Argentina's debt default imposed by US Judge Thomas Griesa and his earlier court rulings in favour of vulture funds NML Capital and Aurelius, will have enormous ramifications for the global debt system. The ruling effectively declares that the rights of a handful of wealthy investors to earn enormous profits supersede those of a sovereign nation to protect its citizens under international law.

The decision has also set a legal precedent: Now that investment funds know that they can successfully appeal to the courts to claim millions of dollars in profits on their original outlay, any incentive they once had to restructure the value of their bonds following debt defaults has now been removed.

This will not only drain the already depleted treasuries of indebted nations, it will also create far-reaching instability in the global financial system, as the IMF has warned. However, the damage caused by a lack of regulation of speculation is not a concern for only poorer nations. Indeed, vulture fund activity has recently intensified closer to home with Aurelius' investment in the UK's Cooperative Bank having forced it to abandon its mutual structure in 2013, and Elliot Management's CEO Paul Singer squeezing huge payments from the Greek government during the eurozone crisis by threatening to create a mass default of banks across Europe.

An unregulated debt system for and vultures

Yet while citizen groups like Jubilee Debt Campaign have successfully encouraged the British Parliament to approve a landmark law that restricts vulture funds from suing the poorest countries in UK courts, the current rules of international financial capitalism remain massively stacked against those nations.

The vultures' growing lobbying power over elected representatives and the media mean that their potential to inflict political damage upon opponents leaves ever-fewer regulatory checks and balances available.

Neither President Barack Obama nor the United States Congress has shown the political will to introduce similar legislation. Recently the US State Department refused to accept Argentina's lawsuit against it at the International Court of Justice for violating its sovereignty, illustrating the futility of existing global governance institutions.

As the burden of national debts continue to impede growth, development, and poverty alleviation in the world's poorer countries, they remain trapped in a historical cycle of dependence upon the institutions of western financial capital, like the IMF, the Paris Club, and hedge funds - which also locks them into a politically subservient relationship with G8 countries.

Yet in terms of how national governments in Africa, Asia, and Latin America might seek the necessary finance to pay their bills while also upholding their central role as health, education and, social protection providers, many have learned lessons from the irrevocable damage created by these western lenders' 1990s free market conditionality. They refuse to go back.

A challenge to western financial hegemony

However there are two emerging avenues which may end this relationship of dependence and provide new-found economic sovereignty for such countries:

The first - favoured by many left-leaning Latin American "pink-tide" governments - involves significantly reducing reliance on western lenders by pursuing alternative and ostensibly less-harmful sources of finance. This politically expedient move has gained credence following last month's foundation of the New Development Bank by the BRICS nations (Brazil, Russia, India, China, and South Africa), as well as favourable lending terms from the regional Americas fund BancoSur and, most importantly, the increasingly influential role in global finance of the People's Bank of China.

However, there are two problems with this strategy. On the one hand, as China asserts its political and economic authority in the Global South through foreign direct investment, bilateral trade deals, and loans, it presents the danger of repeating old relationships of dependence. On the other, this option will do nothing to help countries like Jamaica, Pakistan, El Salvador, Philippines, and Tunisia to escape from historical debt burdens. With developing countries' total outstanding external debt having doubled to $5 trillion since 2005, the system will keep generating debt crises regardless of who plays neoliberalism's "banker". Without fundamental change in the rules of the game, even those countries like Ghana, which initially benefited most from debt cancellation in 2005, are heading back towards high debt payments.

But a second, more congenial option exists: Press for the establishment of an International Debt Court under United Nations auspices, with a specific brief to regulate against harmful speculative practises committed against states and conduct public audits to determine the amount of debt in each country that can be deemed "illegitimate" due to the illicit actions mentioned above. In this way, a large proportion of national debts could be legally written off, ushering in a new era of economic emancipation for the vast majority of the world's population.

Striking debt illegitimacy while the iron is hot

But how realistic is this possibility? To start with, it is important to highlight the unprecedented groundswell of global solidarity for Argentina against the vulture funds. This includes support from the 134 nations in the G77+China - which affirmed the right of sovereign states to negotiate debt-restructuring efforts - as well as the BRICS, the Union of South American Nations, and a plethora of internationally respected economists, politicians, and NGOs. This momentum must be seized upon to openly challenge the legitimacy and indeed legality of both external debts themselves and subsequent speculative investments made in them on the table of casino capitalism.

Indeed in Argentina's case, debt origins can be traced to the brutal military dictatorship of the 1970s and 1980s. Accrued unconstitutionally and immorally by a genocidal regime that "disappeared" 30,000 of its own citizens, Judge Jorge Ballesteros' ruling in the Olmos Case in 2000 found the debt to be "fraudulent and arbitrary", having been accumulated following 400 separate corrupt, fraudulent and illegitimate acts. The basic legal principle is that no illicit action can later serve as the basis for a legal act such as NML and Aurelius' bond purchases. On that premise, all the successor debt falls, nullifying the value of investments made in it including the vulture funds' bond purchases after Argentina's 2001 economic crisis.

Then there is the fact that several countries have already performed public debt audits and have not only survived, but boast thriving economies today. For example in 2008 Ecuador's President Correa established a Commission which found 70 percent of its debt to be illegitimate. Through partial default and selective buyback, the country's debt burden was slashed by $3bn. It currently stands as one of the fastest-growing economies in the region. In Iceland, people voted to refuse to take on their banks' foreign debts and have gained immensely, with the economy booming and unemployment down to 2 percent. Meanwhile in France, a citizen's audit found 60 percent of its public debt to be illegitimate. Public debt audits are feasible and refusing to pay does not mean financial Armageddon, especially if conducted by a supranational authority.

Then there is the matter of whether the world's leading countries would agree to such an arrangement. Here one can look to the World Bank's international investor dispute regulator, the International Centre for Settlement of Investment Distputes, and the International Criminal Court, which both operate successfully in the absence of full ratification by major global powers. In the latter instance, half of the world's nations, including the US and China, are not party to the treaty acknowledging its authority. Growing public support in the Global North for an international debt court would surely soon force the remaining G20 nations to join.

Finally one must ask whether the "losses" incurred by such debt right-offs would strain the existing financial system. Despite normative assessments about the desirability of such a scenario, nothing could be further from the truth. The hedge and private equity funds which have speculated on such debts are not shareholder companies. Losses would thus be largely confined to multimillionaire fund executives, while the global benefits of growth, job creation, poverty reduction, and wealth redistribution that result from debt burdens being vanquished once and for all would be truly unimaginable. Establishing such a court is worth a try. The people of the world have nothing to lose but their (debt) chains.

Daniel Ozarow is a lecturer at the Middlesex University Business School and focuses on how the "new poor" respond to economic shocks and downward social mobility, taking Argentina as a case study. He is also a Coordinator at the Argentina Research Network in the United Kingdom.