Academic journal article Washington International Law Journal

Acts of Financial Distress in the Eu: Is the Eu to Blame?

Academic journal article Washington International Law Journal

Acts of Financial Distress in the Eu: Is the Eu to Blame?

Article excerpt


There is no question that, in cases of extreme financial crisis, investors' expectations and the value of their investments may be greatly affected by actions taken by the state. However, before investors can seek recourse there are several important elements to consider. Apart from the procedural and substantive legal hurdles an investor will face, investors must also determine the parties/persons against which investors' claims will be raised. Indeed, establishing the relevant party is of material importance; it determines competent courts, applicable law, and available property for enforcement. At first glance, the question of the suitable defendant appears easy to answer, as in most cases the negative measures were adopted by the States themselves.

However, this presumption of state responsibility was challenged in the 2013 Cyprus banking crisis that led to the haircut1 of deposits in Cyprus's two largest banks. Indeed, Cyprus's president proclaimed that the decision for the haircuts actually was imposed by European Institutions.2 This Article explores such allegations. Additionally, in the case of sovereign default within the European Union ("EU"), this Article attempts to answer the question of whether the EU can be held accountable for investors' losses. In response to the above question, Part II of this Article explores the concept of sovereignty vis-à-vis a state's participation in international organizations, with a focus on the EU. In Part III, this Article studies the negative aspect of sovereignty, namely the principle of non-intervention, which protects a state from external interference by other sovereign states. In this context, this Article reviews the notion of economic coercion and examines whether it constitutes such prohibited intervention. In Part III, this Article explores whether the recent banking haircut in the eurozone, especially the Cyprus banking haircut, can be attributed to the EU and its institutions on the basis of economic coercion. Lastly, the Article explores whether the EU and its institutions can be held liable for the Cyprus banking haircut under EU Law.


A. The History of the Concept of Sovereignty

To explore whether liability can be attributed to the EU for the Cyprus banking haircut and the EU can therefore serve as a defendant, the notion of sovereignty is of vital importance. The notion of sovereignty is controversial and has puzzled law scholars and political scientists almost since the inception of international law itself.3 The concept of sovereignty first arose in Rome. However, the Roman understanding of sovereignty lacked a definite theory of how sovereignty is created.4 The current concept of sovereignty arose much later, in the 16th and 17th centuries.

In the 16th century, in Les Six Livres de République, Jean Bodin recognized sovereignty as the absolute and perpetual power of a state to set binding laws, limited only by the laws of God and natural law.5 Thomas Hobbes, a century later, indicated that the sovereignty of the state is an absolute power superior to all, having a right over all.6 While both these theories conceptualize sovereignty as the absolute power of the state, they differ in how they treat powers outside of the state. Specifically, Jean Bodin's theory identified sovereignty as an unlimited power subject to neither external powers nor human laws.7 On the other hand, Hobbes considered sovereignty an absolute power within the state's territory but failed to address the relationship of sovereignty to international law and international organizations.8

Most scholars9 trace the modern concept of sovereignty to the end of the Thirty-Years' War and the Treaty of Westphalia.10 The Treaty of Westphalia laid the ground for states to become "sovereign and independent" from the Holy Roman Empire.11 These states were sovereign in the sense that they enjoyed "supreme authority" over internal affairs within their territory and independence in their external relations. …

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