The Greek Austerity Measures: Remedies Under International Law

— George Katrougalos, Professor of Public Law, Demokritus University, Greece (gkatr@otenet.gr)

In a prior post, I argued that the Greek austerity measures violated various provisions of the Greek Constitution, as well as treaty commitments and other instruments embodied in international law. In this post I consider a related question: What are the legal remedies that Greece could use against the demands of its lenders which are contrary to social rights or essential societal needs?

First of all one should examine whether Greek debt is an illegitimate, “odious” debt under international law. Departing from the classical definition,^[i] a debt is generally assumed as odious if:

(a) it was contracted against the general consent of the nation

(b) it was not used for the needs of the population of the borrower State or/and its clauses involved clear misconduct by the lender

and (c) the creditor was aware of these two facts.

These preconditions seem to exist in the case of Greece. Although one cannot claim that the Greek regime, despite its pathologies, is undemocratic, it is clear that the accumulation of debt through the loan treaties was rejected by the vast majority of the population (ranging at the polls from 60% to 81%). Even the existing governing coalition had been elected under the promise of renegotiating it.

Moreover, it is a debt which does not benefit the population of Greece. Almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the lenders’ pockets. The European authorities are effectively lending Greece money so Greece can repay the money it borrowed. Therefore, debt has swelled as a result of interest rates and negotiating conditions imposed by creditor countries. It was 120% of GDP when Greece entered the Stability Mechanism, it is already 189% of the GDP and is projected to reach 200% of the GDP in the next years.

Finally, one could claim that lenders were aware of the previous facts. They have, despite that, imposed “unacceptable” conditions, involving clear misconduct and violating the national law of the borrower.

However, the odious debt doctrine is yet to be recognized by international law. It is true that a 2007 UNCTAD discussion paper authored by NYU Professor Robert Howse identified 12 instances in which the odious debt doctrine had been invoked and in none of these was a claim rejected on the grounds that no such doctrine existed under international law. Still, the courts usually dismiss the applicability of the doctrine in the concrete cases they examine. For instance, the Iran-US Claims tribunal dismissed the applicability of odious debt, although without taking “any stance in the (related) doctrinal debate.”

So, since the doctrine is not yet recognized by an international treaty nor reconfirmed by case law, it would be hard to claim it as a customary rule. Moreover, the creditors’ knowledge of the “odiousness” of the Greek debt, although basically true, would be politically difficult to support before the public audiences of lenders, such as the German electorate, which have formed a completely different story about the loans “they” give to the European South.

In light of these problems, I consider preferable a combined use of a Human Rights approach to the debt with the principle of state necessity. They both have support in international instruments and case law. In a July  2012 20/10 Resolution, the United Nations Council has endorsed the “Guiding principles on foreign debt and human rights” proposed by the Rapporteur of the Independent Expert on the ‘Effects of foreign debt and on the full enjoyment of all human rights, particularly economic, social and cultural rights”. The overriding aim of these principles is “to balance a debtor and creditor State’s contractual obligations arising from external debt arrangements and both debtor and creditor’s international legal obligations to respect, protect and fulfill all human rights particularly economic, social and cultural rights”. Hence, conditionality guidelines that do not respect social rights should be considered contrary to international law.

In a similar vein, in its General Comment No. 2, on article 22 of the International Covenant on Economic, Social and Cultural Rights, the Committee on Economic, Social and Cultural Rights has indicated that “[i]nternational measures to deal with the debt crisis should take full account of the need to protect economic, social and cultural rights through, inter alia, international cooperation.” Further, the Maastricht Guidelines on Violations of Economic, Social and Cultural Rights, deem a human rights violation of omission, “[t]he failure of a State to take into account its international legal obligations in the field of economic, social and cultural rights when entering into bilateral or multilateral agreements with other States, international organizations or multinational corporations.”

A Human Rights approach should be used in conjunction with the “State of Necessity” principle. This principle is recognized by the 1969 Vienna Convention on the Law of Treaties, as well as by international customary law, and as such is applicable to all debtors and creditors. There is a state of necessity when there is a grave danger to the existence of the State itself, its economic survival, the continued functioning of its essential services and the maintenance of internal peace.^[ii]

In simple words the principle implies that the basic priorities of a State are towards its citizens and if it cannot simultaneously satisfy its lenders’ claims and its basic social functions it must give priority to the latter. As the government of South Africa has put it “A State cannot be expected to close its schools and universities and its courts, to disband its police force and to neglect its public services to such an extent as to expose its community to chaos and anarchy merely to provide the money where with to meet its money lenders…. There are limits to what may be reasonably expected of a State in the same manner as with an individual. If, in such a contingency, the hardships of misfortune are equitably divided over nationals as well as foreigners and the latter are not specially discriminated against, there should be no reason for complaint.”^[iii]

What is important is that the principle has been accepted by recent decisions of international and constitutional courts. For instance, the International Centre for Settlement of Investment Disputes –ICSID- of the World Bank in recent decisions of 2010 related to the Argentinian default –and contrary to its previous jurisprudence- has accepted the state of necessity as a customary rule of international law.^[iv] Similar decisions have been taken by the Italian Court of Cassation^[v], the German Constitutional Court^[vi] and the European Court of Human Rights.^[vii]

Until now, the “State of necessity” has been used by the Greek government as an argument before national courts in order to justify the austerity measures. But I can also be used the other way around, as an argument taken by International Law in order to reject their implementation.

This was the argument of the Greek government in its 1938 dispute with Belgium in the Societé Commerciale de Belgique case:

“There occur from time to time external circumstances beyond all human control which make it impossible for Governments to discharge their duty to creditors and their duty to the people; the country’s resources are insufficient to perform both duties at once. It is impossible to pay the debt in full and at the same time to provide the people with a fitting administration and to guarantee the conditions essential for its moral, social and economic development. (…) Doctrine recognizes in this matter that the duty of a Government to ensure the proper functioning of its essential public services outweighs that of paying its debts. No State is required to execute, or to execute in full, its pecuniary obligation if this jeopardizes the functioning of its public services and has the effect of disorganizing the administration of the country. In the case in which payment of its debt endangers economic life or jeopardizes the administration the Government is authorized to suspend or even to reduce the service of debt”.^[viii]

We the lawyers are trying to find legal remedies to all problems, because this is our profession. But the crisis is not a legal question, it is not even primarily an economic question, it is above all a political one.  It is a question of how the important decisions regarding the distribution of wealth are going to be taken.  And I must confess that at the beginning of the crisis I was very pessimistic about the future because in Greece reigned a climate of fear; a climate that implied there was no other alternative, no other option than to submit to the creditors demands; that as a country that can’t sustain itself we must abide and obey to the demands of them.  But fortunately in the last year we have seen the rise of a very genuine and massive political movement, an independent movement that has escaped this trap of fear and has tried to reinvent democratic solutions.