Sovereign Defaults in Court

75 Pages Posted: 8 May 2018

See all articles by Julian Schumacher

Julian Schumacher

European Central Bank (ECB)

Christoph Trebesch

Kiel Institute for the World Economy; Centre for Economic Policy Research (CEPR)

Enderlein Henrik

Hertie School of Governance

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Date Written: March 08, 2018


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.

Keywords: sovereign default, enforcement, government financing, debt restructuring

JEL Classification: F340, G150, H630, K220

Suggested Citation

Schumacher, Julian and Trebesch, Christoph and Henrik, Enderlein, Sovereign Defaults in Court (March 08, 2018). CESifo Working Paper Series No. 6931, Available at SSRN: or

Julian Schumacher

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Christoph Trebesch (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Enderlein Henrik

Hertie School of Governance ( email )

Schlossplatz 1
Berlin, 10178

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