It is not enough to say, as the Frenchmen do, that their nation was taken by surprise. A nation, no more than a woman, is excused for the unguarded hour when the first adventurer who comes along can do violence to her. The riddle is not solved by such shifts, it is only formulated in other words. (1)
This volume contains the research and recollections of more than a dozen policymakers, market participants, lawyers, and academics, who both made and wrote the history of sovereign debt over the past four decades. They came together at a conference in late 2009--in retrospect, an innocent time when character actors like Iceland and Ecuador had the stage to themselves--on the eve of what would become the mother of all sovereign debt meltdowns in the Eurozone. The conference happened because Lee Buchheit taught us that we could not understand sovereign debt contracts, markets, or policies without knowing their history; he then prevailed upon us to gather the history-makers and history-writers together before memories faded. As always, his insight and timing were flawless.
Lee's career defines the modern legal history of sovereign debt. Just about every sovereign contract written since Mexico's 1982 debt moratorium contains a Buchheit innovation. He has been called the godfather, the guru, the patron saint--and occasionally, with grudging admiration, the evil genius--of the field. He always seems to know all the answers, and is equally gracious in sharing them with heads of state anxious to meet payment due dates, and graduate students crashing against paper deadlines. His disciples (ourselves included) now populate the practice, policy, and academic fields of sovereign debt the world over. Beyond his practice and service, Lee's vast body of academic writing dominates the literature, with good reason: his knowledge, foresight, and citation count are unsurpassed, and his prose makes LIBOR sing.
In this introductory essay, we will avoid the usual business of summarizing the distinguished contributions to this volume. Their authors have long been the leading voices of sovereign debt theory and practice; our purpose in the conference and the issue has been to let these voices be heard directly and in full, not in quoted snippets stitched into a unifying gimmick. Instead, we will praise them by attempting to apply their history lessons to the evolution of collective action clauses (CACs) from the 1995 crisis in Mexico to the 2010 crisis in Europe.
Our attempt is necessarily tentative: the European crisis is unfolding as we write, and its implications may not be fully known for years. However, to a remarkable extent--and bearing out Lee's predictions--Europe has revived the policy and theoretical riddles of crises long ago and far away. In particular, we focus on the triumphant return of CACs as the legal and policy fix for sovereign debt distress. Several articles in this issue explore CACs' first moment in the sun, as a response to the sovereign crises of the 1990s and 2000s. Today, we are told by politicians and academics alike that, if only debt contracts in the Eurozone could be revised to include CACs, debtors and creditors would swiftly come to share the burden of an "orderly debt restructuring," paving the way for politically sustainable economic growth.
Below we offer a brief tour of the modern history of CACs, which may temper such optimism. But even before we get to the history, it is worth noting a few puzzling aspects of today's CAC revival. First, most of the sovereign debt contracts at issue already contain either CACs or even more powerful legal tools to promote restructuring. To our knowledge, no policymaker has tried to use them, or even to examine them comprehensively to see whether they could be used. Second, in stark contrast to the 1990s and 2000s, no policy maker has identified a collective action problem for collective action clauses to solve in European sovereign debt. …