A messy legal fight over the fallout from a 2002 sovereign debt restructuring came to a head last Wednesday and was expected to enter a critical phase over the next three weeks, with upcoming decisions seen as having important ramifications throughout the global financial system.

The court battle, which pits the country of Argentina against a small group of “holdout” hedge funds that resisted taking losses in a sovereign bond swap a decade ago, heated up over the past few days after a New York judge said the sovereign needed to pay those parties in full. The Argentine government had been adamant in resisting payments to those investors, which account for less than 7 percent of Argentina’s creditors at the time of its last debt re-structuring, as such an action could invite lawsuits from the 93 percent of bondholders who allowed their instruments to take a “haircut” nearly a decade ago.

Reacting Thursday to the decision, Argentina’s Economy Minister Hernán Lorenzino called the court order “judicial colonialism” and vowed to fight it all the way to the U.S. Supreme Court.

“All we need now is for [Judge Thomas] Griesa to send us the [U.S. Navy’s] Fifth Fleet,” Lorenzino said, according to London’s Telegraph.

It was not the first time in its long legal battle Argentina had suffered a setback, but it was its most significant. A previous edict from Judge Griesa’s Second Circuit courthouse had similarly ordered Argentina to pay up to the tune of $1.3 billion but had no workable enforcement mechanism to compel the sovereign to do so.

In the new decision, Griesa said the hedge fund complainants, led by Cyprus-based NML Capital, could force garnishment of cash transfers the country regularly makes to its agent in the United States, the Bank of New York Mellon, to pay other bondholders. Such an unprecedented move would likely result in an explosion of new legal action and a “technical default” for Argentina, the last thing that troubled economy needs at the moment.

“It’s a mess. This does not help Argentina. Default could happen,” Goldman Sachs analyst Alberto Ramos told the Associated Press Thursday. “The markets will react negatively to this.”

Argentina was in court Monday to prevent just such a thing from happening. It wasn’t alone. The U.S. Federal Reserve, the Bank of New York Mellon, other private institutions involved in international payment processing and, of course, the vast majority of Argentina’s sovereign bondholders who have no interest in seeing the “holdouts” prevail had filed briefs earlier asking U.S. courts to side against the complainants.

An adverse resolution that forces Argentina to default could cause issues with Argentina’s $20 billion in outstanding debt. In their brief, the country’s creditors not party to the lawsuit had warned such an “injunction will have turned a relatively minor default into a cataclysmic default that will further unsettle the already fragile global economy.”

In spite of the effects such an event would have, it was seen as a likely outcome, particularly given the fact the current administration of President Cristina Fernández de Kirchner has made loud confrontation with opponents a hallmark of its governing style.

“Cristina will either throw in the towel or go scorched earth,” Hans Humes, the former co-chairman of Argentina’s bondholder committee following the 2001 default, told the Financial Times.

On Friday, an editorial in English-language Buenos Aires Herald agreed, noting, “Argentina seems headed towards a gratuitous default whose uncertainty will blight a 2013, which had seemed until now likely to improve on this dying year.”