Legal Air Cover

41 Pages Posted: 11 Oct 2020

See all articles by Patrick Bolton

Patrick Bolton

Imperial College London; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Mitu Gulati

University of Virginia School of Law

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: October 4, 2020


The economic harm being caused by the novel coronavirus may soon result in multiple sovereign debtors moving into default territory. But the existing playbook for dealing with multi-sovereign emerging market debt crises is blank. The only debt crisis scenario we know is protracted country-by-country and contract-by-contract negotiated workouts. As of this writing, expert groups are working on the design of a mechanism to run multiple sovereign debt workouts simultaneously. Those designs, however, will take time to configure and get international buy-in. This paper sets forth some options to provide temporary legal protection to the debtor countries in the meantime; while they are in need of diverting resources toward COVID amelioration. This is the notion of "legal air cover". The options we propose involve ex post state intervention in debt contracts. They are extreme and may come with risks. But we show that in the case of Greece, when intervention such as we envision was necessary, there were no negative spillovers on periphery Eurozone debt markets associated with the Greek ex post modification of contract terms.

Keywords: Sovereign Debt, Restructuring, COVID-19, Sudden Stop, Greek Retrofit

JEL Classification: H12, H63, H74, H81, K12, K2, F34, G15

Suggested Citation

Bolton, Patrick and Gulati, Mitu and Panizza, Ugo, Legal Air Cover (October 4, 2020). Duke Law School Public Law & Legal Theory Series No. 2020-63, Available at SSRN: or

Patrick Bolton

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202


United Kingdom

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