Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy s chronically large sovereign debt.

But, this time, the default has been triggered by a significant shift in the international sovereign debt regime.

The eurozone sovereign debt crisis appears to have been the worst managed financial crisis since Argentina s default in 2001.

In 2007, Spain and Ireland were models of fiscal rectitude, with far lower debt to GDP ratios than Germany had. Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy s chronically large sovereign debt.

The economists Carmen Reinhart and Kenneth Rogoff have studied centuries of sovereign debt crises, and remind us that today s developed world has a forgotten history of sovereign default.

The Root of All Sovereign Debt Crises

A New Approach to Eurozone Sovereign Debt

CAMBRIDGE Greece will default on its national debt.

As for Europe, the Kirchner s have not yet paid off Argentina s debt pending since the default to the Paris Club of sovereign creditors.

Absent external assistance and a credible plan for restoring fiscal order, Greek sovereign debt could not be rolled over, forcing a default, probably in the form of a restructuring of Greek debt.

This means no cross border sovereign debt (or esoteric instruments, such as collateralized debt obligations).

But, for the most part, the sovereign default process is slow motion Kabuki theater.

Financial markets have reacted so strongly because investors now comprehend that sovereign debt is the debt of a sovereign that can simply decide not to pay.

Sovereign debt was eventually restructured through the creation of Brady bonds.

Greek sovereign debt has been downgraded to below that of Egypt.

Virtually every emerging market country has experienced recurrent sovereign debt problems.

The eurozone sovereign debt crisis appears to have been the worst managed financial crisis since Argentina s default in 2001. The European Union and eurozone leaders have seriously discredited themselves.

Can Greece, with the EFSF s help, obtain debt relief while avoiding default?

Can Greece, with the EFSF s help, obtain debt relief while avoiding default?

Currently, they are wrestling with widening sovereign debt problems and high unemployment.

In Europe, risks spreads are rising on Italian and Spanish sovereign debt.

With the onset of the European sovereign debt crisis in 2010, banks appetite for public debt fell again.

And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.

The Germans should recall the last episode of widespread sovereign default Latin America in the 1970 s.

Will the European Union s sovereign debt woes spread to neighbors such as Turkey?

Eurozone sovereign debt turned out not to be homogenous with respect to risk.

And how often do we hear about sovereign restructurings of local currency debt?

Absent external assistance and a credible plan for restoring fiscal order, Greek sovereign debt could not be rolled over, forcing a default, probably in the form of a restructuring of Greek debt. Even with external assistance, many view default as a near certainty, because the arithmetic of restoring fiscal balance is so daunting.

What Europe and the IMF have essentially done is to convert a private debt problem into a sovereign debt problem.

Nonetheless, Argentina s latest debt trauma shows that the global system for sovereign debt workouts remains badly in need of repair.

Have the Europeans decided that sovereign default is easier, or are they just dreaming that it won t happen?

That is why every debt crisis, sooner or later, ends in restructuring or default.

ROME The euro contagion triggered by Greece s sovereign debt crisis has now infected Italy.

In mid July 2011, Greece s sovereign debt stood at 350 billion (160 of GDP).

And it probably would require that the EU be able to issue sovereign debt.

Sovereign debt has been a major feature of the international financial system for centuries.

There, too, governments widely guaranteed private sector debt, and then proceeded to default on it.

The most recent threat of a US debt default has been avoided, but only temporarily.

Of course, some believe that the Fed s mass purchases of US debt poses an even bigger risk than Europe s sovereign debt crisis.

More broadly, the ECB s marginal lending facility is an indirect means of monetizing sovereign debt.

The financial and economic crisis is morphing into a sovereign debt crisis in advanced countries.

But the US crisis suggests that political union is no panacea for managing sovereign debt.

Europe's monetary union has been badly undermined by a sovereign debt crisis in past months.

Or it could be a soft default in which Greece unilaterally services its existing debt with new debt rather than paying in cash.

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