Pacta Sunt Servanda or Odious Debt?

March 14, 2012

Ollie Rehn, “I actually wonder why this has to be asked at all because the principle in the European Union and in the long European legal and historical tradition is – in Latin – pacta sunt servanda, respect your commitments and obligations,” he said.”

Let me try to answer Ollie’s question plus our noble Taoiseach’s sublimation of the question of Irish sovereign debt as a debt of honour, which must be repaid. The frequent assertions by politicians aided by some economists, that there is no question the debt will not be repaid, we’re merely asking for extension of maturity dates, or similar ‘light relief’, is ludicrous. This is simply not sustainable debt.

Also, it is delusional to think the debt burden we have will not have similar deeply toxic and deeply damaging consequences that have befallen in history economies that have fallen into the debt trap, google Haiti after French rule and effect of debt reparations on economies such as Ecuador, Mexico, more recently African countries, Latin American countries, eg Colombia, Venezuela. Debt has enormous political and social implications that can destroy the infrastructure and political systems of those who fail to adequately to address its challenges.

Ollie’s high stool of moral unctuousness will no doubt appeal to supplicants wishing to be groomed with confidence and moral high ground, the usual suspects….

But pacta sunt servanda is a baseless deception and does not apply to the Irish case for setting PN to nil and having the funding instead set as a liability against EFSF; or, indeed, even against funding of PN’s ¢31 bn through some form of SPV set up to leverage LTRO funding for IBRC.

It is a baseless deception because “pacta sunt servanda” represents ODIOUS DEBT. If you speak Greek, there is a documentary exploring Greece as a debtocracy; if you dont, commentary on its contents available here:

It explains the concept of odious debt.

This part (which does not correspond to the beginning of the film) explains the concept of Odious Debt, how it is used politically, and also recounts how Ecuador managed to escape this trap in 2006.

The story begins in the 1920s with Alexandre Sack, Minister of the Tsar and a law expert. After the revolution of 1917, Sac began lecturing in European and American universities. In 1927, he put forward a brilliant discovery: the notion of Odious Debt.

For a debt to qualify as Odious Debt, three conditions must be present, namely:


It must be incurred by leaders without the consent or approval of the citizens.


The funds borrowed must be invested in assets from which no benefits accrue to the citizens or the country.


The creditor is perfectly cognizant of these facts but nevertheless contracts the debt in total indifference.

IBRC debt obligations fall 100% under the above criteria for odious debt.

We should simply refuse to make the repayments before the March 31 deadline and refer the matter to an international court of settlements. Perhaps, that court can appoint a team with authorization to look at the IBRC records re B@B loans, share manipulation, criminal deception of the taxpayer, director loans, political negligence, negligence by the NTMA, the Irish Regulator, the ICB and the ECB.

“Hugo Arias, President of Ecuador’s Court of Auditors: “It was simply a permanent sum that Ecuador had to pay to the countries of the North. For example, from the 1980s until 2005, debt interest payments accounted for 50% of the state budget, reaching 3 to 4 billion US dollars annually, whereas spending on health accounted for only 4%. So we had a situation where 4 billion was going towards debt interest payments, but only 400 million for health! 800 million for education! We were killing our own people.”

“The example of Ecuador has shown that the illegal circumstances in which debt has been generated can be revealed by a commission of enquiry conducted by economists.

“Why doesn’t someone tell us clearly what the debt is made up of? What is the exact amount? And how was it generated? And who do we owe? In order to respond to these questions, it is urgent and vital to set up an audit commission to focus precisely on the nature of this debt. This is why I have said that we cannot be satisfied with lies from the banks, government or the “parrots”, who are paid to repeat the same empty rhetoric.”

“Eric Toussaint: “Above all, do not be afraid, as Greeks, to demand your rights within the EU, in relation to the Greek government…

In Ireland, we can’t even find out in a proper banking enquiry what procedures, processes, data led to the meltdown of eg Anglo. Developers are cocooned by NAMA in a veil of secrecy and NDA. Economists have mounted no great campaign of research to assess the depth of the effects debt
will have as to its sustainability on Ireland’s future.

The whole question is brushed under the carpet and consigned to secret negotiations too complex to describe currently ongoing in Kafka’s castle at great expense to EU taxpayers.

It is the view of the ECB debt must be repaid:

The Bundesbank below have a deeper interpretation. They structure the nature of ELA. As I’ve stated before, ELA is not ‘magicked out of nothing’. Target2 balances view the creation of debt through ELA as a the creation of a liability in the Target 2 system by CB’s that must be accounted for and paid back. Our central bank generated liquidity for our banks in return for the PN’s and the debt is structured to be repaid through repayment to the central bank

Posted by Izabella Kaminska on Mar 13 16:11. For anyone who fancies a little Target2 controversy on a Tuesday afternoon… we present, straight from the horse’s mouth, the Bundesbank’s own thoughts on the problem of Target2 imbalances via its annual results report:

“Examples include the provision of short-term liquidity assistance (ELA). What is new is that in December 2011, the Governing Council adopted option for national central banks to accept units under certain conditions, bank loans as collateral. Again, the risk-sharing is excluded, and any losses would be borne solely by the respective national central bank.”

ITs clear to me PN’s according to Ollie Rehn et al represent a debt to the ICB and through it to ELA and the Target 2 system and his understanding is this debt must be repaid.

We should look to Iceland:

Iceland is in strong recovery mode by any index that matters, including unemployment levels. It has negotiated successfully debt writedown with its lenders.

From June 11 last year IT celebrates Iceland’s successful return to bond markets.

Irish negotiators negotiation on our debt is nothing short of humiliating and an embarrassment apparently even to the IMF. The Spanish pass us on the queue of debt joining the Greeks who’ve already passed us out, “Ireland will not be seeking similar concessions..” just announced by An Taoiseach, Enda Kenny.



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