Sovereign debt and international law : Or on the intricacies of theory and practice

Abstract

Events of historic proportions often feel anti-climactic. In March 2012, Greece, a developed capitalist state and a member of the Eurozone, engaged in the biggest debt restructuring venture to date, covering 200 billion euros (260 billion USD) and reducing the private debt burden by over 50%. The exchange was not purely voluntary, since the majority of bonds were subjected to Greek law and an amendment made the offer compulsory for all holders of such bonds, subject to approval by creditors holding two-thirds of outstanding principal. The triggering of these Collective Action Clauses (CACs) led the Determinations Committee of the International Swaps and Derivatives Association (ISDA) to declare a ‘credit event’. Even though official pronouncements carefully avoided the word, much of the press and relevant literature saw this as the biggest default to date and at the same time as a confirmation of the unthinkable: EU member states could now default. Despite fears for immediate and uncontrollable contagion, the ‘credit event’ did not spread to other unstable economies of the European South, such as Portugal, Spain or Italy. After a brief period of optimism and successive years of harsh austerity the Greek sovereign debt stands at 176,9% of the GDP , while the Italian sovereign debt exceeds 132% of the GDP and Portugal’s is just below 130%. The Eurozone might not have exploded (yet), but perceptions that the sovereign debt crisis was resolved, or that it is a uniquely Greek problem, appear distinctly misplaced. In this respect, the special edition of the Yale Journal of International Law on sovereign debt curated by Juan Pablo Bohoslavsky and Matthias Goldmann, is a highly topical and relevant intervention that approaches an urgent issue of global political economy from an international legal perspective and articulates specific – if incremental – proposals for the application of general principles of international law to sovereign debt restructuring. Show more