The public debt crisis that Eurozone countries have experienced since 2010 has been accompanied
by a resurgence of sovereign risk. Greece was obliged to restructure its debt in 2012. The
credit position of even the wealthy countries is shakier than at any time since the Great
Depression. Now more than ever it is essential to understand sovereign risk because the default
of a country or even its lack of credibility is bound to jeopardize political stability and
weaken the credit standing of all other economic actors. This book reviews and analyzes the
different means used to forestall and protect against sovereign defaults. In light of the
Eurozone's 2010-2012 sovereign debt crisis this book also emphasizes the roots of sovereign
creditworthiness. Chapter 1 establishes a typology of sovereign defaults. A sovereign
bankruptcy may take many forms (debt repudiation moratorium restructuring etc.). Chapter 2
presents the different contractual and legal tools used to protect against sovereign defaults.
Chapter 3 investigates how some investors have been able to interfere with the debtor's
economic policy by insisting that measures be taken to reduce the risk of default in the short
and medium term. Such interference can be direct or may be more subtle. There is a specific
focus on the conditionality imposed by the International Monetary Fund. Chapter 4 studies the
various tools that investors can use to discriminate among borrowers and forecast debt crises
(bond yields and spreads as well as ratings provided by Fitch Moody's Standard & Poor's and
Euromoney Country Risk). Chapter 4 also demonstrates that sovereign debtors must overcome seven
types of risk in order to preserve their creditworthiness: natural disaster geopolitical risk
institutional and political risk economic risk monetary and exchange rate risk fiscal and
tax-system risk and debt-related risk.
