57 Pages Posted: 16 Dec 2012 Last revised: 7 May 2014
Date Written: 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.
Keywords: Sovereign Debt, Litigation, Creditor Rights, Debt Enforcement
JEL Classification: F34, H63, K12
Suggested Citation: Suggested Citation
Schumacher, Julian and Trebesch, Christoph and Enderlein, Henrik, Sovereign Defaults in Court (May 6, 2014). Available at SSRN: https://ssrn.com/abstract=2189997 or http://dx.doi.org/10.2139/ssrn.2189997