Reconciling the Irreconcilable? Sovereign Debt Restructuring and the Principles of International Law. A Law and Economics Perspective

This Thesis focuses on the principles of international law relevant to the resolution of legal disputes arising from sovereign insolvency conflicts. It attempts to contribute to the “incremental” approach literature by identifying principles, justifying their application in litigation and assessing whether they may help to reconcile the trade-offs prevalent in that context. For that purpose, this Thesis distinguishes between two different types of principles. First, it investigates the “Principles of Public International Law” (henceforth, “PIL principles”). Said category refers to norms of the law of nations which can be considered functionally and structurally similar to domestic constitutional principles (i.e., that can be regarded as “optimization” or “prima facie” requirements). This Thesis underscores the PIL principles protecting the interests of the creditors and citizens as well as the “public interest”, arguing that decision makers face a trade-off between these principles in the context of restructurings. Secondly, this Thesis inquires into the “general principles of domestic law” (henceforth, “GPDs”) which can be applied in sovereign debt restructuring. Two GPDs are identified: a “stay” on litigation and a “cram down” on dissenting creditors’ claims. Although both principles have been identified by the prior literature, this work advances a small but significant “twist” in the methodology used for that purpose: it relies exclusively on functional and comparative analysis. Moreover, this work justifies the application of said GPDs for two jurisdictions: New York and Germany. Finally, it posits that those GPDs can help to mitigate the trade-offs between PIL principles, thus reconciling the interests at stake.