Skip to main content
Unpublished Paper
New Financing, Market Stabilization, and Debt-Cutting Techniques in Sovereign Debt Restructurings: The European Perspective
ExpressO (2013)
  • matteo mazzoni

As of today there are two major models of sovereign debt restructuring. The first model is offered by the experiences of the Paris Club and the London Club. The second model is based on the active intervention, leadership, and financial support of international institutions, such as the IMF.

The recent experiences of sovereign debt restructurings in the Eurozone follow the second model. However, the first model has also been a source of inspiration. In particular, recourse to the practice of seeking solutions through negotiations has been made in the area of debt-cutting required from the private sector’s bondholders.

Notwithstanding the absence ex ante of a largely accepted uniform procedure as a framework for sovereign debt restructuring, the Greek debt was actually restructured without causing chaos or disruption. The high level of acceptance may be due to the fact that 90 percent of the targeted bonds were Greek-law bonds directly exposed to the pressure exerted by the change of the law under the Greek Bondholder Act (and insertion therein of CACs with substantially retroactive effect). The Greek experience may be a precedent that cannot be easily dismissed if the need for additional sovereign debt restructuring were to arise again in the Eurozone. However, this does not per se imply that the manner in which it was conducted was legally impeccable.

My conclusions, based also on an overview of the assistance programs for Ireland, Portugal, and Spain and the respective roles played by the IMF, the EU and the ECB, may be summarized as follows: (i) the enactment of laws introducing CACs with retroactive effect is likely to be constitutional in those European States—likely the majority— where the rights of bondholders are legally viewed as the rights of co-holders of a collective loan; (ii) the statutory introduction of retroactive CACs may however give rise to a breach of the international obligations that the enacting State has undertaken under an international treaty (e.g., bilateral investment treaty (BIT), if under such treaty the purchase of sovereign bonds by a resident of the other contracting State may be considered as a “foreign investment” entitled to treaty protection; (iii) from the standpoint of the general principles of international law (i.e., in situations where no treaty protection is or may be sought), a sovereign debt restructuring of the kind that was carried out in Greece is unlikely to be characterized in national courts (other than the courts of the restructuring sovereign) as a taking of property in violation of international law; and (iv) even if the restructuring were characterized as expropriatory on grounds of discrimination or gross unfairness to certain creditors, holdout creditors may still have to face a difficult obstacle: the deference that sovereign States are paid by foreign courts due to theories such as the Act of State Doctrine or its functional equivalents in international law.

Publication Date
July 18, 2013
Citation Information
matteo mazzoni. "New Financing, Market Stabilization, and Debt-Cutting Techniques in Sovereign Debt Restructurings: The European Perspective" ExpressO (2013)
Available at: