Buchheit, Lee C.; Gulati, Mitu --- "Restructuring a Nation’s Debt" [2011] ELECD 495; in LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder (eds), "Managing Risk in the Financial System" (Edward Elgar Publishing, 2011)

Book Title: Managing Risk in the Financial System

Editor(s): LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857933812

Section: Chapter 10

Section Title: Restructuring a Nation’s Debt

Author(s): Buchheit, Lee C.; Gulati, Mitu

Number of pages: 11

Extract:

10. Restructuring a nation's debt1
Lee C. Buchheit and Mitu Gulati

The EUR110 billion EU/IMF bailout package announced in the first
week of May 2010 was intended by its framers to permit Greece to pay its
maturing debt, in full and on time, by drawing on official sector funds. If
it works, a restructuring of Greece's massive debt stock will be avoided, at
least for a time. But if that Plan A doesn't work, or if Plan A only succeeds
in pushing the need for a debt restructuring down the road a way, what
might Plan B look like?
Greece's total debt at the end-April 2010 was approximately EUR319
billion. Of that figure, the vast majority ­ approximately EUR294 billion ­
was in the form of bonds, with another EUR8.6 billion issued as Treasury
bills. Virtually all of this debt stock was denominated in Euros. Small
amounts (in aggregate, less than 2 per cent of the total) are outstanding
in US dollars, Japanese yen and Swiss francs. Information about the
holders of Greek bonds is anecdotal. From press reports it appears that
French and German banks have the heaviest exposures, but mutual funds,
pension funds, insurance companies, hedge funds and other categories of
investors also own Greek bonds. Significantly, the extent of retail owner-
ship appears to be small.
A large amount of Greek bonds have been discounted by European
commercial banks with the European Central Bank (ECB). On 3 May
2010, the ECB announced ...