EVER since Argentina defaulted on $81 billion of debt in 2001, it has been thumbing its nose at its creditors. Those who rejected its offers in 2005 and 2010 to swap non-performing securities for new bonds worth much less have won a series of judgments in American courts ordering the country to pay. But Argentina had few assets in America that these "hold-outs" could seize. Recently, however, the creditors - led by Elliott Management, a New York-based hedge fund - have dramatically strengthened their position. On October 2nd port officials in Ghana detained an Argentine frigate. A local court had ordered them to hold the ship until Argentina paid a $20m bond to satisfy the investors" claim. The vessel remains anchored there today, though most of its sailors have departed. Later that month an appeals court in New York delivered an even harsher blow. It upheld a ruling by Thomas Griesa, a federal judge, that the pari passu clause in Argentine debt, which guarantees equal treatment for all creditors, meant that the government could not continue to service the bonds it issued in its debt restructuring unless it also paid the hold-outs. The decision left Argentina with a glimmer of hope. The appeals court asked Judge Griesa to determine how much the government would have to give the holdouts in order to stay current on its performing obligations. He could have required the country to cough up only a modest sum. However, the judge was incensed by Argentina's insistence that it would never surrender a cent to "vulture funds" - a capitulation it deems abhorrent. On November 21st he ruled that the country would have to deposit the hold-outs" total claim of $1.3 billion - full face value plus a decade of past due interest - into an escrow account if it wanted to keep paying the coupon on its restructured bonds. Moreover, he lifted a stay on enforcement of the order, meaning that Argentina would have to pay by December 15th to avoid a new default. And despite the pleadings of the Federal Reserve, he warned that any firm processing a banned payment could be legally liable for aiding a violation of the order. Argentina wasted little time in asking for the stay to be reinstated. On November 28th the appeals court granted its request, preventing the order from being implemented until the end of February. That will give the country time to argue against the judge's decision. It could claim that being required to deposit money held outside America violates its sovereign immunity. The appeals court might also reduce the amount Argentina has to pay upfront, or conclude that approving the order would cause too much damage to third parties. But the appeals court's previous decision suggests that the odds are still against Argentina prevailing. Barring a sharp legal reverse, the country will eventually be left with an unenviable choice: give in to the hold-outs, or stop paying bondholders in America. That would constitute default even if it offers to service the debt under local law. Since Cristina Fernández de Kirchner, Argentina's president, has already denounced the ruling as "judicial colonialism," there is little doubt that she would opt for the latter. Argentina has not issued debt abroad since 2001 so it has no market access to lose. A default would probably reduce the credit available to importers and exporters, but would not eliminate it entirely. And although Argentina's currency would presumably decline, its strict foreign-exchange controls would limit this effect. Predicting the impact on debt markets is rather harder. Most sovereign bonds issued in the past decade include "collective-action clauses," which impose the terms of a restructuring on all creditors if a supermajority of bondholders accepts. Some include "aggregation" rules, which apply such mechanisms across different yields and maturities. Such terms are likely to become more common. And future debtors will surely pay more attention to the wording of their pari passu guarantees than Argentina did - or try to leave them out. Even in the case of bonds as legally vulnerable as Argentina's, creditors have no guarantee that Judge Griesa's ruling will be repeated. The courts might decide his blunt enforcement mechanism is only appropriate in extreme cases like Argentina's. Investors have not yet shown concern: the interest rates on other dodgy Latin American sovereign debt, such as Venezuela's or Ecuador's, have barely budged. However, Judge Griesa's critics warn that his ruling could make all debt riskier. A promise to pay used to be legally inviolable. Now it can be derailed by a pari passu claim from another creditor. Moreover, the possibility, however remote, of getting a ruling prohibiting payments to other bondholders will certainly make holding out from a restructuring more attractive than it was before.