Browsing by Author "Salminen, Ilmi"

Sovereign debt plays an important role in the public finance and financial stability of a state. The euro crisis and the Greek sovereign debt restructuring in 2012 have caused an increasing interest in sovereign debt in the eurozone. The fact that countries in the eurozone with a weaker economic profile have a more difficult access to funding has provoked economists make suggestions to create seniority in sovereign borrowing. In those proposals, EU countries would pool a portion of their national debt as senior sovereign debt, while national debt beyond this would be treated as junior debt. Although the creation of senior structures in sovereign debt has been widely discussed in the eurozone, there is only very limited research on the legal ways to create seniority in sovereign borrowing. The research questions of this thesis are 1) ‘How does seniority operate in sovereign borrowing from the legal perspective?’ 2) ‘What would be a concrete example creating seniority in sovereign debt of eurozone members?’ and 3) ‘What legal elements should be considered if creating seniority in sovereign debt of eurozone members?’ The thesis will firstly present the suggestions by economists to create seniority in sovereign borrowing and then continue to study sovereign debt The thesis will assess the first research question by introducing the basic concepts of sovereign debt: definition of sovereign debt and default, sovereign debt creditors, debt restructuring and the governing law. Furthermore, the thesis will research the principles of international law affecting the status of a sovereign, the preferred status of international organizations and the interpretation of the pari passu clause in the sovereign debt contracts. To respond to the second research question, the thesis will present a national tranching proposal created by Wendorff and Mahle in detail. To respond to the third research question the thesis will be assessing possibilities for seniority in the eurozone by using a framework of formal, structural and functional elements. The thesis considers that the most likely way to create seniority in sovereign borrowing in the eurozone would be through an agreement, thus the relevant formal elements would be on governing law and on the agreement. Alternatives to governing law would be changing English law, changing national legislations of eurozone countries or creating an international convention with a framework which the contracts could refer to. Important considerations in creating agreements with seniority structures would be the choice of law and contract clauses. From existing systems of law, English law would be the most suitable national law as it is already widely used in sovereign debt contracts in the eurozone. In regard to the contract clauses, the thesis will not suggest any specific clauses to be introduced but looks at the existing contracts already in use in private borrowing and analyses the learnings from the use of pari passu in sovereign borrowing. The nature of sovereign debt as a less-developed area of international law makes the research a bit more dispersed, together with the fact that sovereign debt positions itself in the intersection of private and public international law. Although sovereign debt seniority is much researched from the economic perspective, legal contributions are still few and additional research on the topic is needed. Legal aspects of sovereign debt have a large effect in the development of the EU as a political union, thus in-depth research on the topic is crucial.