Sovereign Default

Governments can default for several reasons: large debts relative to their economy, a collapse in revenues, rising interest costs, inability to borrow new money, a currency crisis or political choices. Default may be outright, with payments stopped, or achieved through a restructuring that reduces what creditors receive.

Well-known examples include Argentina in 2001, Greece's debt restructuring in 2012, which imposed large losses on private bondholders, and Russia in 1998. Several countries have defaulted more than once.

For example, when a government defaults, holders of its bonds may see the value of their investments fall sharply, and the country may lose access to international borrowing for years.

Unlike companies, governments cannot be forced into bankruptcy and liquidated, so defaults are usually resolved through negotiation. Consequences can include higher future borrowing costs, banking crises, currency collapse and recession. Credit rating agencies assign default ratings when a sovereign misses payments or imposes distressed restructurings.