The Bitter End of Sovereign Debt Restructurings: The Abaclat v. Argentina Arbitration and the Eurozone Crisis

Abstract

Among the measures adopted to tackle the financial crisis in Europe, part of the sovereign debt of the Greek government was restructured in early 2012.The current Greek predicament bears a significant resemblance with Argentina's situation after the 2001 economic crisis. Its sovereign debt restructuring has been challenged before an investment arbitral tribunal by a group of Italian bondholders, who have thus far succeeded at the jurisdictional phase. The Abaclat and others v. Argentina case is the first International Centre for Settlement of Investment Disputes (ICSID) arbitration which deals with a sovereign debt workout. Albeit the award on the merits is still pending, the importance of the dispute cannot be overestimated. It signals a new forum bondholders could use, when they do not participate in an exchange, to still seek to obtain their interest and capital from the debtor State. This article aims at assessing the possibility of analogous developments for Greece, and potentially other Eurozone countries which might need to restructure their debt in the near future. To do so, it compares the historical unravelling of the crises in Argentina and in the Eurozone. It then offers a careful analysis of the recent arbitral decision in the Abaclat case. Finally, it evaluates the potential risks for the Eurozone and reviews several options for action at the European level.