Buenos Aires to Athens: The Road to Perdition
Three sovereign defaults in the past decade have each inflicted losses of at least 70% on bondholders: Argentina, Ecuador, and now Greece. In each case, creditor rights and the rule of law were trampled, setting troubling precedents that are worrying investors involved in vulnerable European countries. In Argentina (in default since 2002), numerous arbitrary measures were taken that damaged the interests of investors; the debt relief that was demanded bore little relation to the country's capacity to pay; and court judgments and arbitral awards against the sovereign have been routinely ignored. Ecuador (2008-2009) stands as the clearest example of sovereign unwillingness to pay. Investors were blindsided, bullied, and then sacrificed as part of a personal and ideological vendetta on President Correa's part. Investor confidence in Greece was destroyed by persistently negative attitudes coming out of Berlin. The huge losses imposed on creditors were based on questionable estimates and judgments, and various troubling, expedient means were used to achieve the dubious ends. Chances are that the road to perdition for investors will soon be extended to some other capital in Europe.
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- Juan J. Cruces & Christoph Trebesch, 2013.
"Sovereign Defaults: The Price of Haircuts,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 5(3), pages 85-117, July.
- Juan J. Cruces & Christoph Trebesch, 2011. "Sovereign Defaults: The Price of Haircuts," CESifo Working Paper Series 3604, CESifo Group Munich.
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- Arturo C. Porzecanski, 2005. "From Rogue Creditors to Rogue Debtors: Implications of Argentina's Default," International Finance 0510010, EconWPA.
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- Porzecanski, Arturo C., 2010. "When Bad Things Happen to Good Sovereign Debt Contracts: The Case of Ecuador," MPRA Paper 20857, University Library of Munich, Germany.
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