Engineering an Orderly Greek Debt Restructuring

10 Pages Posted: 30 Jan 2012

See all articles by G. Mitu Gulati

G. Mitu Gulati

Duke University School of Law

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics; CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: January 29, 2012

Abstract

For some months now, discussions over how Greece will restructure its debt have been constrained by the requirement that the deal be “voluntary” – implying that Greece would continue debt service to any creditors that choose retain their old bonds rather than tender them in an exchange offer. In light of Greece’s deep solvency problems and lack of agreement with its creditors so far, the notion of a voluntary debt exchange is increasingly looking like a mirage. In this essay, we describe and compare three alternative approaches that would achieve an orderly restructuring but avoid an outright default: (1) “retrofitting” and using a collective action clause (CAC) that would allow the vast majority of outstanding Greek government bonds to be restructured with the consent of a supermajority of creditors; (2) combining the use of a CAC with an exit exchange, in which consenting bondholders would receive a new English-law bond with standard creditor protections and lower face value; (3) an exit exchange in which a CAC would only be used if participation falls below a specified threshold. All three exchanges are involuntary in the sense that creditors that dissent or hold out are not repaid in full.

Keywords: Greece, sovereign debt, default, restructuring, collective action clauses

JEL Classification: F34, K33

Suggested Citation

Gulati, Gaurang Mitu and Zettelmeyer, Jeromin, Engineering an Orderly Greek Debt Restructuring (January 29, 2012). Available at SSRN: https://ssrn.com/abstract=1994511 or http://dx.doi.org/10.2139/ssrn.1994511

Gaurang Mitu Gulati (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

CEPR ( email )

London
United Kingdom

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