1. What is the risk if a counter-party is located in an exiting member state?
If a counter-party is incorporated or located in a member state which exits the Eurozone, that counter-party may have difficulty meeting payment obligations to creditors, because of its own solvency problems following a fall in value of its assets or because of difficulty making payments due to capital control restrictions. If the counter-party is incorporated or based in a member state it is also more likely that any payment obligations of such counter-party will be redenominated into the new local currency of the exiting member state due to legislation passed at the time of such exit or because local insolvency proceedings are brought in the member state. For further detail see Redenomination risk.
2. What is the risk if the counter-party is also a sovereign entity?
If a counter-party is also a sovereign entity there may be an increased risk of a euro denominated contract being redenominated into a local currency. It may also be harder to challenge actions of a sovereign state because of sovereign immunity. For further detail see Sovereign Immunity risk section.
