Drunkard in terrible hole in the country (7)
I believe the answer is:
lesotho
'country' is the definition.
(Lesotho is an example)
'drunkard in terrible hole' is the wordplay.
'drunkard' becomes 'sot' ('sot' can be a synonym of 'drunkard').
'in' indicates putting letters inside.
'terrible' indicates anagramming the letters.
'hole' anagrammed gives 'leho'.
'sot' placed into 'leho' is 'LESOTHO'.
'in the' is the link.
(Other definitions for lesotho that I've seen before include "Maseru is this Kingdom's capital" , "He loots (anag) -- southern African kingdom" , "Trickery" , "Southern African country, capital Maseru" , "African territory" .)