This is clearly an important political issue in Argentina and concessions won’t come easy. But the country can’t be locked out of the international financial system forever—its economy is in trouble, with 30% inflation, foreign exchange problems and citizens yelling at ministers.

The appeals court has a problem, too. Technically, it is trying to uphold the lower court’s ruling, which entitles the hold-outs to the full face value of their bonds— a decision many think was wrong. But if Argentina’s response to being told to pay full value is to default instead, then, as Felix Salmon puts it, that “could wind up being just as bad for the Southern District [the New York judicial district where the case is being heard], and for New York’s status as an international financial capital,” because it would mean that Argentina can simply ignore the courts’ judgments.

That’s why the appeals court has given Argentina a final chance to come up with a payment plan. And therein lies the ambiguity.

Some experts see the court’s request as a signal that it would force the hold-outs to accept less than face value on their bonds if Argentina offered a such a restructuring. If so, it would be the makings of a sovereign bankruptcy court in New York, which would be rather revolutionary. Right now when a government defaults, there’s no set process for reaching a compromise between the government and its creditors, the way there is if a company goes bankrupt. It becomes a geopolitical issue (see Greece) where the international community hashes out a deal with the state. That doesn’t always go smoothly and the results are inconsistent, leading to calls for a kind of bankruptcy court for nations administered by the IMF or the G-20.

“A regime where a court enforces involuntarily modified contracts looks like sovereign bankruptcy, achieved here using the court’s equitable powers against the background of the debtor’s immunity,” writes Anna Gelpern, an American University law professor.

However, attorneys at the firm of Shearman & Sterling have been following the case closely and believe the court’s offer to let Argentina come up with a payment does still require that Argentina make good on the face value of the bonds, not offer the hold-outs a haircut. In that case, the order will “commit Argentina in a public filing (not comments in the heat of oral argument) to the position that it will not pay plaintiffs.”

Which in turn means a default, at least temporarily, barring a sudden concession or a reprieve from the Supreme Court—raising the question of whether the Obama administration weighs in.

The Argentine plan and the court’s next decision have all kinds of messy implications for Argentina’s economy, Wall Street’s work underwriting bonds for foreign governments in dollars, and of course, whether anyone holding Argentine debt will ever get paid. Stay tuned.

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