The powers that be. Which is going to include a combination of EU-level and local mechanisms and some of the creditors. A little known story about Greek restructuring (that the ECB vowed will never be repeated):
In comparison with debt restructurings for emerging market sovereigns, Eurozone countries will enjoy some significant advantages. By far the most important will be the local law advantage. The debt stocks of many Eurozone countries are in large part governed by the law of the debtor country. No emerging market sovereign borrower has ever enjoyed this advantage. Debt instruments governed by the sovereign's own law allow the local legislature to change the law in ways that can facilitate the restructuring of those instruments.
This is precisely what the Greek Parliament did in 2012 to minimize the number of holdout creditors in the Greek debt restructuring. Parliament enacted what amounted to a class voting mechanism covering all Greek law‐governed GGBs (representing roughly 93 per cent of the total debt stock). That mechanism specified that if holders of two‐thirds of the Greek law‐governed GGBs approved a restructuring proposal, the result would bind all holders of those bonds
And the Greek state was sued everywhere where that could be challenged, ECJ, ICSID etc. But won everywhere!
The validity of this action by the Greek Parliament was subsequently challenged in lawsuits in Greek, German and Austrian courts, in a major International Centre for Settlement of Investment Disputes (ICSID) arbitration, and in a complaint filed with the European Court of Human Rights (Grund, 2017). None of these legal challenges to the validity of Parliament's action has succeeded.
The most important of these precedents for future sovereign debt restructurings in Europe is likely to be the June 2016 decision of the European Court of Human Rights in a case captioned Mamatas and Others v. Hellenic Republic. [...] The lessons that may be drawn from the Mamatas precedent for any future debt restructuring by a Eurozone member are:
- Only a severe financial crisis will justify an extraordinary action such as a legislatively‐imposed class voting mechanism.
- The member concerned would be well advised to follow the Greek path of allowing a supermajority of affected creditors to control the process, rather than attempt a direct legislative write down of the debts.
- Using a debt restructuring technique that resembles the operation of the now‐mandatory collective action clauses in Eurozone sovereign bonds will help deflect a claim that creditor expectations have been traumatized.
Now more recently (2018) there have been more organized attempts to have the ESM play an official role
Ten European Union finance ministers want any unsustainable public debt in the euro zone to undergo restructuring, with losses imposed on the private sector, before a public bailout is organized, a joint position paper by the 10 ministers said.
The paper was drafted for a meeting on Monday of all EU finance ministers except Britain’s, which will be devoted to changes to the euro zone bailout fund. It was signed by the Czech Republic, Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands, Sweden and Slovakia. Although it did not sign, Germany, the euro zone’s biggest economy, is of the same opinion and Austria is also sympathetic.
The 19 countries that share the euro have a bailout fund, the European Stability Mechanism (ESM), which is a lender of last resort to governments that have lost market access. [...]
the 10 ministers also called for the ESM’s role in debt restructuring to be spelled out more clearly.