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Sovereign defaults in court

Author

Listed:
  • Schumacher, Julian
  • Trebesch, Christoph
  • Enderlein, Henrik
Abstract
For centuries, defaulting governments were immune from legal action by foreign creditors. This paper shows that this is no longer the case. Building a dataset covering four decades, we find that creditor lawsuits have become an increasingly common feature of sovereign debt markets. The legal developments have strengthened the hands of creditors and raised the cost of default for debtors. We show that legal disputes in the US and the UK disrupt government access to international capital markets, as foreign courts can impose a financial embargo on sovereigns. The findings are consistent with theoretical models with creditor sanctions and suggest that sovereign debt is becoming more enforceable. We discuss how the threat of litigation affects debt management, government willingness to pay, and the resolution of debt crises. JEL Classification: F34, G15, H63, K22

Suggested Citation

  • Schumacher, Julian & Trebesch, Christoph & Enderlein, Henrik, 2018. "Sovereign defaults in court," Working Paper Series 2135, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20182135
    Note: 2604030
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    More about this item

    Keywords

    debt restructuring regime; enforcement; government financing; sovereign default;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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