Hedge funds with large amounts of Greek debt are reportedly planning to take the government to the European Court of Human Rights in an attempt to prevent Athens from forcing huge losses upon them.
The funds have baulked at the idea of negotiating a settlement with the indebted country. Now, in a move likely to anger millions of Greeks facing austerity measures, fund managers are considering a fight against what they believe would be a violation of human rights law, arguing that their rights to property would be infringed by a write-down of Greek debt.
With Germany and the International Monetary Fund insisting that only a deal to write off much of Greece's debt can turn around its economy, Athens has been told it needs to secure an agreement before it receives the next tranche of its €130bn bailout.
Talks between the Greek government and representatives of bondholders re-opened yesterday. With negotiations still showing little sign of progress, Prime Minister Lucas Papademos has signalled he will seek to pass a law to push through the restructuring if no voluntary agreement is reached.
But after one bondholder, Vega Asset Management, wrote to investors in December to outline the option of suing Greece, the New York Times reported that others were following suit. In the Vega letter, published by the Financial Times last month, one executive, Jesús Sáa Requejo, said: "Vega needs to start considering all available legal options to refuse and challenge any exchange that implies a [net present value] loss of more than 50 per cent."
The hedge funds' legal argument would be that the contracts they entered into when buying bonds cannot be changed retroactively. But any challenge on that basis could take years to work its way through the courts; legal challenges to the restructuring of Argentinian debt in 2002 are still being pursued now. "One of the problems with the talks is that half of the people holding Greek debt aren't at the table," said Louise Cooper, a markets analyst at BCG Partners. "Nobody is prepared to do what is required, so they keep playing these silly games."