Debt involves an obligation to repay the creditor, principal plus interest. But how does one oblige a sovereign state to honour its debt obligations? While creditors can bring defaulting private borrowers before a court and lay claim to their income and assets in order to compensate for default losses, sovereigns are not so easily summoned. In the absence of a supranational authority to enforce repayment of sovereign debt, and without legal means to seize a sovereign debtor's assets, why don't sovereign borrowers just repudiate their loans and default? Recognizing this hazard, historically creditors have attempted to enforce their claims using armed and naval force via gunboat diplomacy. But even this practice could backfire.
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