On September 9 the UN General Assembly voted on a Resolution entitled “the Basic Principles on Sovereign Debt Restructuring Processes Resolution,” which envisaged a multilateral legal framework for sovereign debt restructuring.

The 193-member United Nations General Assembly voted by an overwhelming majority to adopt a multilateral legal framework for sovereign debt restructuring. The resolution drafted on behalf of a Group of 77  and China managed to gather 124 votes in favor of the Resolution, as opposed to barely 11 against.

Status Quo

There were essentially two camps. The first wanted to kill the Resolution, thereby maintaining the financial status quo, with some concessions. This overwhelmingly defeated camp was led by the United States and key EU member states, like Britain and Germany.

The bottom line rationale was that this Resolution in effect questions the authority of the International Monetary Fund in taking charge of sovereign debt restructuring processes. In the wake of the recent debt crisis in the euro-zone, the IMF wanted to promote a “reprofiling” mechanism.

The United States was relatively isolated. All BRICS voted against. All developing nations from Latin America, to Africa, and Southeast Asia voted against. The US was heartened somewhat by 41 abstentions, including traditional supporters such as New Zealand. But, in the end of the day, it stood with 11 nations, including Germany and Britain of course, but by any standard a poor show.

Revisionists

Emerging economies wanted to politicize the issue of sovereign debt, which they did. They wanted a human rights agenda, rather than a “bottom-line” market driven discussion. The “pro-cyclical” conditionality attached to IMF plans was therefore unacceptable: “pain or suffer.” Such programs were perceived by this camp as actually promoting the transformation of a liquidity crisis into a solvency crisis, as in the case of Greece.

In this context, since the IMF is a lender, meddling with the restructuring process was considered a “conflict of interest” and unwise. In making this claim, they were supported by a number of status quo challenging economists, including Thomas Piketty, James Galbraith, Heiner Flassbeck, Martin Guzman and, not least, Yianis Varoufakis.

For the EU the result was detrimental.

On September 7, the Council of the European Union stated that the EU was unequivocally against the Resolution, calling on its 28 member states to vote against it.

This call was ignored and EU member states were divided into two camps.

On the one side there were creditor nations, states with high stakes in the international financial system, or states strategically aligned with the financial status quo.  The United Kingdom and Germany, followed by Ireland, Finland, Hungary and the Czech Republic voted against the resolution.

On the other side there were nations fearing that their own position in the Eurozone is precarious or they were not inclined to defend the current status quo. Those nations abstained: Italy, France, Sweden, Switzerland, Netherlands, Spain, Greece, Norway, Portugal, Denmark, Austria, Bosnia and Herzegovina, Bulgaria, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Monaco, Montenegro, Serbia, Slovakia, Slovenia, Ukraine abstained.

The EU failed to act as a unitary actor and for good reason. The EU failed to lead its neighborhood and for good reason. The EU was not united.