TEDH: VISTINS AND PEREPJOLKINS V. LATVIA

En esta relevante sentencia del TEDH (demanda nº 71243/01), la Gran Sala estimó (25 de octubre de 2012) la demanda de los recurrentes, a pesar de la desestimación previa de la misma por la la Sala de la Sección 3ª.Lo que es más importante, la sentencia se separa de la doctrina contenida en el caso previo de "Jahn and others v. Germany" en la que el Tribunal consideró que, dada la situación de transición del régimen legal en la antigua RDA, no había exisitido una infracción del artículo 1 del Protocolo 1 del CEDH en relación con una "expropiación legislativa".

Este es el resumen de esta importante STEDH:

"Article 1 of Protocol No. 1

The Court acknowledged that the disputed expropriation had been carried out on the basis of the Law of 30 October 1997 on expropriation, for the needs of the State, of land within the Free Commercial Port of Riga. The Court noted that in Latvian law the formal decision on expropriation was taken not by the executive but by Parliament in the form of a special law. The Court observed that this was a feature of the Latvian legal system, dating back to 1923, and enshrined in the Constitution in 1998. It found that the general principles and objectives of the expropriation system set up by Latvian law did not, as such, raise any issue of lawfulness within the meaning of Article 1 of Protocol No. 1.

However, the Court noted that on 5 August 1997 the Cabinet had adopted a regulation ordering the expropriation of all the properties at issue in the present case, and that, together with the Law of 30 October 1997 by which it was confirmed, the regulation had been interpreted by the domestic courts as providing for a derogation from the General Expropriation Act of 1923. It had thus been possible to disregard the usual expropriation procedure in the applicants’ case and to limit the amount of the compensation by reference to Article 2 of the Supreme Council’s decision of 1992. Prior to the adoption of the regulation and the enactment of the special Law, the applicants could have expected that any expropriation of their property would be carried out in accordance with the 1923 General Expropriation Act. The Court had doubts as to whether the expropriation at issue had been carried out “subject to the conditions provided for by law”, having regard in particular to the derogation applied to the applicants and to the procedural safeguards that were – or were not – attached to it.

The Court reiterated that an interference with the right to the peaceful enjoyment of possessions always had to strike a “fair balance” between the demands of the general interest and the protection of the individual’s fundamental rights.

The Court observed that the value of the properties at issue had been assessed on three separate occasions. It took the view that the Latvian authorities had been justified in deciding not to compensate the applicants for the full market value of the expropriated property and that much lower amounts could suffice to fulfil the requirements of Article 1 of Protocol No. 1. Nevertheless, the Court noted an extreme disproportion between the official cadastral value of the land and the compensation received by the applicants: the sum received by Mr Vistiņš was less than one thousandth of the cadastral value of his land, and Mr Perepjolkins had received a sum some 350 times lower than the total cadastral value of all his properties. In the Court’s view, such disproportionate awards were virtually tantamount to a complete lack of compensation.

The Court further noted that shortly after being deprived of their properties, the applicants had received significant amounts from the Free Commercial Port of Riga for the rent arrears due to them. Those amounts – calculated this time on the basis of the current value, and not that of 1940 – were respectively 95 times higher than the compensation granted to Mr Vistiņš and 40 times higher than that granted to Mr Perepjolkins. In any event, the disproportion between the rent arrears and the compensation awarded confirmed that the compensation had been unreasonably low.The Government had failed to show that the legitimate aim relied on, namely that of optimising the management of the port infrastructure in the general context of the State’s economic policy, could not be fulfilled by less drastic measures than expropriation compensated for by purely symbolic sums. In that connection the Court dismissed the Government’s argument that the expropriation had been carried out in a particular historical context. It took the view that, as the events at issue had taken place well after the end of the period of historic upheaval, the legislature could nevertheless have been expected to uphold the principle of legal certainty and to refrain from imposing excessive burdens on individuals.

The authorities could have calculated the compensation on the basis of the cadastral value of the land at the date on which the applicants had actually lost their title, instead of using the cadastral value from 1940. Even though Article 1 of Protocol No. 1 did not,in the present case, require the reimbursement of the full cadastral or market value of the expropriated properties, the Court considered that the disproportion between their current cadastral value and the compensation awarded was too significant for it to find that a “fair balance” had been struck between the interests of the community and the applicants’ fundamental rights.

The Court concluded that the State had overstepped the margin of appreciation afforded to it and that the expropriation complained of by the applicants had imposed on them a disproportionate and excessive burden, upsetting the “fair balance” to be struck between the protection of property and the requirements of the general interest. Accordingly, there had been a violation of Article 1 of Protocol No. 1.

Article 14 taken together with Article 1 of Protocol No. 1

The Court was of the view that the inequality of treatment of which Mr Vistiņš and

Mr Perepjolkins claimed to be victims had been sufficiently taken into account in its

assessment leading to the finding of a violation of Article 1 of Protocol No. 1. It thus

found that there was no need for a separate examination of the same facts under

Article 14 of the Convention.

Just satisfaction (Article 41)

The court held that the question of the application of Article 41 of the Convention was

not ready for decision and reserved it in its entirety for future consideration.

Separate opinion

Judges Bratza, Garlicki, Lorenzen, Tsotsoria and Pardalos expressed a joint partly

dissenting opinion, which is annexed to the judgment.

En el asunto "Jahn and others v. Germany" (demandas nº 46720/99,72203/01 and 72552/01), el juez alemán George Ress ya disintió de la opinión mayoritaria con la opinión siguiente:

DISSENTING OPINION OF JUDGE RESS

(Translation)

"1.  I share the dissenting opinion of Judges Costa and Borrego Borrego joined by Judge Botoucharova, except regarding a violation of Article 14. I still find the reasoning of the Chamber, which adopted a judgment on 22 January 2004 in the present case holding unanimously that there had been a violation of Article 1 of Protocol No. 1 on the ground that the State had compelled the applicants to assign their property to the State without any compensation, more convincing than the Grand Chamber's judgment.

2.  The applicants had not acquired property rights illegally, but entirely legally under the Law of 6 March 1990. It would be possible to speak of an illegal acquisition or – as the Grand Chamber has done – a “windfall” if the former laws and regulations of the GDR were taken as a decisive criterion. Such was not the intention of the legislature or the purpose of the Law of 6 March 1990, however. The legislature had to create true ownership in the sense of a free market economy to prepare the GDR for the signing of economic, currency and social union with the FRG, which was finally done on 18 May 1990. It is far-fetched to consider that there is a loophole in that Law concerning the question of ownership of heirs to that land and to see in that a whole series of uncertainties regarding their legal position. Although the Law of 6 March 1990 is very short, or even succinct, all the issues were discussed by the parliamentary commission and were therefore known to the legislature. There is no evidence of a loophole in the structure of that Law. Otherwise, it would be possible to find all sorts of loopholes in short laws if the results of the law appear unsatisfactory. Naturally the legislature can correct those results in such a case, but in doing so it must respect the individual rights it has created. Furthermore, from the Law of 6 March 1990 until the 1992 Act, the applicants were able to exercise their property rights in good faith for two years. Considering that the period during which the Italian authorities left Mr Beyeler in the dark as to whether he had become the lawful owner (see Beyeler v. Italy [GC], no. 33202/96, § 119, ECHR 2000-I) was just over four years, I think that in the present case the applicants, whose property rights were not called into question, were also entitled to compensation for the legitimate expectation created by the State.

3.  My biggest reservation concerns the reference to the “unique” context of the unification of Germany and the “exceptional circumstances” of this case. As my colleagues Judges Costa and Borrego Borrego have rightly pointed out, this expression should not be misused. The unification of Germany is no more “unique” than the dissolution of the USSR or of Yugoslavia or the change of political regime that occurred in many countries after the fall of the Berlin Wall.

If a State like the FRG is bound by the Convention, such events cannot in general justify a vague interpretation or less strict application of the Convention. Ilaşcu and Others v. Moldova and Russia ([GC], no. 48787/99, ECHR 2004-VII), the context of which could also have been described as “unique” following the dissolution of the USSR, is a good example of this firm approach on the part of the Court. With the notion of “exceptional circumstances”, the Court could have arrived at different results in that case as well. It seems to me that the Court has been less firm in its decision in Von Maltzan and Others v. Germany ((dec.) [GC], nos. 71916/01, 71917/01 and 10260/02, §§ 77 and 111-12, ECHR 2005-V), in which it did not acknowledge the applicants' legitimate expectation of compensation (as a property right), even though the Federal Constitutional Court had in principle recognised that right of property, and in the present case.

4.  The introduction of the concept of “exceptional circumstances” as a ratio decidendi justifying an exception under Article 1 of Protocol No. 1 is a very dangerous step in the development of the interpretation of the Convention. The Court has used it very rarely, for example in The former King of Greece and Others v. Greece ([GC], no. 25701/94, § 89, ECHR 2000-XII), where it did nonetheless award just satisfaction. If the Court accepts that exceptional circumstances may justify interferences by the State with the individual's rights, this is a State-orientated concept that is a far cry from the concept of human rights protection. In James and Others, which has been mentioned as a case in which a parallel can be drawn (James and Others v. the United Kingdom, judgment of 21 February 1986, Series A no. 98), the rights of private individuals were weighed against each other. In that case it could be said that there was not a fair balance between the persons concerned because the tenants had already invested so heavily in the buildings that the right of the formal owner could justifiably be overridden. In that case as well, however, the Court did not rule out just satisfaction even if it was less than the market value. That particular case concerned a situation in which the State could be considered as the just arbitrator between competing private interests. In the present case, the State itself engineered the interference on the ground that the Modrow Law had created inequalities in society. The situation is far from being comparable to James and Others and I do not understand how the Court could have overlooked that profound difference.

The concept of “exceptional circumstances” is one that does not lend itself to generalisations. Moreover, if an attempt is made to generalise the notion of “exceptional circumstances” as a ratio decidendi, the Court will lose its status as an organ of justice. It will no longer be possible to determine when and in what circumstances the Court will accept that there were “exceptional circumstances”. Is the fight against terrorism an exceptional situation? Does such an exceptional situation justify interferences with human rights with the result that there is no longer a violation? From what I can see of past rulings, the Court has never justified such an interference with human rights to the State's benefit on account of “exceptional circumstances”. On the contrary, the Court has justified, in for example D. v. the United Kingdom (judgment of 2 May 1997, Reports of Judgments and Decisions 1997-III), an extension of the protection of individuals in “exceptional circumstances”, which is more in keeping with the protection of human rights, even if the justification can hardly be generalised.

5.  That a law creates inequalities is not an exceptional situation. There are many such laws and the legislature can be required to correct the inequality. However, the correction must be done while respecting human rights. Such a correction is not an “exceptional situation”. It is in itself an entirely normal situation in which the legislature – under political pressure or because of constitutional objections – corrects an error by the legislature that has led to unacceptable consequences for society. But all that is done at a political level and such considerations should not be brought into play through the notion of an “exceptional situation” when interpreting the Convention.

6.  What is exceptional in a transitional period? There may be greater possibilities of mistakes by the legislature, which future legislatures would be inclined to correct, but does this give carte blanche to commit violations of human rights or to regard violations as non-violations? The Court has also referred to the nature of the right or rather to its unclear nature and character and introduced a classification of weak and normal or strong rights. That distinction makes things even less clear. One of the big mistakes of the Court was to turn to the law of the GDR, which of course was not bound by the Convention. The starting-point for the Court should have been the Unification Treaty, when the Convention also came into force on the territory of the former GDR. The Unification Treaty included the Modrow Law as part of the federal legislation and, as the Government have confirmed, established the full property rights of the applicants. It was not only futile to refer to the legal situation in the GDR but also unjustified to go back further than the entry into force of the Convention on the territory of the GDR.

7.  The Court also regarded as an exceptional circumstance the fact that the Modrow Law was passed by a regime that did not have democratic legitimacy and no one could therefore have confidence in the legal stability of such a law. The decisive moment, however, was the Unification Treaty and the incorporation of the Modrow Law into FRG law by the fully democratically elected German parliament, which makes that argument futile. The fact that the German legislature reacted promptly, within less than two years, to correct the so-called unacceptable consequences of the Modrow Law does not justify referring to “exceptional circumstances”. On the contrary, a parliament which promptly corrects errors that have become evident is not in an “exceptional situation” and this does not justify concluding that interferences may not be violations of human rights. To sum up, the whole argumentation is rather circular. The situation has nothing in common with Rekvényi v. Hungary ([GC], no. 25390/94, ECHR 1999-III) where the restriction of the right to vote was justified by the argument that otherwise the whole election process could be jeopardised. In the present case, the Government did not advance the idea that they had to protect individual property rights but, on the contrary, the State thought of a solution from which it could derive the greatest advantage from the taking of property.

8.  The Chamber did not rule on the question of the amount of just satisfaction, but confirmed the principle that a disproportionate interference with the right of property would in principle entitle the victim to redress. All the considerations relating to the nature of the applicants' rights and their legitimate expectations might play a role in the application of Article 41, as the Chamber pointed out, but not in the interpretation and application of Article 1 of Protocol No. 1.

If the Court is now going to say that a kind of expropriation is proportionate because the State has an interest in correcting errors, that is not very far from the defence plea rejected in Streletz, Kessler and Krenz v. Germany ([GC], nos. 34044/96, 35532/97 and 44801/98, ECHR 2001-II), in which the applicants relied on the raison d'état (the State concerned was the GDR) to justify the interferences. If the Court is going to accept that there may be reasons for the State to disregard human rights (whether it calls them exceptional or whatever), who then will protect the individual against interferences with these rights?"

Fotografía de George Ress

TEDH: APLICACION DEL PROCEDIMIENTO PILOTO

La aplicación del procedmiento piloto permite al TEDH ejercer un mayor control sobre aquellos problemas estructurales que representan incumplimientos reiterados por los Estados del Convenio Europeo de Derechos HUmanos.

Así se aprecia en la reciente STEDH de 30 de Octubre de 2012 en el caso Glykantzi v. Greece:

"In today’s Chamber judgment in the case of Glykantzi v. Greece (application no. 40150/09), which is not final1, the European Court of Human Rights held, unanimously, that there had been:

a violation of Article 6 § 1 (right to a fair hearing within a reasonable time) in conjunction with Article 13 (right to an effective remedy) of the European Convention on Human Rights.

The case concerned the length of pay-related proceedings in the civil courts that lasted more than twelve years.

The Court found that the excessive length of proceedings in the civil courts, and the lack of a remedy by which to complain about this issue, had arisen from failings in the Greek legal system. It requested Greece to put in place, within one year, an effective remedy that could provide appropriate and sufficient redress in such cases of excessively lengthy proceedings. The Court has now adjourned, for that period, its examination of all cases which solely relate to the length of civil proceedings in the Greek courts. Over 250 applications against Greece in which at least part of the complaints are about the length of judicial proceedings are currently pending before the Court, including 70 that specifically concern civil cases.

(...)

Whilst the present case could be distinguished from the pilot cases examined previously by the Court, in so far as individuals in Ms Glykantzi’s situation did not belong to a “precise category of citizen” and also as this case was not the first to highlight the structural problem at issue, the Court nevertheless found that it was appropriate to apply the pilot judgment procedure, particularly in view of the persistent nature of the problems in question, the significant number of individuals concerned and the urgent need to provide them with swift and appropriate redress at national level."

Sentencia Glykantzi v. Greece

 

 

LA FALTA DE RUMBO DE LA POLITICA EUROPEA

Probablemente Jürgen Habermas ha sido uno de los más certeros analistas de los problemas europeos desde antes incluso de la detonación de la presente crisis.Sus planteamientos alternativos son a la vez exigentes y claros y ponen de relieve que básicamente hay dos dinámicas en curso.La primera, a la que estamos asistiendo, es, como pone de relieve en su último libro, "un tipo de federalismo ejecutivo en el que un Consejo Europeo de los 17 -que se faculta a sí mismo- proporcionaría el marco para un ejercicio post-democrático de la autoridad política".Frente a él, la oposición de los defensores del Estado nación (incluso de los nuevos Estados nación) y de un Estado federal europeo.

Habermas sostiene que el Estado nación no sirve-responde a un estadio superado del sistema internacional- y que el modelo de Estado federal es equivocado para la democracia transnacional europea.En su lugar, propone que el error de diseño europeo exige una revisión del Tratado basada en los dos sujetos fundadores y constituyentes: los ciudadanos y los pueblos de Europa.Democracia transnacional frente a federalismo post-democrático y ejecutivo.

Tampoco oculta que dicha dinámica depende del poder transnacional de los ciudadanos y pueblos de Europa.Hasta ahora secuestrado por sus élites políticas:

"ellas ya no están preparadas para una situación en que las fronteras establecidas se han desplazado, y que no puede ser dominada por los mecanismos administrativos establecidos y la encuestas de opinión, sino que en su lugar exige un nuevo modo de política capaz de transformas las mentalidades"

El último libro (Una respuesta) es una detallada fundamentación de la propuesta divulgativa (de formación de opinión) realizada en el mes de agosto y que, a diferencia de otras noticias, no ha perdido actualidad.Responde a una dinámica todavía no agotada, pero peligrosamente más inclinada cada día que pasa a la post-democracia:

"La escalada de la crisis pone de manifiesto que los enfoques que hasta el momento se han ensayado para solucionarla han sido insuficientes. Por tanto, hay que temer que la Unión Monetaria, sin un cambio fundamental de estrategia, no sobrevivirá largo tiempo en su forma actual. El punto de partida para un replanteamiento conceptual es un diagnóstico claro de las causas de la crisis. El Gobierno alemán parece partir de que los problemas, en lo esencial, han sido causados por una deficiente disciplina fiscal en el plano nacional y que hay que buscar la solución, en primera instancia, en una política consecuente de ahorro de cada uno de los países. Institucionalmente, este enfoque debe asegurarse mediante normas fiscales más estrictas y, de forma complementaria, a través de unos paraguas de rescate limitados y sujetos a condiciones, que obliguen a los países afectados a una drástica política de austeridad.

De hecho, esta política debilita la capacidad económica e incrementa el desempleo. Hasta ahora, los países con problemas —pese a una política de ahorro extraordinariamente estricta en una comparación internacional y a múltiples reformas estructurales— no han conseguido limitar a un nivel tolerable sus costes de refinanciación. Los desarrollos de los últimos meses, por tanto, apuntan a que el diagnóstico y la terapia del Gobierno alemán fueron excesivamente unidimensionales desde el principio. La crisis no es atribuible en exclusiva a que los países hayan actuado de forma equivocada, sino, en gran medida, a problemas sistémicos. Y estos no pueden solucionarse mediante esfuerzos en el plano nacional; requieren una respuesta sistémica.

El agravamiento de la crisis demuestra que la estrategia impuesta por el Gobierno alemán es equivocada.

(...)

 La alternativa

Solo hay dos estrategias coherentes en sí mismas para solucionar la crisis actual: el retorno a las monedas nacionales en toda la UE, que expondría a cada uno de los países a las oscilaciones imprevisibles de unos mercados de divisas altamente especulativos, o el afianzamiento institucional de una política fiscal, económica y social común en la zona euro, con el objetivo ulterior de recuperar la perdida capacidad de acción de la política frente a los imperativos de los mercados en el plano transnacional. De una perspectiva que trascienda la crisis actual depende también la promesa de una “Europa social”. Porque solo un núcleo europeo políticamente unido tiene la posibilidad de revertir el proceso, ya avanzado, de transformación de una democracia social y estatal de ciudadanos en una fachada de democracia sometida a los mercados. Aunque solo fuera por el engarce en esta perspectiva más amplia, ha de preferirse la segunda opción.

(...)

Mientras los Gobiernos no digan a las claras qué es lo que, de hecho, están haciendo, seguirán vaciando aún más los débiles fundamentos democráticos de la Unión Europea. El grito de batalla de la lucha por la independencia de EE UU (“no taxation without representation” [ningún impuesto sin representación) encuentra hoy una inesperada lectura: tan pronto como creemos en la Eurozona el espacio para políticas con efectos redistributivos que trasciendan las fronteras nacionales, deberá haber también un legislador europeo que represente a los ciudadanos (directamente por encima del Parlamento Europeo e indirectamente sobre el Consejo) y que pueda decidir respecto a esas políticas. De otro modo conculcamos el principio de que el legislador que debe decidir sobre la distribución de los presupuestos estatales sea idéntico al legislador democráticamente elegido que recaude los impuestos que nutren esos presupuestos.

Llegados a este punto, Alemania debe tomar la iniciativa de decidir la convocatoria de una asamblea constituyente:

(...)

 Los mercados no pueden ser ahora aplacados con constructos complicados y poco transparentes mientras los Gobiernos aceptan en silencio que se eche sobre sus pueblos un poder ejecutivo emancipado. Llegados a este punto, los propios pueblos deben tomar la palabra. La República Federal Alemana, como representante del mayor “país donante” en el Consejo, debe tomar la iniciativa para que se decida convocar una asamblea constituyente. Solo por esta vía podría superarse el inevitable desfase temporal entre las medidas económicas a tomar con carácter inmediato, imprescindibles, pero revocables, y la legitimación que, llegado el caso, debería recobrarse. Si los referendos tuvieran un resultado positivo, las naciones de Europa podrían recuperar, en un plano europeo, la soberanía que “los mercados” hace tiempo que les han robado.

La estrategia de modificación de los Tratados apunta a la fundación de una zona monetaria políticamente unificada que constituya el núcleo europeo, abierta al acceso de otros países de la UE, en especial a Polonia. Esto requiere claras ideas político-constitucionales acerca de cómo debe ser una democracia supranacional que permita un Gobierno común sin adoptar la forma de un Estado federal. El Estado federal es un modelo erróneo y excede el grado de solidaridad admisible por pueblos europeos históricamente independientes. La profundización, hoy necesaria, de las instituciones podría ser regida por la idea de que un núcleo europeo democrático ha de representar a la totalidad de los ciudadanos de los Estados miembros de la Unión Monetaria Europea, pero a cada uno de ellos en su doble cualidad de ciudadano directamente participante de la Unión reformada, por un lado, y, por otro, como miembro indirectamente participante de una de las naciones europeas participantes.

(...)

En el mundo poscolonial, el papel de Europa no solo ha cambiado en lo que respecta a la cuestionable reputación de las antiguas potencias imperiales, por no hablar del Holocausto. También las proyecciones estadísticas auguran a Europa el destino de un continente de población menguante, peso económico decreciente e importancia política en disminución. Las poblaciones europeas deben aprender que, en este momento, solo de forma conjunta pueden afirmar su modelo de sociedad apoyado en un Estado social y la diversidad de Estados nacionales de sus culturas. Deben aunar sus fuerzas si quieren seguir siendo influyentes en la agenda de la política mundial y en la solución de los problemas globales. La renuncia a la unificación europea sería una despedida de la historia mundial."

(fragmentos del Artículo publicado originalmente en el Frankfurter Allgemeine Zeitung el 4 de agosto.

Traducción: Jesús Alborés Rey

http://internacional.elpais.com/internacional/2012/08/10/actualidad/1344624171_292393.html)

Book - Jurgen Habermas - The Crisis of the European Union: A Response

Why early sovereign default could save the euro

Esta es una versión poco usual de los problemas, alternativas y consecuencias:

Redistributive battles

The Eurozone has so far studiously avoided the default option, with the exception of the half-hearted Greek restructuring, where denial of the problem was no longer possible. Instead it has embarked on two transfer strategies that will worsen the Eurozone crisis.

• The first consists in public bailout schemes, such as the EFSF or the ESM, which replace private credit with public credit of the still-solvent states.

The debt overhang problem of some countries thereby becomes the debt overhang problem of all the others, without any net relief for the Eurozone as a whole. Needless to say: private investors do not have any confidence that this strategy will work for the Eurozone. But they support it enthusiastically, for it allows them to transfer their credit risk to Eurozone taxpayers. Substantial policy pressure from the US, UK, and China supports such a risk transfer in pursuit of investor interests.

• The second futile policy consists of central bank purchases of distressed sovereigns’ bonds.

The declared goal of this programme is to reduce yields on outstanding debt with such purchases and thus reduce the cost of issuing new debt. But this argument contradicts the cold reality of bond valuation. As long as distressed sovereigns continue to issue new debt, they will still have to pay a large default premium. This premium is augmented by the ECB’s seniority. Investors anticipate that if the issuer defaults, the central bank would always be first in the recovery queue. ECB bond buying will therefore have no lasting positive effect on sovereigns’ financing costs.

Why are bond purchases so strongly advocated by southern countries in the Eurozone? It is essentially a 21st century version of beggar-thy-(Eurozone)-neighbour: Through massive bond buying, the ECB will accumulate considerable sovereign default risk which is then shared by all Eurozone members. Ironically, rather than reducing the risk of sovereign default, the ECB’s bond buying will eventually produce the opposite effect. The larger the scale of sovereign debt transfers from domestic investors to the ECB, the less will there be domestic resistance against default. ECB policy might delay sovereign default, but does not make it less likely.

Early debt restructuring as a policy alternative

While many central bankers and policymakers are still in denial, time is running out to address the real problem of Europe's debt overhang. The Greek example has shown how sovereign debt can be restructured without the market upheaval and contagion predicted by many (Landon 2012). The legal instruments can be put in place for Spain, Portugal, Italy, or other countries to undertake exchange offers of existing debt with new debt which include reductions of the principal and postpone interest payments. With primary deficits near zero, such debt restructuring is a real policy alternative. It has proven workable in previous cases, such Uruguay in 2003 (Buchheit and Pam 2004). The historical evidence from the large number of previous sovereign default episodes tends to show that the economic costs are short-lived (Borensztein and Panizza 2009).

Ultimately, the Eurozone will have to choose between sovereign default through debt restructuring and default on the real value of government bonds through inflation. Debt restructuring has many advantages if it is undertaken at an early stage.

• Through orderly default, investors take responsibility for their investment decisions. This is not the case if they are bailed out via debt socialisation. Debt restructuring in the Eurozone would typically come with onerous conditions for borrowers, whereas excess inflation provides an easy windfall to all debtors. Thus, moral hazard for creditors and for debtors is attenuated.
• Debt restructuring puts a much larger fraction of the financial burden on financial investors outside the Eurozone, whereas debt mutualisation bails out financial investors worldwide at the cost of Eurozone taxpayers.
• Given the extremely high concentration of financial wealth, losses in any sovereign default will fall mostly on wealthy investors (as bank shareholders or bond investors typically are). By contrast, when debt is mutualised, middle-class taxpayers, the main source of tax revenues in the Eurozone countries, will have to bear a much larger fraction of the burden (Hau 2011).
• Bailout schemes, as in the case of Greece, Portugal, Ireland, and soon Spain, come with politically sensitive external monitoring over an extended period of time. Orderly sovereign default in the Eurozone is likely to be linked to external conditions as well, but by reducing the transfers from over-indebted countries to their creditors, it removes one of the most poisonous elements of this process.

 Harald Hau, Ulrich Hege© voxEU.org , 8 September 2012

Why early sovereign default could save the euro | vox

EL INACEPTABLE COMPORTAMIENTO DEL MERCADO

Una de las virtudes de los estadounidenses es "to speak the truth" públicamente en forma que a los europeos-no digamos a los españoles- nos resulta insólita.Así lo hace aquí Pettis en un comentario económico que trata a la vez la crisis española y europea y la situación china, utilizando la "inestabilidad de balance de Minksy" como hilo conductor.

El juicio europeo y español, que continua otros previos aquí reflejados, no puede ser más crítico ni negativo, considerando la realidad :

 Because yet another agreement for a temporary bailout of Spain will do little to address Spain’s real problems, which are its massively insolvent banks, its uncompetitive economy, and the fact that the country is caught in the downward spiral typical of debt crises in which every sector of the economy, not least its political elite, are acting in ways that systematically undermine growth and creditworthiness.  The continued deterioration in Spain and elsewhere is now part of a fairly mechanical process that operates under its own dynamic, and it will take a lot more than exhortations to reverse the process 

Unfortunately there isn’t much that can be done in a big enough or credible enough way to reverse the downward spiral, and this is why I don’t pay too much attention any more to the proposals and counterproposals that are on offer in Europe.  I think it is probably too late for that, but certainly by continuing to behave as if this is all about trust, or lack of trust (or, for the more conspiratorially minded, about underhanded actions by speculators hoping to bring the system down), policymakers are building in their own disappointment and extending the crisis.

At this point the only thing that can save the euro is a combination of moves in which the European banks are guaranteed by a credible institution and in which Germany takes steps to stimulate its economy quickly and dramatically.  Until Germany is willing to boost domestic spending enough to run a deficit that allows Spain to run a surplus, it is impossible for Spain to repay its debt. This is just basic balance-of-payments arithmetic.

 Given all the excitement over the speed of the deterioration in European markets, I suppose we are going to see urgent new measures announced and a temporary respite in the crisis, but ultimately I think this will be little more than a blip on the way to sovereign debt restructuring and the break-up of the euro.  Nothing has changed fundamentally in Europe in the past few weeks and there is no reason to assume that the crisis is on its way to being resolved.

 Any attempt to predict the likelihood and extent of a breakdown in an economic system – country, region, or company – that starts only from the asset/operational side of the economic entity (what Galbraith refers to above as real economic activity), without taking into account the feedback mechanisms inherent in the relationship between the asset and liability sides, is pretty useless.

What’s more, the recent history of disturbances in that economic entity tells us nothing about the future impact of similar disturbances – as long as the balance sheet structure is changing, and as Galbraith reminds us, the lack of instability during previous disturbances will itself change the structure of the balance sheet.  Stability is itself destabilizing, as Minsky warned us, because it changes the nature of the relationship between the two sides of the balance sheet.

 This is what I referred to as an “inverted” capital structure in my 2002 book, The Volatility Machine.  An inverted structure is the opposite of a hedged structure – when the asset/operational side of your balance sheet does well, your liability side also does well, but when the asset/operational side does badly, the liability side does too.

Inverted balance sheets exacerbate volatility – good times are automatically better than they otherwise would have been and bad times are automatically worse.  Countries (or companies) with inverted balance sheets are more volatile than countries with hedged balance sheets, and unless you can get all your speculative bets right, this higher volatility lowers growth over the long term. Inverted balance sheets, I argued in my book, are one of the key differences between countries that are able to recover successfully from crisis and countries that aren’t, and I would propose that this may be one of the differences between countries that can escape the middle income trap and countries that can’t.

Or to take two more obvious examples, first, asset based lending – for example against real estate – is also a source of balance sheet inversion.  When asset prices rise, the value of debt collateralizing the assets also rises, but when asset prices drop the debt becomes less credible and its implicit cost to the economy rises.  Second, borrowing short term, or borrowing in a foreign currency, has the same risk profile.  When the country is doing well, the real cost of short-term or foreign currency debt declines, only to surge when the economy gets into trouble.

Sometimes inverted capital structures are inevitable, but liability management consists, in my opinion, of identifying ways of eliminating inversion when you can and embedding as much hedged liability structures as you can, so as to make the overall economy less, not more, volatile.  In the case of China, stockpiling commodities is exactly the wrong thing to do – but of course it is hard to convince anyone that this is the case when we are in the “good” part of the volatility cycle.

EconoMonitor : EconoMonitor » The Unacceptable Behavior of the Market

CARTA DE INTENCIONES ESPAÑA-UE (INGLES)

Draft Spain MoU

EL COSTE TERRIBLE DE LA INACCION EN EUROPA

Con todas las crisis nacionales y europeas ganando en virulencia cada día, resulta necesario recordar algunas cuestiones esenciales y decisivas de la continuidad europea en riesgo:

1) LA ESTABILIZACION DEL MERCADO DE DEUDA

Paul de Grauwe:

"The ESM has financial resources amounting to €500 billion. Compare this with the total government bonds outstanding of close to €2,000 billion in Italy and of about €800 billion in Spain and it is immediately evident that the ESM will be unable to stem a crisis involving one of these two countries, let alone the two countries together.

In fact it is worse. As soon as the ESM starts intervening, it will quickly destabilise the government bond markets in these two countries. The reason is the following.

Suppose a new movement of fear and panic, triggered for example by the deepening recession in Spain, pushes up the Spanish government bond rate again.

• To stem the tide the ESM starts buying Spanish bonds. Suppose it buys €200 billion worth of Spanish bonds.

At the end of the operation it will be clear for everybody that the ESM has seen its resources decline from €500 billion to €300 billion. Less will be left over to face new crises.

• Investors will start forecasting the moment when the ESM will run out of cash.

They will then do what one expects from clever people.

• They will sell bonds now rather than later.

The reason is not difficult to see. Anticipating the moment the ESM runs out of cash forcing it to stop its intervention, they expect bond prices to crash. To prevent making large losses, they will have an incentive to bring their bond sales forward to the present rather than wait until the losses are incurred. Thus the interventions by the ESM will trigger crises rather than avoid them.

This feature is well-known from the literature on foreign exchange crises. The classic Krugman model, for example, has the same features (Krugman 1969, see also Obstfeld 1994). A central bank that pegs the exchange rate and has a finite stock of international reserves to defend its currency against speculative attacks faces the same problem. At some point, the stock of reserves is depleted and the central bank has to stop defending the currency. Speculators do not wait for that moment to happen. They set in motion their speculative sales of the currency much before the moment of depletion, triggering a self-fulfilling crisis.

Only the ECB can stabilise bond markets

The only way to stabilise the government bond markets is to involve the ECB, either indirectly by giving a banking license to the ESM so that it can draw on the resources of the ECB (see Gros and Mayer 2010), or by direct interventions by the ECB. But the European leaders were unable (unwilling) to take that necessary step to stabilise the Eurozone.

The ECB is the only institution that can prevent panic in the sovereign bond markets from pushing countries into a bad equilibrium, because as a money-creating institution it has an infinite capacity to buy government bonds. The fact that resources are infinite is key to be able to stabilise bond rates. It is the only way to gain credibility in the market.

 

The SMP is the wrong precedent

The ECB did buy government bond markets last year in the framework of its Securities Markets Programme (SMP). However it structured this programme in the worst possible way. By announcing it would be limited in size and time, it mimicked the fatal problem of an institution that has limited resources. No wonder that strategy did not work.

The only strategy that can work is the one that puts the fact that the ECB has unlimited resources at the core of that strategy. Thus, the ECB should announce a cap on the spreads of the Spanish and Italian government bonds, say of 300 basis points. Such an announcement is fully credible if the ECB is committed to use all its firepower, which is infinite, to achieve this target.

If the ECB achieves this credibility it creates an interesting investment opportunity for investors. The latter obtain a premium on their Spanish and Italian government bond holdings, while the ECB guarantees that there is a floor below which the bond prices will not fall. (The floor price is the counterpart of the interest rate cap). In addition, the 300 basis points acts as a penalty rate for the Spanish and Italian governments giving them incentives to reduce their debt levels.

The ECB is unwilling to stabilise financial markets this way. Many arguments have been given why the ECB should not be a lender of last resort in the government bond markets. Many of them are phony (see De Grauwe 2011, Wyplosz 2011). Some are serious like the moral hazard risk. The latter, however, should be taken care of by separate institutions aimed at controlling excessive government debts and deficits. These are in the process of being set up (European Semester, Fiscal Pact, automatic sanctions, etc.). This disciplining and sanctioning mechanism should then relieve the ECB of its fears of moral hazard (a fear it did not have when it provided €1,000 billion to banks at a low interest rate).

(...)

What should be done?

The correct business model for the ECB is one that has it pursuing financial stability as its primary objective (together with price stability), even if that leads to losses. There is no limit to the size of the losses a central bank can bear, except the one that is imposed by its commitment to maintain price stability. In the present situation the ECB is far from this limit (Buiter 2008).

2) LA CRISIS BANCARIA A NIVEL EUROPEO Y NACIONAL 

 Daniel Gros:

"Putting the ECB in charge of banking supervision thus solves one problem. But it creates another one. Can one still hold national authorities responsible for saving banks which they no longer supervise?

This is not a new problem. The De Larosiere Report (2009), which became the basis for the creation of the European Banking Authority (EBA) and the Systemic Risk Board (ESRB), argued that the ECB should not be involved in ‘micro’ supervision mainly because banking rescue and resolution involves tax payer money, which they assumed had to be national.

First comes EZ bank regulation then comes EZ bank rescues

Banking regulation and restitution are difficult to separate – no wants to pay for things they cannot control. Economic (and political) logic thus requires that the Eurozone will soon need also a common bank rescue fund. 

Officially this is not fully acknowledged yet, except for a hint in the EZ summit statement of June 28/9 which says that once a system of supervision involving the ECB has been created it would become possible for the permanent rescue fund, the ESM, to inject capital into banks. 

This is how European integration often advances. An incomplete step in one area later requires further integration in related areas. In the past this method has worked well. The EU of today is a result of such a process.  But a financial crisis does not give policymakers the time they used to have to explain things to their electorate. The steps will have to follow each other much more quickly if the euro is to survive in its current form. 

Problems ahead

The worrying thing is that the terrain EZ leaders must cross is heavily mined. Europe does not have the luxury to construct its banking union from a stable situation. This new institution is being set up in the midst of a banking crisis.

There are clearly large losses that have to be realized and allocated.  

• This means serious distributional conflicts both within and between member countries. 

The most difficult case is going to be Spain. The local savings banks are the weakest part of the Spanish banking system because they specialized in mortgages and lending to developers, i.e. the areas where very large losses are to be expected. A number of these were recently 'privatized', often in the context of mergers. These new institutions then had to raise capital in various forms (shares, preferred shares, subordinated debt).

Given that institutional and especially international investors were not willing to invest in these instruments (not surprising given that the state of the Spanish real estate market) the new capital was raised mainly from domestic investors, often the depositors themselves.

Who pays for past mistakes?

This leads to the first conflict: Who should bear the losses the (Spanish) investors or the Spanish government? 

As retail investors are also voters, the government (and the management of the cajas) have now incentives to pay back as quickly as possible all instruments that would otherwise be loss absorbing. This seems to be happening on a broad scale. It is thus possible that by the end of this year the weakest banks will have repaid all of their hybrid instruments at par or close to par.  At that point the loss absorption capacity of the Spanish banking sector will be much reduced. 

But this leads to the second distributional conflict: Will the European tax payers want to pay for past losses?  As the answer is presumably no, there is thus a danger that by the end of this year it will become impossible to inject European capital into Spanish banks unless either a number of banks have gone into informal insolvency (to bail in other creditors) or the Spanish government has put enough into the system to cover past losses (which it might not be able to do).  The road towards banking union is going to be difficult."

3) EL TERRIBLE COSTE DE LA INACCION

Han sido también diagnosticado y calculado con arreglo a lo anterior  por Edwin M. Truman:

" The European leaders this time have offered a more hopeful approach than in the past in both form and substance, but Europe could still be headed in the wrong direction unless the ECB builds an appropriate bridge on the structure of the decisions taken at the June summit and the political process implements those decisions comprehensively and expeditiously."

4) EL WOLFSON PRIZE SOBRE LA RUPTURA DE LA EUROZONA Y LA PROPUESTA DE BUSISSNESS EUROPE

Ha sido concedido a Capital Economics (Roger Bootle) y considera los aspectos vinculados al fracaso de todos los intentos dirigidos a poner a la eurozona en una senda menos destructiva para los miembros más débiles que, en otro caso, se vean obligados a abandonarla.

BusisnessEurope, asociación empresarial europea, por el contrario, también ha formulado sus propuestas para evitar dicha ruptura.

¿PODRIA FINLANDIA (FIXIT) SER EL SIGUIENTE?

Hasta ahora los problemas de la zona euro eran los de los países del Sur con dificultades de deuda y crecimiento.El agravamiento puede incentivar también la consideración de la salida de los países "virtuosos" del Norte, con la intención de reducir los daños.Según parece y comenta Roubini aquí, Finlandia (Suecia y Dinamarca nunca estuvieron en la unión monetaria) esta considerando esta opción, lo que podría resultar un muy grave problema añadido.

Lamentablemente la metáfora de Roubini parece imponerse : "a slow motion train's wreck" ("el descarrilamiento a cámara lenta de una tren")

Some private unofficial estimates put the potential losses of Finland with continued EZ membership at between 10 and 15% of Finnish GDP.

Fourth, many social, business and political forces in Finland are skeptical of the euro and/or supportive of an exit. The most fervent euro-skeptic group is The Finns Party (formerly the “True Finns”). But even the broadly pro-euro National Coalition, the party of the current prime minister, contains opponents to the common currency, one of which is Finland’s President, Sauli Niinistö, who bemoans the fact that Finland bails out richer EZ members, yet is still pro-euro. Another party leader, Ben Zyskowicz, last week pointed out the EZ’s fundamental design flaws. For the time being, the forces formally supporting a “Fixit” are in the minority, but there is now significant internal debate on the pros and cons of membership. If Greece moves closer to exit and Italy and Spain end up on the verge of losing market access and requiring even more risky financial support from the EZ core, Finland may decide that the additional credit risk is not worth the benefit. Indeed, the country has already been the most vocal so far—in debates about the EFSF, the ESM and other aspects of the periphery bailouts—in requesting formal collateral or seniority for its contributions to the EZ periphery rescues.

For now, the ruling coalition is still firmly in support of EZ membership, but there are plenty in favor of an exit in the political opposition; even within the coalition, many are grumbling in private about the costs of EZ membership. A trigger to increase the chances of Fixit would be a decision by the EZ to increase the potential losses and credit risk of the core members—including Finland’s—via a fiscal and transfer union, debt mutualization and EZ-wide deposit insurance. At that point, the forces pushing for Fixit may get the upper hand.

EconoMonitor : Nouriel Roubini's Global EconoMonitor » Fix it or Fixit – Could Finland Be Next?

SENTENCIA DEL TRIBUNAL SUPREMO DE ESTADOS UNIDOS

El Trinunal Supremo de Estados Unidos decidió el 28 de Junio el caso sobre el "impuesto por no comprar aseguramiento médico", afirmando en parte la constitucionalidad de la ley del Congreso (impuesto) y rechazando en parte la misma (penalización a los Estados que no se adhirieran al programa de extensión de Medicaid).

La cuestión del Impuesto la resumíamos así en Marzo de 2010:

"Desde un punto de vista jurídico la principal cuestión que ha sido objeto de debate hasta la fecha es la de si la sanción o gravamen a pagar por la falta de cumplimiento del mandato individual de aseguramiento (695 dólares anuales) es un impuesto o multa no autorizado por la claúsula que autoriza a establecer impuestos al legislador federal para el “general welfare” o no autorizado por la “claúsula de comercio” que autoriza regulaciones dirigidas directa o indirectamente a regular el comercio interestatal, entendiendo por tal también los servicios.

Las opiniones favorables y contrarias sobre esta cuestión se han recogido por el New York Times y por otras publicaciones, en especial por el debate entre Rivkin y Casey y Balkin. También por los economistas que se han pronunciado a favor y en contra de las nuevas medidas.

En general, el gravamen o sanción por la falta de aseguramiento pretende incentivar el aseguramiento por aquellos individuos que preferirían autoasegurarse por considerar que el coste de su riesgo futuro será inferior al pago acumulado de primas de aseguramiento. La norma por el contrario entiende que la ampliación del “pool” de riesgos y asegurados permitirá a los aseguradores privados una mejor gestión del riesgo y una disminución de los costes globales.

El aspecto teórico interesante es que si los individuos no pensaran que conocen sus probabilidades de enfermedad entonces tendría sentido establecer un “pool” de riesgos forzados puesto que el mismo constituiría par todos los asegurados una solución óptima de Pareto (ninguno perdería y la posición global mejoraría) Este es también el criterio de justicia de Rawls en el supuesto de un “velo de ignorancia” sobre las condiciones futuras. Por el contrario, si se considera que los individuos tienen razones para no asegurarse porque tienen información que les permite considerar que su riesgo futuro no exige el aseguramiento actual, entonces los obligados al aseguramiento estarían realizando una transferencia de renta propiamente impositiva en beneficio de quienes obtengan los fondos federales que derivan de la sanción y/o se beneficien de las subvenciones federales a los programas de salud.

La peculiaridad de la situación es que el impuesto o sanción se configuraría como un gravamen sobre la percepción del grado de salud del individuo y no sobre otras manifestaciones de su renta. En la propuesta del Congreso- no aprobada- el impuesto se configuraba como un impuesto sobre la renta del 2,5% con un techo de la “prima nacional promedio (de aseguramiento) para el ejercicio fiscal en curso”.

 Un impuesto sobre el riesgo de enfermedad

El Tribunal Supremo ha decidido en la forma indicada por 5-4, con el voto favorable y decisivo del Chief Justice Roberts, lo que ha sorprendido debido a la normal inclinación del Chief Justice con la minoría en esta Sentencia.

La decisión muy extensa plantea cuestiones interesantes por la naturaleza peculiar del "impuesto", que tampoco se admite constituya un impuesto directo (lo que habría obligado a distribuirlo entre la población de los Estados).

Estos son los resúmenes de la opinión de la mayoría y de la minoría:

Justice Roberts concluded:

The Affordable Care Act is constitutional in part and unconstitutional in part. The individual mandate cannot be upheld as an exercise of Congress’s power under the Commerce Clause. That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it. In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress’s power to tax.

As for the Medicaid expansion, that portion of the Affordable Care Act violates the Constitution by threatening existing Medicaid funding. Congress has no authority to order the States to regulate according to its instructions. Congress may offer the States grants and require the States to comply with accompanying conditions, but the States must have a genuine choice whether to accept the offer.^[45]

[ . . . ]

The Federal Government does not have the power to order people to buy health insurance. Section 5000A [of the Internal Revenue Code] would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.^[46]

Justices Scalia, Kennedy, Thomas, and Alito signed a joint dissent in which they argued that the individual mandate was unconstitutional because it represented an attempt by Congress to regulate beyond its power under the Commerce Clause.^[49] Further, they argued that reclassifying the Individual Mandate as a tax rather than a penalty in order to sustain its constitutionality was not to interpret the statute but to re-write it, which they deemed a troubling exercise of judicial power.^[50]

There was speculation that the joint dissent was the original internal majority opinion, and that Chief Justice Roberts' vote changed some time between March and the public issuance of the decision.^[51][52][53] Paul Campos, a professor of law at the University of Colorado at Boulder, for example, quotes the following passage from the joint dissent:^[51]

Finally, we must observe that rewriting §5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps it is not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression that deserves more thoughtful consideration.

Campos then concludes that: "The dissenters are saying that construing the mandate as a tax would require them to address a constitutional question that they don’t have to address. But the only reason the Court would not have to address this question is if the majority in fact refused to construe the mandate as a tax – which is exactly what the Court’s majority ended up doing.

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