Opinion of the European Central Bank of 17 February 2012 on the terms of securities issued or guaranteed by the Greek State (CON/2012/12)
Date: 2012-02-17
Institutions: European Central Bank
Subjects: Greece, financial stability, issue of securities, national law, public borrowing, securities

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 February 2012 

on the terms of securities issued or guaranteed by the Greek State  

(CON/2012/12) 

Introduction and legal basis 

On 2 February 2012, the European Central Bank (ECB) received a request from the Greek Ministry of 

Finance for an opinion on draft legislative provisions introducing rules for the modification of the terms 

of  securities issued  or  guaranteed  by  the  Greek  State on  the  agreement  of  bondholders.  Later on, these 

draft  provisions  have  been  further  revised.  This  opinion  refers  to  the  latest  received  revised  draft 

provisions of 16 February 2012 (hereinafter the ‘draft provisions’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union and on the third and sixth indents of Article 2(1) of Council Decision 

98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding draft legislative provisions1, as the draft provisions relate to the Bank of Greece and to rules 

applicable to financial institutions insofar as they materially influence the stability of financial institutions 

and  markets.  In  accordance  with  the  first  sentence  of  Article  17.5  of  the  Rules  of  Procedure  of  the 

European Central Bank, the Governing Council has adopted this opinion.  

1.  

Purpose of the draft provisions 

The  draft  provisions  authorise  the  Greek  Ministerial Council,  on  a recommendation  of  the  Minister for 

Finance,  to  launch  a  process  for  the  modification  of  the  terms  of  eligible  securities,  as  defined  in 

paragraph  1  of  the  first  Article  of  the  draft  provisions,  to  determine  such  eligible  securities  and, in  the 

event of an exchange, to define the principal, the interest rate, the duration and the English or other law 

governing  the  new  securities  to  be  issued  by  the  Greek  State.  The  Greek  Public  Debt  Management 

Agency (PDMA) will invite the holders of eligible securities to decide, within a specific deadline, on the 

modification of the eligible securities’ legal documentation. This invitation, which is to be notified to the 
process manager2 and published on the Internet, will specify: (a) the eligible securities, (b) the terms on 

which modifications are proposed, (c) the new content of the terms, (d) any new terms, (e) in case of an 

exchange of eligible securities, the terms of the new securities, as determined by the Ministerial Council, 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
The  process  manager  will  be  the  Bank  of  Greece,  as  operator  of  the  dedicated  system  for  monitoring  transactions  in 
book-entry securities under Law 2198/1994 (hereinafter the ‘System’), including in Greek government bonds. 

 
 
 
 
                                                 
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and any additional terms thereof, (f) the deadline by which bondholders will be invited to decide on the 

modification,  and  (g)  other  specific  issues,  including  the  bondholders’  participation  in  the  decision-

making process. A quorum of bondholders holding at least half of the aggregate outstanding principal of 

all  eligible  securities  is  required,  together  with  a  majority  of  at  least  two  thirds  of  the  outstanding 

principal of eligible securities held by participating bondholders.  

2.  General observations 

2.1  As a general proposition, it is important that the Member States preserve their ability to honour at 

all  times  their  commitments,  also  with  a  view  to  ensuring  financial  stability.  The  case  of  the 

Hellenic Republic is exceptional and unique.  

2.2  The aim of the draft provisions is to facilitate private sector involvement agreed by the Heads of 
State or Government of the euro area Member States on 26 October 20113, exceptionally and only 

for the  Hellenic  Republic, by  introducing  into  Greek law  a  procedure to  facilitate,  in accordance 

with  collective  action  clauses  (CACs),  bondholder  negotiation  of  and  agreement  to  an  exchange 

offer  by  the  Hellenic  Republic  for  its  government  bonds.  The  adoption  of  the  draft  provisions, 

together  with  other  fiscal  and  structural  measures,  will  facilitate  a  possible  restructuring  of  the 

sovereign debt of the Hellenic Republic to help place it on a path of debt sustainability.  

2.3  The ECB welcomes that the terms of such exchange is the result of negotiations held between the 

Hellenic Republic and the institutions representing its bondholders. 

2.4  The use of CACs as a procedure to achieve an exchange of bonds is broadly aligned with general 
practice. In 2002 the Group of Ten recommended4 to issuers of sovereign bonds the introduction of 

CACs  to  allow  amendments  to  their  payment  terms  with  the  approval  of  a  supermajority  of 

bondholders and without a minority being able to obstruct the process. Subsequently, the Member 

States agreed in April 2003 that the Member States should include CACs in their international debt 

issuance  to  promote  international  efforts  for  orderly  restructuring  in  the  event  of  sovereign  debt 
crises5. The terms and conditions of the sovereign debt issued by the Hellenic Republic under non-

Greek  law  normally  contain  CACs.  The  Euro  Group  stated  on  28  November  2010  that  CACs 

should  be  included  in  the  terms  and  conditions  of  all  new  euro  area  government  bonds. 

Article 12(3) of the Treaty establishing the European Stability Mechanism signed by all euro area 

Member  States  on  2  February  2012  provides  that  following  1  January  2013,  CACs  must  be 

included in all new euro area government securities with maturity above one year.  

3  

4  

5  

Euro Summit Statement, Brussels, 26 October 2011, available on the website of the Council of the European Union at 
www.consilium.europa.eu. 
Report of the G-10 Working Group on Contractual Clauses, 26 September 2002, available on the website of the Bank for 
International Settlements at www.bis.org. 
See  ‘Common  understanding  on  implementing  the  EU  commitment  regarding  the  use  of  Collective  Action  Clauses 
(CACs)’, 
also 
‘Implementation of the EU commitment on Collective Action Clauses in documentation of International Debt Issuance’, 
available at http://europa.eu/efc/sub_committee/pdf/cacs_en.pdf.  

http://europa.eu/efc/sub_committee/pdf/common_understanding_cacs_en.pdf.  See 

available 

at 

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2.5  The explanatory memorandum to the draft provisions provides that “The public sector (ΕU, ECB) 

has  demonstrated  its  support  to  the  programme  of  reforms  of  the  Greek  economy,  including  the 

earmarking  of  an  amount  of  EUR  30  billion  for  the  restructuring  of  debt  held  by  private  sector 

creditors;  it  has  also  demonstrated,  via  the  Eurosystem  and  the  European  Central  Bank’s 

programme  for  intervening  in  the  bond  markets  SMP,  its  commitment  to  the  stability  of  the 

European financial sector. In the context of materializing the above-mentioned commitments and 

while  waiting  for  the  exchange  to  be  proposed  to  private  sector  creditors,  the Hellenic  Republic 

acknowledges the above support of the European Central Bank and the other Eurosystem members 

considering  the  higher  interests  of  the  Greek  economy  and  the  continued  functioning  of  the 

Eurosystem monetary policy framework.” 

2.6  The ECB notes that it remains the sole responsibility of the Government of the Hellenic Republic 

to take the necessary action that will ultimately ensure its debt sustainability. 

3. 

Definition of bondholders 

The draft provisions define bondholders as participants in the System rather than as the beneficiaries of 

the bonds. However, they do not explain how System participants are to vote for the modification of the 

terms of eligible securities, including where they have no active portfolio management rights over them, 

or how the voting is to take place, both procedurally and substantively. For reasons of legal certainty, and 

with a  view to protecting  the  legitimate  expectations of the bondholders  of  eligible securities,  the  draft 

provisions should include such details.  

4.   Disenfranchisement 

Paragraph  5  of  the  first  Article  of  the  draft  provisions  provides  for  the  disenfranchisement  of  eligible 

securities directly owned by the Greek State, and also in the case of eligible securities guaranteed by the 

Greek State, eligible securities directly owned by the issuer. The ECB understands that, as provided for in 

the explanatory memorandum to the draft provisions, this provision does not disenfranchise certain public 

sector  entities  not  forming  part  of  the  Greek  State,  i.e.  public  law  legal  persons,  local  government 

authorities or private law legal persons of the public sector. The Report of the G-10 Working Group on 
Contractual Clauses6 recommended a mechanism for disenfranchising bonds directly or indirectly owned 

or controlled by the sovereign issuer, and its public sector instrumentalities, to address creditor concerns 

about  manipulation  of  votes  by  a  sovereign.  The  disenfranchisement  provisions  of  the  draft  provisions 

could be widened to protect the integrity of the voting process. 

6  

See Report of the G-10 Working Group on Contractual Clauses, p. 5. 

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5.   Calculation method 

The  draft  provisions  do  not  stipulate  the  calculation  method  for  the  outstanding  principal  of  eligible 

securities  issued  as  zero  coupon,  stripped  or  index-linked  bonds.  The  matter  is,  instead,  left  to  the 

PDMA’s  invitation.  For  reasons  of  legal  certainty,  reliable  statistical  measurement  of  the  debt  and 

protection  of  the  legitimate  expectations  of  the  bondholders,  the  draft  provisions  should  specify  the 

calculation method for the above types of eligible securities.  

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 17 February 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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