The Greek Debt Restructuring: An Autopsy

Abstract

The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt reliefover 50 percent of 2012 GDP-with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents-particularly in its very generous treatment of holdout creditors-that are likely to make future debt restructurings in Europe more difficult. JEL Codes: F34

6. Count the Limbs: Designing Robust Aggregation Clauses in Sovereign Bonds

“…Slightly half of the total outstanding principal under foreign law Greek bonds stayed outside the restructuring and, importantly, continued to be serviced on schedule. Most of the holdout bonds were governed by English law (Zettelmeyer, Trebesch and Gulati 2013).…”

“…In Greece, blocking positions led more than half of all foreign law bonds to drop out of the restructuring, even though most Greek foreign law bonds had CACs. These bonds continue to be paid in full (Zettelmeyer, Trebesch and Gulati 2013). In the case of Argentina, rulings by U.S. federal courts in favor of holdouts beginning in 2011 effectively blocked payments on restructured bonds unless the government paid the holdout plaintiffs in full, potentially upsetting the delicate balance between risk and reward that drove investor participation in earlier restructurings.…”

The role of expectations in austerity cycles: The political economy of crisis management in Ireland and Greece

“…A detailed, critical analysis of the restructuring is presented by Zettelmeyer et al (2013), who notes the substantial costs the delay caused in the effectiveness of this measure.…”

Sovereign Bond Prices, Haircuts and Maturity

“…5 Only a few Zettelmeyer 2006, 2008;and Zettelmeyer et al 2013) document instrument-specific haircuts, but only for selected restructuring episodes. In contrast, we report instrument-specific haircuts for a large sample of restructuring episodes; we document a novel stylized fact concerning the systematic relationship between haircut and maturity; and we offer an explanation for this fact.…”