The outcome of the Greek elections and Syriza’s commitment to negotiating a restructuring of Greece’s debt (or a prosperous life outside the Eurozone with a heavily reduced debt burden), has forced many in the EU and beyond to consider the implications of a renegotiated bailout or a Greek departure from the Eurozone.

At this stage, as far as Greece is concerned, the most likely scenario (although anything is far from certain in this context) is a face-saving compromise for all parties involved resulting in some further concessions. However, if the Troika and Greece do not come to an agreement, further possibilities are a default on its debt, Greece’s exit from the Eurozone (on a unilateral or consensual basis) or from the EU altogether. Further, with the prospect of a referendum in the UK on its continuing membership of the EU in the background (as well as elections in one third of EU member states where, in many, incumbent leaders are paying a high political price for adhering to bail out plans), the consequences of a Member State exit are important to address.

The legal issues and practical implications arising from exit of a Member State from  the Eurozone or the EU are multiple. An exit from either would have a considerable impact on private law obligations (including on the currency of debts and contractual obligations), and may also implicate public international law rights of recourse. For investors in the EU, it is not too early to start considering these points. This post considers the relevance of potential claims under bilateral investment treaties (BITs).

A renegotiated bail-out or an exit from the Eurozone – recourse for investors under bilateral investment treaties

BITs provide investors from one country with direct recourse against the other, being the host state of its investment.  The definition of “investment” is usually broad. Depending on the exact terms of the treaty, the protections therein may be relied on by direct or indirect investors.  Greece has bilateral investment treaties (BITs) with a large number of countries, both within and outside the EU. In the aftermath of the bailout, Greece proved an attractive prospect to investors from China, Russia and Qatar amongst others.  The latter two of these countries have bilateral investment treaties with Greece. Careful structuring of investments may nonetheless allow investors from countries without a BIT with Greece to avail themselves of treaty protections.

The international law protections offered by BITs will be significant in the event of a renegotiation of the bailout, a default on debt, or an exit by a Member State from the Eurozone or the EU. Whilst the terms of each BIT vary, they usually include protection against expropriation, a guarantee of fair and equitable treatment, and treatment accorded to that of nationals of the host state. The dispute resolution provisions in BITs vary but claims are usually resolved through international arbitration, usually under the auspices of ICSID (part of the World Bank).

Exit from the Eurozone of an EU Member State would be likely to lead to emergency legislation re-denominating the resulting currency (as happened in the case of Argentina, in the aftermath of the financial crisis), and possibly further legislative or judicial action or emergency measures. Examples include any changes in tax burden on investments in Greece, restrictions on movement of capital, exchange controls. Depending on the circumstances (for example, in relation to capital controls, the extent of such measures and how long they remain in place and regarding legislative changes, how they affect foreign investors versus Greek investors), such actions may lead to claims for expropriation or lack of fair and equitable treatment (including based on a failure to meet an investor’s legitimate expectations) or failure to accord non-discriminatory or national treatment. Some BITs also grant investors a right to unrestricted transfer of payments, which could be undermined by capital controls imposed. The response of the Greek courts to claims by investors under domestic law could also give rise to claims based on a denial of justice.

Even in the event of a renegotiated bail-out which leaves Greece in the Eurozone, there is a potential for investors to suffer from host government action which may form the basis of an investment treaty claim. There are already some fears of capital controls. The actions of Cyprus (in its restructuring of the banking sector as part of a deal agreed by Cyprus with the EU and the IMF), including nationalisation of a private bank, and a resultant loss to depositors, have already led to at least one claim under Cyprus’ BITs (by Greece’s Marfin Investment Group and other investors and bondholders). Further, Cyprus’ Laiki Bank (which is the subject of the BIT claim against Cyprus), has also brought a claim against Greece (also under the Cyprus-Greece BIT), alleging that it was discriminated against by the Greek Central Bank which refused to provide emergency liquidity support in the same way assistance was provided to Greek lenders. This is the second claim by a Cypriot financial institution against Greece, a claim having been made arising from the restructuring of Greece’s sovereign debt in 2012.

Withdrawal from the EU

It may be that the other Member States agree to a withdrawal by one Member State from the Eurozone, but the Treaty on the Functioning of the EU (TFEU) does not provide a clear mechanism for this. The TFEU envisages an exit from the EU, with agreement from the other Member States, which in itself would effect a withdrawal from the Eurozone.

If a Member State were to leave, the consequences for investors would inevitably be significant. As well as the implications referred to above in the context of a renegotiated bail-out or a withdrawal from the Eurozone, investors in the withdrawing Member State could face a sudden seismic shifting of the legal, economic and regulatory regime on which their investments were based. In such circumstances, investors would not only look to any contractual protections (including stabilisation provisions in contracts with host state entities) but also to any available international law protections, as discussed above.


Leaving aside defences often relied on by states facing BIT claims (for example, lack of jurisdiction), claims against an EU Member State arising from an EU-agreed bail out may lead to difficult questions as to the application of the defence of necessity. Successive tribunals in the claims against Argentina considered whether the “state of necessity” doctrine could apply to exempt the state from liability for its actions in the wake of the financial emergency that it faced.  The findings of tribunals were not unanimous, but Argentina largely did not succeed in establishing a defence on the grounds of necessity. However, that is not to say that the doctrine could not be relied upon in circumstances in which a state took action in full agreement with the EU institutions, arguably to avert a financial crisis which could reverberate across the EU.


Further, it is also important for investors to bear in mind that an award of compensatory damages in respect of host state action which violates an investor’s international law rights is of limited value if it cannot be enforced. The very circumstances in which Greece comes to re-negotiate the terms of its bailout perhaps do not bode well for the prospect of enforcing awards against it. Some lessons can be learned from Argentina, which faced (and lost) a raft of claims against it under BITs in respect of action taken in the financial crisis. For a long time the awards remained unpaid, with Argentina insisting that the award creditors needed to enforce them through the domestic courts.  In 2013, Argentina reached a settlement in respect of five awards against it, in which it transferred certain previously issued sovereign bonds to award creditors. The award creditors were therefore left with sovereign bonds (themselves historically volatile) with an equivalent value of less than the value of the awards and the interest (as well as an obligation as part of the settlement to re-invest in other sovereign bonds).

Implications for Brexit discussions?

As Grexit is unlikely to happen at this stage, the implications for Brexit discussions are limited. However, preliminary skirmishes with Greece could crystallise the EU (and its various institutions’) stance on exit of Member States. This is an issue that will be followed extremely closely over the coming months, including in the run-up to the UK General Election on 7 May 2015.