Max Planck Lecture Series: Prof. Ugo Panizza delivered the first lecture of the Max Planck Lecture Series on Sovereign Debt

19 October 2016
Prof. Ugo Panizza opened the Max Planck Lecture Series on Sovereign Debt. His lecture raised a stimulating discussion on the law and economics of sovereign debt and default.

On 5 October 2016, the MPI Luxembourg for Procedural Law launched the Max Planck Lecture Series on Sovereign Debt. The first lecture was delivered by Professor Ugo Panizza (Graduate Institute Geneva) with Professor Pierre-Henri Conac (University of Luxembourg) being the discussant.

Prof. Panizza’s lecture, “The Law and Economics of Sovereign Debt and Default”, laid down the economic foundations of sovereign debt. He started his two-part presentation raising the question why countries repay their debt and why creditors lend to them in the first place. Given the presence of weak legal mechanism for the enforcement of sovereign debt obligations, he argued (on the basis of the cost-benefit principle) that countries pay their debt only if the cost of not repaying is higher than the cost of paying. He went on to discuss the different costs of not repaying debt, including the threat of losing reputation or trustworthiness in the sovereign debt market for the recalcitrant country and the political costs for its policy makers.

In the second part of his presentation, Prof. Panizza discussed the need for a formal mechanism for sovereign debt restructuring. He argued that such a mechanism is desirable given the complex and protracted nature of sovereign debt restructuring processes under the status quo.

Prof. Pierre-Henri Conac commented on Prof. Panizza’s presentation from a legal perspective. He agreed with Prof. Panizza over the need for a formal mechanism for sovereign debt restructuring and provided several examples of the problems associated with the lack of such a system. He then raised the issues related to the form this mechanism should take, which the attendants of the lecture vibrantly discussed during a small reception afterwards.

The legal implications of sovereign debt and the issues related to reform proposals will be addressed in the upcoming lectures of the series.

For a picture gallery of the lecture, please click here.