Research Handbooks in Financial Law series
Edited by Phoebus Athanassiou
Chapter 13: Sovereign Default Risks in the Economic and Monetary Union and the Role of Vulture Funds
Peter Yeoh* INTRODUCTION The concept of ‘sovereign debt default risk’ refers to the probability that a sovereign government may be unable or unwilling to repay its public debt on schedule. The earlier international bank syndicated loans,1 popular amongst sovereign states for the financing of their liabilities have, since the late 1980s, given their place to sovereign (‘Brady’) bonds,2 created to overcome some of the more troublesome features that consortium lending packages posed for sovereign creditors. The popularity of sovereign bonds as a means of financing public debt has to a large extent been facilitated by the sovereign debt credit ratings issued by the three global credit rating agencies (CRAs), representing the summary evaluation of the ability and willingness of sovereign governments to settle their public debt on time and functioning as indicators of the probability of their default. Investors have generally associated the risk of sovereign default with emerging economies. Sovereign debt defaults have, after all, largely occurred in Latin American, Asian or other transition economies. The threat of an advanced economy’s default did not become apparent until the emergence of the Icelandic, Dubai and Greek crises. Insights into the reasons why those economies have faced sovereign debt default risks are important for academics, investors, policy makers and the general public alike. This chapter examines some of the reasons for this unusual phenomenon, inquiring into the role that vulture funds may have played in bringing about (or exacerbating) the risk of sovereign default in some of * Phd, LLM,...
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