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Sovereign Defaults in Court

Julian Schumacher

Free University of Berlin (FUB)

Christoph Trebesch

Ludwig Maximilian University of Munich; CESifo (Center for Economic Studies and Ifo Institute)

Henrik Enderlein

Hertie School of Governance and Harvard University

May 6, 2014

Sovereign debt is widely regarded as non-enforceable and immune from legal action. This paper takes a different perspective and builds a comprehensive new dataset on creditor lawsuits filed against defaulting sovereigns since 1976. The data show a drastic rise of sovereign debt litigation. In recent years, almost 50% of sovereign defaults involved legal disputes abroad, compared to just 5% in the 1980s. Our case studies and econometric results also indicate significant externalities outside the courtroom: litigation is associated with (i) a loss of access to international capital markets, (ii) a decline in international trade, and (iii) delays in crisis resolution. We conclude that the legal consequences of sovereign defaults are much greater than commonly thought. This is consistent with theoretical models with sanctions and creditor retaliation.

Number of Pages in PDF File: 57

Keywords: Sovereign Debt, Litigation, Creditor Rights, Debt Enforcement

JEL Classification: F34, H63, K12

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Date posted: December 16, 2012 ; Last revised: May 7, 2014

Suggested Citation

Schumacher, Julian and Trebesch, Christoph and Enderlein, Henrik, Sovereign Defaults in Court (May 6, 2014). Available at SSRN: http://ssrn.com/abstract=2189997 or http://dx.doi.org/10.2139/ssrn.2189997

Contact Information

Julian Schumacher
Free University of Berlin (FUB) ( email )
Kaiserswerther Str. 16-18
Berlin, Berlin 14195
HOME PAGE: http://https://sites.google.com/site/julianschumacher12/
Christoph Trebesch (Contact Author)
Ludwig Maximilian University of Munich ( email )
Schackstr. 4
Munich, 80539
HOME PAGE: http://https://sites.google.com/site/christophtrebesch/
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679

Henrik Enderlein
Hertie School of Governance and Harvard University ( email )
Schlossplatz 1
Berlin, 10178
Feedback to SSRN

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References:  34
Citations:  2
Footnotes:  39

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