Risks of Lending and Liability of Lenders‪.‬

Like any other market, credit markets depend on functioning economic mechanisms and a framework predefining the rights and duties of market participants. They could not function without these. Within this framework both debtors and creditors have rights and duties and are subject to risk. So far, discussions on sovereign debts have focused on debtor duties, virtually disregarding those of lenders--though there is no reason why this one kind of debts should exempt lenders from any responsibility. The anomaly of shifting all responsibilities onto debtors, unique to Southern sovereign debt, encourages economically and ethically wrong behavior--and makes focusing on lender responsibilities mandatory. Although pacta sunt servanda ("pacts must be respected") is a fundamental legal, economic, and ethical principle, all legal systems recognize circumstances where contractual rights can no longer be enforced, or indeed cease to exist. It is well known, not least from credit relations, that any legal system protects contracts only if both sides have complied with their legal duties. Lenders, for example, have a duty of care. They have to observe professional standards, or make checks, such as whether persons signing for legal entities have the authority to do so. Tortious or illegal behavior makes them liable to compensate for damages, and may void contracts. Guaranteeing human rights enjoys preference over perfectly legal claims and might make them unenforceable, thus overruling pacta sunt servanda--except when the borrower is a developing country.