Top EU Court Paves Way for German Lawsuits on Greek Haircuts

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Europe’s highest court paved the way for hundreds of bondholders to sue Greece in Germany after they were forced to take big losses on their investments in 2012.

Judges at the EU Court of Justice said on Thursday that there was nothing to indicate the lawsuits by Germany-based investors were “manifestly outside” the scope of EU law.

“The road is free and we can now go ahead and sue,” said Olaf Hoepner, a lawyer who represents at least 260 claimants in pending cases. “The first big hurdle has now been overcome, next comes the question whether Greece can claim immunity.”

Hundreds of lawsuits by Greek government bondholders in Germany had been on hold since 2013 pending the ruling. The bondholders argue that Greece in 2012 forced them to swap their securities with new government bonds of a significantly lower nominal value. While none of the claimants accepted Greece’s initial offer, the government carried out the proposed exchange.

The EU court’s decision comes days before it is due to rule on another German case with the potential to send shock waves across the euro area. Judges are scheduled to deliver a verdict on whether European Central Bank President Mario Draghi overstepped the mark with a 2012 bond-buying plan he designed to help save the euro.

Greece’s finance ministry declined to immediately comment on Thursday’s court decision.

Judicial Procedures

The European Commission, the EU’s executive body, said the ruling “strengthens the efficiency and speed in judicial procedures in civil matters” between the bloc’s nations.

The case has to “be distinguished from the current negotiations between Greece and its institutional creditors,” the commission said in an e-mailed response. “There are no direct financial consequences of the ECJ decision, it was only concerned with a procedural element.”

The German lawsuits are another example of how Europe’s biggest economy has become intertwined with the crisis in Greece. The nation is looking to Chancellor Angela Merkel to bring round Greece’s other creditors after its latest budget proposals snarled efforts to break the standoff over financial aid.

Debt Swap

In 2012, investors holding 95.7 percent of Greece’s privately owned bonds accepted a debt swap that forgave the country more than 100 billion euros ($112 billion).

In Thursday’s ruling, judges said that “legal proceedings for compensation for disturbance of ownership and property rights, contractual performance and damages, such as those at issue in the main proceedings, brought by private persons who are holders of government bonds against the issuing state” fall within the EU law that allows for such actions to be served.

The cases are: C-226/13, C-245/13, C-247/13, C-578/13.

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