Restructuring a nation’s debt

Author: | Published: 3 Jun 2010

A restructuring of Greek debt will not relieve the country from the painful prospect of significant fiscal adjustment. Nor will it displace the need for financial support from the official sector. But it may change how some of those funds are spent (for example, backstopping the domestic banking system as opposed to paying off maturing debt in full). In light of the €110 billion ($136 billion) EU/IMF bailout package for Greece announced during the first week of May 2010, a debt restructuring may possibly be avoided. Possibly. But, if not, how would Plan B work?

Greece's total debt at the end-April 2010 was approximately €319 billion. Of that figure, the vast majority – approximately €294 billion – was in the form of bonds, with another €8.6 billion issued as Treasury bills. Virtually all of this debt stock was denominated in Euros. Small amounts (in aggregate, less than 2%...