EU Court vindicates ECB in action over private investors’ losses due to Greek debt restructuring

Maria Nikolova

The General Court has rejected the compensation claims brought against the ECB by private investors who suffered losses as a result of the restructuring of the Greek public debt in 2012.

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The General Court of the European Union has earlier today announced its decision in a compensation case targeting the European Central Bank (ECB). 

The General Court rejected the action for compensation brought against the ECB by private investors who suffered losses as a result of the restructuring of the Greek public debt in 2012.

According to the Court, that restructuring was not a disproportionate and intolerable infringement of the right to property of those investors, even if they had not consented to that measure.

Let’s recall that, amid the Greek public debt crisis which started in October 2009, Greece proposed public debt restructuring. As a part of the plan, Greece’s private creditors would contribute to the reduction in the burden of that debt. Greece then commenced negotiations with private investors holding bonds issued or guaranteed by the Greek State with the aim to exchange them for new bonds.

On February 2, 2012, Greece requested an Opinion from the ECB on a draft law concerning the means of reducing the amount of the Greek public debt. In its request, Greece stated that it wished to extend the effects of any agreement with a certain number of creditors as to an exchange of bonds to creditors who did not give their consent to that agreement. In its Opinion of February 17, 2012, the ECB did not make any objection to the proposed Greek law.

Following the adoption of the law at issue, the creditors holding the vast majority (85.8%) of the bonds in question agreed to the exchange of bonds proposed by Greece. As a result, in line with that law, those creditors who did not give their consent to that exchange were compelled to participate in that exchange.

After that, some of those creditors brought an action before the General Court of the European Union against the ECB for compensation, seeking restitution of the financial losses which they allegedly suffered as a result of that institution’s alleged failure to draw the attention of Greece to the unlawful nature of the proposed restructuring of the Greek public debt.

In today’s judgment, the General Court notes that for the ECB to be non-contractually liable, three cumulative conditions must be satisfied, namely that the rule of law infringed confers rights on individuals and that the infringement be sufficiently serious, that the fact of the damage suffered be established and, finally, that there be a direct causal link between the infringement of the obligation on the author of the act and the damage suffered.

Secondly, with regard to whether, by adopting the contested Opinion, the ECB committed a sufficiently serious infringement of EU law in manifest and serious disregard of the limits of its discretion, the General Court notes that the objective of the competence of the ECB to issue Opinions is not to assess the rights and obligations of the parties to the contracts underlying the bonds at issue, but that that competence forms part of its basic tasks in monetary policy and is connected with its duty to ensure that price stability is maintained. Given that, the ECB was not bound to give its view on whether Greece had fulfilled its obligations flowing from the contracts in question.

Further, the General Court notes that the restructuring of the Greek public debt did not give rise to any infringement of the principle of compliance with contractual obligations, since investment in State bonds always carries the risk of financial loss because of the great length of time which elapses after the issue of the bonds during which unforeseen circumstances may arise which significantly restrict, or even completely remove, the State’s financial capacities as issuer or guarantor of those bonds.

Moreover, the General Court considers that, having regard to the fundamental nature of the right to property guaranteed in Article 17(1) of the Charter of Fundamental Rights of the European Union and the fact that that right protects individuals, the ECB is required to declare any infringement of that right when exercising its powers. Consequently, a failure to fulfill that obligation may render the ECB non-contractually liable where that failure constitutes a sufficiently serious breach of that article. Nonetheless, the General Court notes that the enjoyment of that right may be subject to restrictions with the aim of pursuing objectives of public interest.

In that regard, the General Court stresses that the extension, not provided for in the contracts underlying the bonds at issue, of the effects of the agreement reached with some creditors on the reduction in the nominal value of those bonds to creditors who had not given their consent to that agreement gave rise to an infringement of the right to property of the latter creditors. However, such an extension is in accordance with the public interest objective of ensuring the stability of the Euro-zone banking system as a whole and is not a disproportionate and intolerable infringement of that right.

In light of these arguments, in the absence of any evidence demonstrating that the ECB committed a sufficiently serious breach of EU law, the General Court dismissed the action for compensation captioned (T-107/17) Frank Steinhoff and Others v European Central Bank (ECB).

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