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Sovereign Defaults in Court

57 Pages Posted: 16 Dec 2012 Last revised: 7 May 2014

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

Date Written: May 6, 2014

Abstract

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

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

Julian Schumacher

Free University of Berlin (FUB) ( email )

Kaiserswerther Str. 16-18
Berlin, Berlin 14195
Germany

HOME PAGE: http://https://sites.google.com/site/julianschumacher12/

Christoph Trebesch (Contact Author)

Ludwig Maximilian University of Munich ( email )

Schackstr. 4
Munich, 80539
Germany

HOME PAGE: http://https://sites.google.com/site/christophtrebesch/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Henrik Enderlein

Hertie School of Governance and Harvard University ( email )

Schlossplatz 1
Berlin, 10178
Germany

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