Tuesday, May 13, 2014

Greek Law vs. UK Law

This is an interesting article which suggests that, back in 2011, Greece (FM Venizelos) rejected an alternative to UK law for new bonds even though Greece's attorneys (Lee Buchheit) had recommended it.

The difference between these two 'laws' is the question of jurisdiction, not the law itself. Assume that Greek and UK law were identical. In this hypothetical scenario, it would appear that there is no difference between a bond issued under one or the other law. However, within the national borders of Greece, it is Greek jurisdiction which rules the state of law. If the Greek state, through its legislative process, wants to pass a law which establishes retroactive collective action clauses on a bond issued in the past, it can do so any time it choses (which it did under PM Papademos) and the new law is binding (even though retroactive). The UK jurisdiction could theoretically do the same thing but it is most unlikely to do so when such action would be exclusively to the advantage of Greece and to the damage of international creditors.

Lee Buchheit formulates this as follows: "A submission to the jurisdiction of English courts would ensure that Greek law - as in effect on a certain date (typically the date of bond issuance) - would be applied by a judge who is beyond the influence of the Greek Government and unaffected by popular sentiment in Greece".

I don't quite share this definition because it could suggest that Greek judges rule under the influence of the Greek Government and are affected by popular sentiment in Greece. While that may in actual fact be so, the point is that the Greek Government can - any time of the day - through its legislative process change laws in view of popular sentiment, even retroactively, and then Greek judges rule within the new law.

Personally, I doubt that Greece really had a chance back in 2011 to accept anything but UK law but if anyone would have been in a position to make at least an effective attempt to that effect, it would have been Lee Buchheit. Strange that FM Venizelos would not have instructed Lee Buchheit to do so.


  1. "Strange that FM Venizelos would not have instructed Lee Buchheit to do so."

    Venizelos simply followed the decisions of the rulers of Greece at the time: the troika.

    Vaxevanis is SYRIZA-leaning journalist, so he timed this carefully in order to give a blow to PASOK before the elections.

  2. This proves something that I have been saying for some time: the aim of the whole Greek crisis exercise is to kill the Greek political system by taking away as many functions and as much maneuvering ability as possible. I hope that there is a second part of the plan to replace the old system with something new, otherwise the mess will be serious.

  3. Mr. Kastner, could you believe it? Timothy Gheitner in his new book "stress test", describes, when Schauble presented him, his plan for kicking Greece out of his euro. Schauble explained that it would be easier for the german voter to give money to someone else than Greece. Moreover, Gheitner says that "the argument was that letting Greece burn, would make easier the building of a new Europe, with a more credible wall of defence".

    It is a very classic german mentality, because, you know, nations don't change easily. "We will make an example out of Greece, this will scare the rest of the south to do what we say is needed". Very german isn't it? You can't change some national traits easily, it takes centuries.

    Gheitner continues: "I found the argument frightening. Making Greece go, would create a spectacular trust crisis, no matter what the Europeans would swear they would do afterwards. I had no clear understanding of why the german voters that were hating the greek rescue, would feel any better for having to save Spain, Portugal or some other country".

    Next stop was Draghi and Obama, to put pressure to Merkel.


    Amazing story. It seems almost like some greek german-hater has written it, doesn't it?

  4. More from Gheitner, on his first contact with the Europeans, in February 2010:

    "The sudden panic in Europe was shocking. and the discussion in the initial dinner table, not at all reassuring".The majority of the partecipants spent their evening talking about the greek irresponsible spending. There were calls for austerity and "old testament justice", as well as decisive action to avoid the moral hazard. Gheitner told the Europeans to "stop putting their boot onto Greece's throat" and they will have to reassure the markets that they won't allow a default or a bank collapse.

    "Don't overdo it. If you don't remove the change of a catastrophic failure, you don't stand a chance to solve this", Gheitner told them. But the Europeans didn't seem to agree. They wouldn't accept advice from "reckless Americans", who they viewed as responsible for the global economic crisis, on how to deal with "reckless Greeks".

    In July 2012, about his meeting with Schauble:

    Schauble presented him his plan for Greek exit from the eurozone. The meeting "preoccupied deeply" Gheitner, as well as Obama. Schauble told him that "there were many in Europe who believed that ousting Greece from the euro was a probable and even desirable strategy."

    Gheitner also says that he convinced the Europeans to make a "firewall" of 500 bln euros instead of 50, which was their initial thought, but Gheitner told him that it would be like "throwing oil into the fire". With The Germans promicing austerity even on themselves as solidarity, Gheitner told them " you sound like Hoover in the 30s. You need to think about growth."


    "old testament justice". Greeks used to say "protestant punishment ethics", but when a greek was saying that, he was promptly scorned like antigerman. At least Gheitner is not greek now.

  5. "2 weeks later, there was a proposal that circulated for a "irratinally thrifty" loan of 25 bln to Greece, combined with harsh measures. According to Gheitner, "it was clear that Greece had to put the deficit under control, but imposing of harsh austerity too quickly, was counterproductive, since it would pressure the economy and the tax revenues, increasing at the end the problem." And while the IMF package agreed "appeared to be "enough" to cover the greek needs for 2 years, "the draconian cuts and Old Testament rhetoric" undermined the power of the help provided. He also remembers the declaration of Christine Lagarde, at the time finance minister of France, saying "if Greece defaults, we will immediately put our foot on the brakes". Lel Braynand, from the US finance department, wrote to him that this statement doesn't help at all, since the mentioning alone of default, makes bond holders go in panic


  6. Gheitner's account confirms previous statements by Juncker (2012)


    1 year ago "I threatened with resignation when some parties wanted to kick Greece out of the euro".


  7. Written in better english than mine, although much shorter version:

    Geithner describes alarm at Schaeuble plan for Greek euro exit in new book

    A Greek eurozone exit was in the cards in 2012 according to former US Treasury Timothy F. Geithner.

    In a new book, “Stress Test: Reflections on Financial Crises,” published on Monday, the former US Treasury chief recalls a meeting with German Finance Minister Wolfgang Schaeuble on the North Sea island of Sylt in July 2012, during which the latter discussed the case in favor of a Grexit.

    According to the book, Schaueble argued that several eurozone countries were in favor of Greece leaving the single currency and that this would allow Germany and others to create a firewall around the remaining members.

    “I found his strategy frightening,” writes Geithner, adding that he subsequently informed US President Barack Obama upon his return to Washington, who in turn was “also deeply worried.”

    According to Geithner, Schaueble’s plan was based on the assumption that with Greece out of the picture, Germany would be in a position to provide financial assistance to the rest of the eurozone as the German people would be less reticent about this than they were about bailing out the Greeks.

    Following the meeting, Geithner made a stopover in Frankfurt to meet with European Central Bank president Mario Draghi, who assured him that a Greek eurozone exit was not being planned.