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Victoria Dodev
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I agree with Mark’s interpretation and also hold the view that the ESM treaty does not constrain local law advantage and bind member state to using the model-CACs in a restructuring. I somewhat disagree with a point that Nick and Zach make. While the point of CACs was indeed to “safeguard financial stability in the euro area” (to use the Commission’s own words), I believe the focus was less about consistency of investor expectations around the exact wording of CACs and more about creating consistent expectations that future restructurings would involve private sector involvement (PSI). The ESM treaty and CACs were a response to the European sovereign debt crisis, particularly the official creditor rescue packages for Greece in 2010. CACs were meant to facilitate a new policy imperative: burden sharing through PSI. See 2010 Statement by the Eurogroup referencing PSI in adoption of the ESM treaty (noting that “[r]ules will be adapted to provide for a case by case participation of private sector creditors” and that CACs will be included “[i]n order to facilitate this process.”) https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/118050.pdf. See also Gelpern and Gulati, The Wonder Clause. Thus, the focus was more on having a CAC/PSI involvement and less on concrete wording (other than that “CACs would be consistent with those common under UK and US law after the G10 report on CACs” (2010 Eurogroup Statement)). While the ESM treaty was also written with the idea that restructurings should somehow be standardized across Eurozone sovereigns, nothing in the treaty’s language or construction implements the model-CACs in a way that ensures that “legal impact is identical,” or binds sovereigns to using them in a restructuring. First, the model-CACs are “common terms of reference” on the Commission’s website – they are not law or an annex to the treaty, thereby making the language a part of the treaty. This is probably for the best, because making the model-CACs a part of the treaty would “freeze” them, requiring an amendment to the treaty if model-CACs language needed to be changed later. This mode of implementation allows the model-CACs to easily evolve over time, but it also means that the language itself is not legally binding through the treaty. Second, the CACs are part of bonds governed by local law, making interpretation and implementation of CACs subject to local law. This entails the risk that application/interpretation of the CACs is not identical in each member state. The treaty could have mandated that CACs in local law bonds were separated from the general terms of the bonds, so that the CACs only could be governed by one commonly agreed upon law. It would likely be politically unacceptable, however, for a sovereign to submit itself to the laws of a foreign state in its domestic bond issuance. I am not an international/treaty law expert so Zach might have a compelling argument with Art 26 of the Vienna Convention and not upholding the CACs in a restructuring contravening the object and purpose of the treaty. Given that the model-CACs are not actually part of the treaty, however, there may be some wiggle room if a sovereign implements a single limb CAC in a restructuring rather than ignoring the CACs, thus achieving the treaty’s objective of PSI through a CAC. I am tabling this last topic for future research.
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Apr 4, 2019