europe, Events, Greece, Max Hänska

By Max Hänska and Stefan Bauchowitz

To what extent does twitter provide a platform for the emergence of a European public sphere? Around 47% of Europeans use social media at least once a week, making it a potentially important source of information and a promising platform for debate. Indeed, it has sometimes been suggested that the interactive affordance of social media may provide the ideal platform for a more participatory public, and for a transnational one structurally less confined to the borders of nation states.

By tracing the visibility of EU (and Eurozone) issues, or issues relating to European countries in national twitterspheres we can gain an impression of how twitter is Europeanized:  the volume of tweets using specific keywords allows researchers to detect whether national twitterspheres synchronise around specific issues or events, while the multi-directional interactive nature of twitter allows us to observe cross-border interactions between users, both of which can be understood as indicators of Europeanization.

We report on results from our study which maps the European twittersphere by tracking twitter activity during key European events. Part of our study focuses on the recent negotiations leading up to the third Greek bailout agreement. The stage for these negotiations was set by months of acrimony between the newly elected Greek government and its creditors. An agreement between the Greek government and its creditors was finally brokered at a European Council summit, which was tensely anticipated because a Greek exit from the Euro, or even the EU, no longer seemed improbable, but a real possibility.

Among other questions, we were interested in how tweets were distributed across countries (degrees of Europeanisation), and the amount of boarder-crossing interactions between users in the European twittersphere. Through the twitter streaming API we downloaded tweets matching a set of keywords relevant to Eurogroup and European Council meetings between 12th and 13th of July. We used the Google Maps Geocoding API to convert the user-specified location data to geographic coordinates.

Peaks and troughs in the volume of activity in the European twittersphere are clearly related to events in Brussels. For instance the European twittersphere responded across the board when European Council President Donald Tusk tweeted at 8:55 on Monday, 13 July that:

EuroSummit has unanimously reached agreement. All ready to go for ESM programme for #Greece with serious reforms & financial support

Following Tusk’s tweet, activity is at its highest – between 9am and 10am alone we collected 15,376 tweets from users located within the EU28. Tweet volumes by country are plotted in Figure 1. While the second peak clearly relates to the conclusion of the summit, the first relates to the emergence of the #thisisacoup hashtag the previous night.

Figure1_700x400

Figure 1

 

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Posted by: Posted on October 6, 2015 by Eurocrisis in the Press   Tagged with: , , , , , , ,

Sep 28 2015

A bitter victory for Catalan pro-independence nationalists

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Posted in: Elections, Jose Javier Olivas, Spain

By Jose Javier Olivas

untitledThis time the polls got it right. The nationalist pro-independence coalition Junts pel Sí (‘Together for Yes’) won the elections. But arguably this has been a bitter victory. Their 62 seats are insufficient to rule the Generalitat and less than the sum of the seats obtained by CiU (50) and ERC (21) in 2012. Junts pel Sí needs the support of the other secessionist party, CUP (‘Popular Unity Candidacy’), to form a government. However, CUP’s leader, Antonio Baños, has already stated that they won’t vote Artur Mas for President. CUP will also likely request from Junts pel Sí to ignore Spanish and European law and make at some point a unilateral declaration of independence if a referendum is not agreed or organised soon. These two conditions will make the negotiations for the next government difficult. New anticipated Catalan regional elections are the likely scenario after the Spanish national elections.

Secondly, the pro-independence parties claimed that these elections were a ‘de facto referendum’ on the independence of Catalonia. They have demonstrated great strength but have fell short of the majority of the votes. Together, Junts pel Sí and CUP, have obtained more than 1.9 million votes but ‘only’ 47.9% of the total votes (37% of the electoral census). These results should push the Spanish government to address seriously the ‘Catalan problem’, but at the same time clearly delegitimize a potential unilateral declaration of independence.

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Posted by: Posted on September 28, 2015 by Eurocrisis in the Press   Tagged with: , , , ,