Managing Risk in the Financial System
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Managing Risk in the Financial System

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link together the law and policy issues surrounding systemic risk and crisis management.
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Chapter 10: Restructuring a Nation’s Debt

Lee C. Buchheit and Mitu Gulati


1 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 ownership 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 that those bonds would continue to be eligible for discounting, notwithstanding the...

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