Public debt, Liberalism and Human Rights: Can they be harmonised?

Abstract

Today, many states are expected to default on their sovereign debts. This problem challenges the law as a whole. Behind the debt crisis there are certainly collisions of public-private duties: On the one hand, the iuspublicist duty of the state's contrat social vis-à-vis its citizens to provide health, security and education, i.e. to ensure human rights. On the other hand, the iusprivatist duty of the contrat prive of the state vis-à-vis bond creditors to fulfil its promises. This debt conflict is generally resolved by jurisdictions outside the issuing country, which tend to decide in favour of bondholders. They do not adequately consider the human rights implications of bond compliance for the state. Courts hold, without respecting their obligation to attend to the extraterritorial effects of their measures on human rights, simply: "A contract is a contract". The solution to this collision between the contrat social and the contrat prive would lie in the establishment of a bankruptcy-like system for state reorganisation. Bankruptcy is in absolute harmony with the liberal theory of the market. This doctrine supports, coincidentally, the contrat prive and demands an insolvency mechanism in the domestic legal systems. It allows for the restructuring of market participants' liabilities when they are disproportionate to their income. Therefore, it is argued here that a sovereign debt market that fully respects liberal market theory would require a bankruptcy-type system to ensure human rights.