Engineering an Orderly Greek Debt Restructuring

For some months now, discussions over how Greece will restructure its debt have been constrained by the requirement that the deal be “voluntary” – implying that Greece would continue debt service to any creditors that choose retain their old bonds rather than tender them in an exchange offer. In light of Greece’s deep solvency problems and lack of agreement with its creditors so far, the notion of a voluntary debt exchange is increasingly looking like a mirage. In this essay, we describe and compare three alternative approaches that would achieve an orderly restructuring but avoid an outright default: (1) “retrofitting” and using a collective action clause (CAC) that would allow the vast majority of outstanding Greek government bonds to be restructured with the consent of a supermajority of creditors; (2) combining the use of a CAC with an exit exchange, in which consenting bondholders would receive a new English-law bond with standard creditor protections and lower face value; (3) an exit exchange in which a CAC would only be used if participation falls below a specified threshold. All three exchanges are involuntary in the sense that creditors that dissent or hold out are not repaid in full

Making a Voluntary Greek Debt Exchange Work

Within the next couple of months, the Greek government, is supposed to persuade private creditors holding about EUR 200bn in its bonds to voluntarily exchange their existing bonds for new bonds that pay roughly 50 percent less. This may work with large creditors whose failure to participate in a debt exchange could trigger a Greek default, but may not persuade smaller creditors, who will be told that their claims will continue to be fully serviced if they do not participate in the exchange. This paper proposes an approach to dealing with this free rider problem that exploits the fact that with some probability, the proposed exchange might be followed by an involuntary restructuring some time in the future. The idea is to design the new bonds that creditors are offered in the exchange in a way that make them much harder to restructure than the current Greek government bonds. This is easy to do because the vast majority of outstanding Greek government bonds lack standard creditor protections. Hence, creditors would be offered a bond that performs much worse than their current bond if things go according to plan, but much better if things do not. They will accept this instrument if (1) the risk of a new Greek debt restructuring in the medium term is sufficiently high; and (2) there is an expectation that the next restructuring probably will not be voluntary

The Hausmann-Gorky Effect

For over a century, legal scholars have debated the question of what to do about the debts incurred by despotic governments; asking whether successor non-despotic governments should have to pay them. That debate has gone nowhere. This paper examines whether an Op Ed written by Harvard economist, Ricardo Hausmann, in May 2017, may have shown an alternative path to the goal of increasing the cost of borrowing for despotic governments. Hausmann, in his Op Ed, had sought to produce a pricing penalty on the entire Venezuelan debt stock by trying to shame JPMorgan into removing Venezuelan bonds from its emerging market index. JPMorgan did not comply, but there was a pricing penalty. Intriguingly, the penalty hit only one bond; an issue by Venezuela’s state-owned oil company that went on the market two days prior to Hausmann’s piece. That bond then began to carry the name in the market of “Hunger Bond.” Using quantitative data and interviews with investors, we try to understand the causes of the Hunger Bond penalty and ask whether there are lessons for policy maker

DEVELOPMENT DIRECTIONS OF SERVICES AND PRODUCTS IN INSURANCES

In the new context of globalization, it is apparent the growth of insurances industry. The insurance world is continuously changing. New insurance types come into sight, while the old ones are constantly revised. Most of the developed countries turned the insurance industry into a motor generator of powerful social-economic progress. Therefore, for the economic and social national environment, it appears to be more and more necessary to surpass the actual state of research and to develop a longlasting environment in which insurance specialists could have credibility and a powerfully positive influence. Thence, in our paper, we treated some problems which are adverted to integrate financial services, new technically of finance risks, and tendencies in the products of assurance evolution.insurance, financial services, risk management, evolution, insurers.

Drafting a Model Collective Action Clause for Eurozone Sovereign Bonds

In the wake of the Eurozone sovereign debt crisis, the European financial authorities announced last November that all Eurozone sovereign bonds issued after mid-2013 must contain an identical collective action clause (CAC) in order, if necessary, to facilitate a restructuring of thoseinstruments. CACs in sovereign bonds have been the subject of considerable attention over the last ten years. They were introduced into sovereign bonds governed by U.S. law only in early 2003. Yet a surprising number of versions of the clause can be found in modern sovereign bonds. The history of the research and development of this contractual provision is, or at least ought to be, relevant to the drafting of the model Europeanversion of the clause

Customary International Law and Withdrawal Rights in an Age of Treaties

The conventional wisdom among international law scholars is that, once a rule of customary international law (CIL) becomes established, nations never have the unilateral right to withdraw from it. In a recent article published in the Yale Law Journal, Withdrawing from International Custom, we termed this conventional wisdom the Mandatory View of CIL and distinguished it from a possible regime in which nations could opt out of at least some CIL rules through advance notice, something we termed a Default View of CIL. After considering the intellectual origins and functional desirability of the Mandatory View, as well as the extent to which withdrawal rights are available under treaties, we concluded that it was difficult to justify a complete ban on withdrawal from all rules of CIL. That article is the subject of a forthcoming symposium edition of the Duke Journal of Comparative and International Law, in which a variety of scholars raise important questions about our analysis and its implications. In this essay, we seek to advance the analysis set forth in Withdrawing by addressing four topics implicated by the symposium responses: the current state of CIL; the proper way to conceive of CIL and its relationship to treaties; how a shift away from the Mandatory View might occur in practice; and whether a shift to a Default View would make a meaningful difference in state practice. We also identify some issues that could benefit from additional research

Walking Back From Cyprus

Last Friday, the European leaders trespassed on consecrated ground by putting insured depositors in Cypriot banks in harm’s way. They had other options, none of them pleasant but some less ominous than the one they settled on

Direct Taxation - Directions of Harmonization

Most often, harmonization in the fiscal field concerned indirect taxation, and was aimed at assuring that national tax system do not interfere with the freedom of movement of goods, services, persons and capitals. There is no need to harmonize most part of direct taxation rules, as they are strictly enforceable the EU member states and they are thus an attribute of these states sovereignty. In the field of direct taxation, the community acquis mainly concerns the profit (company) tax and the capital tax and less the natural persons income tax.direct taxation, taxation system, harmonization

Maduro Bonds

For multiple decades, activists have sought to institute an international legal regime that limits the ability of despotic governments to borrow money and then shift those obligations onto more democratic successor governments. Our goal in this article is to raise the possibility of an alternate legal path to raising the costs of borrowing for despotic regimes. All countries have systems of domestic laws that regulate agency relationships and try to deter corruption; otherwise the domestic economy would not function. Despotic governments, we conjecture, are especially likely to engage in transactions that are legally problematic. The reason being that despotic governments, by definition, lack the support of the populace; meaning that there is a high likelihood that actions that they take on behalf of the populace can be challenged as unrepresentative and contrary to the interests of the true principals. The foregoing conditions, if one translates them into the context of an ordinary principal-agent relationship, would constitute a voidable transaction in most modern legal systems. That means that if opposition parties in countries with despotic governments today were to monitor and make public the potential problems with debt issuances by their despotic rulers under their own local laws, it would raise the cost of capital for those despots. To support our argument, we use both the concrete example of the debt issuance shenanigans of the Maduro government in Venezuela and a more general analysis of the relationship between corruption, democracy and a nation's borrowing costs

Targeted Subordination of Official Sector Debt

If Greece’s debt is unsustainable, and most observers (including the IMF) seem to think it is, the country’s only source of funding will continue to be official sector bailout loans. Languishing for a decade or more as a ward of the official sector is undesirable from all perspectives. The Greeks bridle under what they see as foreign imposed austerity; the taxpayers who fund the official sector loans to Greece balk at the prospect of shoveling good money after bad. The question then is how to facilitate Greece’s ability to tap the private capital markets at tolerable interest rates. The IMF’s answer? Write off a significant portion of the official European loans to Greece or, at the very least, stretch out the grace and repayment periods of those loans until the Crack of Doom. There may be an alternative -- persuading the official sector voluntarily to subordinate its credits, on a targeted basis, to new borrowings by Greece from the private markets. If the alternatives for the official sector are to lend the money itself (with the risk that the funds may never be recovered), or to write off their existing Greek loans now as a means of rendering the country presentable to the markets, subordination may be a more politically palatable option