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Sovereign defaults in court

Julian Schumacher, Christoph Trebesch () and Henrik Enderlein

No 2135, Working Paper Series from European Central Bank

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

Keywords: debt restructuring regime; enforcement; government financing; sovereign default (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2018-02
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Related works:
Working Paper: Sovereign Defaults in Court (2018) Downloads
Working Paper: Sovereign Defaults in Court (2018) Downloads
Working Paper: Sovereign defaults in court (2018) Downloads
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