What Explains Sovereign Debt Litigation?

50 Pages Posted: 7 May 2015

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)

Henrik Enderlein

Hertie School

Date Written: April 29, 2015


We study the occurrence of holdout litigation in the context of sovereign defaults. The number of creditor lawsuits against foreign governments has strongly increased over the past decades, but there is a large variation across crisis events. Why are some defaults followed by a “run to the courthouse” and others not? What explains the general increase in lawsuits? We address these questions based on an economic model of litigation and a new dataset capturing the near-universe of cases filed against defaulting sovereigns. We find that creditors are more likely to litigate in large debt restructurings, when governments impose high losses (“haircuts”), and when the defaulting country is more vulnerable to litigation (open economies and those with a low legal capacity). We conclude that sovereign debt lawsuits can be predicted reasonably well with a simple framework from the law and economics literature.

Keywords: sovereign debt, sovereign default, legal disputes, creditor lawsuits

JEL Classification: F340

Suggested Citation

Schumacher, Julian and Trebesch, Christoph and Enderlein, Henrik, What Explains Sovereign Debt Litigation? (April 29, 2015). CESifo Working Paper Series No. 5319, Available at SSRN: https://ssrn.com/abstract=2603187 or http://dx.doi.org/10.2139/ssrn.2603187

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

Henrik Enderlein

Hertie School ( email )

Berlin, 30123

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