The Problem of Holdout Creditors in Eurozone Sovereign Debt Restructurings

11 Pages Posted: 24 Jan 2013

See all articles by Lee C. Buchheit

Lee C. Buchheit

Center for Contract and Economic Organization

G. Mitu Gulati

Duke University School of Law

Ignacio Tirado

Universidad Autónoma de Madrid; European Banking Institute

Date Written: January 22, 2013


The Eurozone official sector has declared that the belated restructuring of Greek bonds held by private sector creditors in 2012 was a “unique and exceptional” event, never, ever to be repeated in any other Eurozone country. Maybe so. But if this assurance proves in time to be as fragile as the official sector’s prior pronouncements on the subject of “private sector involvement” in Eurozone sovereign debt problems, any future Eurozone debt restructuring will be surely plagued by the problem of non-participating creditors -- holdouts. Indeed, it is the undisguised fear of holdouts and the prospect of a messy, Argentine-style debt restructuring in the belly of Europe that has been one of the principal motivations for the official sector’s willingness to use its taxpayer money to repay, in full and on time, all of the private sector creditors of Eurozone countries receiving bailouts (the belated Greek restructuring being the sole exception).

This article argues that a simple amendment of the Treaty Establishing the European Stability Mechanism (the Eurozone’s new bailout facility) could immunize within the confines of the Eurozone the assets of a Eurozone country receiving ESM bailout assistance from attachment by litigious holdout creditors. By thus increasing the difficulties that holdouts would face in enforcing court judgments against a debtor country, the objective of the amendment is to deflate creditor expectations that staying out of an ESM-supported sovereign debt restructuring will lead to a preferential recovery for the holdouts.

This measure would also, when taken together with the other steps that the Eurozone has already implemented, substantially replicate the important features of the Sovereign Debt Restructuring Mechanism proposed by the IMF in 2002.

Suggested Citation

Buchheit, Lee C. and Gulati, Gaurang Mitu and Tirado, Ignacio, The Problem of Holdout Creditors in Eurozone Sovereign Debt Restructurings (January 22, 2013). Available at SSRN: or

Lee C. Buchheit (Contact Author)

Center for Contract and Economic Organization ( email )

New York, NY

Gaurang Mitu Gulati

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Ignacio Tirado

Universidad Autónoma de Madrid ( email )

Campus de Cantoblanco
Madrid, Madrid 28049

European Banking Institute ( email )


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