What if the sovereign decides it does not want to use the CACs to do the restructuring? That the CAC is too constraining? For example, what if it wished to engineer the restructuring by imposing a unilateral withholding tax on payments due on the bonds? Or by redenominating the currency? (The list of Reserved Matters in the Euro CACs includes some provisions that might be interpreted to forbid such acts, but we do not think that is the only way to interpret the bonds.) If we stipulate that the CACs themselves do not prevent such restructuring techniques, then it seems to us that the treaty may contain a significant new limitation—i.e., forbidding any technique that does not use the CAC or the treaty's voting procedures. If so, this is a big deal.

But is that really the effect of the treaty? To think this through, let’s consider the effect of the treaty on the no-CAC bonds (e.g., pre-Jan 1, 2013 Euro area sovereign issuances under local law). The definition of "negotiated restructuring" is quite ambiguous.