Against All Debts? Solutions for Future Sovereign Defaults REGINA BERNHARD/CHRISTIAN KELLERMANN Fragile Global Debt Situation Sovereign debts and debt crises have been a major topic for international policy-makers for quite some time. This policy issue came to the fore with the debt crisis in Latin America in the 1980s; it was reinforced during the Asian crisis in the late 1990s and put on the official agenda after some spectacular sovereign defaults, such as the Argentina crisis at the begin­ning of the twenty-first century. In the wake of the Argentina crisis there was considerable pressure to install some kind of formal mechanism for dealing with sovereign defaults. But corresponding regulatory innova­tions remained weak due to opposition from the us administration, pow­erful financial market actors, and emerging market representatives. Today, the global credit system is again in a state of instability, al­though the situation is somewhat different from the circumstances ten years ago. Current instability is mainly associated with the credit crisis following the»subprime shockwave« on the us housing market. Other critical factors are large global imbalances between capital exporters and importers and possible spillover effects of the credit crunch on emerging markets, in particular because emerging markets are to some extent facing different financing situations( imf 2007): some emerging market coun­tries have been able to cut back external sovereign debt as a consequence of rising oil revenues, while others have increasingly converted external debt into domestic debt denominated in local currency, making them less vulnerable to external shocks. In any case, neither strategy is»bulletproof« and sovereign debt crises – not only, but above all in emerging markets – are still possible. While this is well known, there is still no international consensus on how to establish an orderly and transparent restructuring mechanism. But systemic proneness to debt crises shows that a solution is urgently re­quired. The difficult question is: when sovereign debt restructuring be­comes necessary and unavoidable, what regime would provide orderly 116 Bernhard/Kellermann, Debt Restructuring ipg 1/2008