The greek governmentdebt crisis was the sovereign debt crisis faced by greece in the aftermath of the financial crisis of 200708. Biggest debt restructuring in history buys greece only a. Pdf this article analyses three seminal instances of bondholder litigation before german municipal courts following the greek sovereign debt. Debt restructuring puts greece etf in focus may 27, 2016. 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. Jun 01, 2011 the complexity of european politics should prevent any reprofiling of greek debt this year, according to a political analyst, but markets are still waiting for any sign of a prospective default.
The greek debt restructuring and property rights a greek. The case of greece 4 the principal at the end of maturity of the bond can similarly be cut or delayed. An autopsy jeromin zettelmeyer christoph trebesch mitu gulati july 20 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 gdpwith minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. Greece has succeeded in pushing through the biggest sovereign debt restructuring in history, with 85. Do the negotiations among eurozone finance ministers beg for a rethink of a need for a globally recognised, legal framework for debt restructuring.
The magic here was in significant part the product of lee buchheits genius. Gdplinked securities can provide real value in future restructurings. Seven years on seems like an appropriate point at which to critique how the crisis has been handled and to assess whether policy changes will be required should it flare up again. Request pdf engineering an orderly greek debt restructuring for some months now, discussions over how greece will restructure its debt have been constrained by the requirement that the deal be. Nevertheless, despite the imf staffs determination that greek public debt could not be considered sustainable with high probability, sovereign debt restructuring was not made part of the first financial assistance package. Greece was required to reduce its total debt significantly in order to obtain the bailout which had been orchestrated by the socalled troika, i. Greece, creditors to discuss options for debt restructuring. While greece is not debt free in ten years, its debt level is much safer, even in a low growth environment which. It concludes by reflecting on the political implications of the new governments announced intentions and whether these are being taken into account in the current debate over debt restructuring.
Approaches to corporate debt restructuring in the wake of financial crises prepared by thomas laryea in collaboration with an interdepartmental working group authorized for distribution by sean hagan january 26, 2010 jel classification numbers. The greek government debt crisis was the sovereign debt crisis faced by greece in the aftermath of the financial crisis of 200708. Sep 11, 2012 the greek debt restructuring of 2012 stands out in the history of sovereign defaults. But there are lessons to be learned not only by greece, but also by the eurozone leadership. Jun 05, 2015 for some reason, people think a sovereign default, and a subsequent debt restructuring such as greece s government faces, is something that is conceivable the proverbial asteroid hitting the. The euro group also wants a mediumterm primary budget surplus of 3. Greek debt restructuring in the light of the second bailout package 11. For some reason, people think a sovereign default, and a subsequent debt restructuring such as greeces government faces, is something that is conceivable the proverbial asteroid hitting. The 2012 greek debt exchange was a watershed event in the euro area debt crisis. This was followed by a debt restructuring that provided debt relief to greece through a combination of lowering interest rates, lengthening debt maturity, and rebates on interest and principal. Debt rescheduling also described as bailout, in the. This paper argues that a deep haircut up front, under threat of legislative action, would have been seen as unnecessary and deeply coercive. To be sure, a restructuring of greek debt will not relieve the country from the painful. Next, we analyse the last act for now, the december 2012 bond buyback.
Apr 24, 2019 debt restructuring is a process used by companies to avoid the risk of default on existing debt or to take advantage of lower available interest rates. The sovereign debt restructuring mechanism sdrm was proposed by the imf in 2001 to reduce the creditor coordination problem in the event of debt restructurings for bond debt, the holdings of which are much more dispersed than the concentrated syndicated bank loans which featured in the debt crisis of the 1980s. View lazard will advise greece to restructure its debt. In early 2012, greek debt restructuring took place. In the context of sovereign debt crisis, private sector involvement psi refers, broadly speaking, to the contributions or efforts of private sector creditors to the crisis resolution process, and, specifically, means that the private sector shares some of the costs of a financial crisis by incurring itself financial losses. A massive amount of sovereign debt restructuring has in fact occurred in europe since the crisis began in 2010 but the losses have not been visited on commercial creditors. Benefits and costs of corporate debt restructuring. If it is 1%, it falls to 126%, 2% is 114% and 3% is 104%.
It achieved very large debt relief over 50% of 2012 gdp with minimal financial disruption, using a combination of new legal. European bank for reconstruction and development and cepr. Most investors in bonds went along, since the alternative would have been default. It was a voluntary haircut accepted by the private holders of greek bond debt that excluded the debt held by the public sector, in particular the substantial amount of. Although both countries had to face similar problems restructuring an unpayable debt and improving competitiveness to enable growth and job. Greece has exited its bailout programme, to much rejoicing. What are the limitations to the greek sovereign debt restructuring. It achieved very large debt relief over 50 per cent of 2012 gdp.
Sovereign debt restructuring and debt mutualisation in the euro area. We conclude with an assessment of the greek restructuring and its implications for ongoing and future debt crises in europe. Recessionled policies use sovereign debt as means to secure austerity strategies and further reinforce neoliberal reforms throughout europe. Greece attempted to restructure 206 billion of debt, of which 21. May 09, 2010 prior sovereign debt restructurings provide considerable guidance for how such a restructuring might be shaped. The greek debt restructuring of 2012 stands out in the history of sovereign defaults. This is because the government is still running a deficit and because gdp is shrinking. Even putting aside the greek debt restructuring of 2012, it turns out that, unlike the death penalty, sovereign debt restructuring has not been abolished in europe. It achieved very large debt relief over 50% 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. The stanford rock center hosted a discussion on sovereign debt restructuring with two leading experts in the field.
The eurozone sovereign debt crisis began in the spring of 2010. Market impact thanks to the debt restructuring news, the 10year greek government bond yields headed to a. Part iii considers three recent shocksargentina, greece, and ukraineand what they reveal about the. Dec 14, 2019 the greek debt crisis is the dangerous amount of sovereign debt greece owed the european union between 2008 and 2018. In particular, it analyzes neither the causes of the.
The greek debt crisis is the dangerous amount of sovereign debt greece owed the european union between 2008 and 2018. Sovereign debt restructuring in europe buchheit 2018. Corporate financial restructuring new york university. In an attempt to reinforce his governments efforts to right the economy and seeking to shore up his position within his own party, karamanlis called. All banks in europe feared that greek debt relief would set a precedent. The greek economy, like those of so many other countries, entered a period of uncertainty as a result of the international economic crisis of 2009, and the nds hold on government appeared tenuous.
My sovereign debt class is discussing the march 2012 greek debt restructuring on tuesday afternoon. Pdf on jan 1, 2011, kern alexander and others published sovereign debt restructuring in the. When the expenditures of a government are more than its tax revenues for a prolonged period, the government may enter into a debt. An evaluation of the french proposal for a restructuring. Greece must get nearly all of the debt held in private hands to take part in the swap in order to start receiving the eurbn of bailout monies that. This time, the six proposed reforms which are sine qua non for greece s recovery will be nonnegotiable and. Already weakened by losses from the global financial crisis, they were concerned about shouldering the additional cost of providing debt relief to greece. While the restructuring secured significant debt relief, greece could have achieved perhaps an extra 1020 per cent of gdp in debt relief with a different restructuring design that would have led to a similar present value haircut on all creditors regardless of residual maturity, and through a number of other twists in the. Greece and its creditors are expected to discuss ways to restructure the countrys debt ahead of a meeting of euro zone finance ministers on may 22, a european official told cnbc on tuesday. Engineering an orderly greek debt restructuring request pdf. Financial crisis, government intervention, crisis management, corporate. Its time for your default and debt restructuring june 5, 2015. For some reason, people think a sovereign default, and a subsequent debt restructuring such as greeces government faces, is something that is conceivable. The country has 7 billion of debt payments due this july, which it wont be able to meet unless it receives new funds or carries out restructuring.
Mar 09, 2012 greek finance minister evangelos venizelos welcomed the agreement, saying the restructuring will help greece get out of debt and revive its ailing economy. The greek debt restructuring of 2012 stands out in the history of sovereign. Overview, policy responses, and implications congressional research service 2 eurozone members. Cac and sovereign debt restructuring in the euro area. It achieved very large debt relief over 50% of 2012 gdp with minimal financial disruption, using a. There is a heated debate as to whether the debt restructuring should have taken place sooner. In 2010, greece said it might default on its debt, threatening the viability of the eurozone itself. Banks had mistakenly assumed all government debt is risk free. Second, how was the free rider problem addressed, that is, the incentive of each. An evaluation of the french proposal for a restructuring of greek debt 3 evaluation from the perspective of the hellenic republic 11. In the absence of a legal framework for sovereign debt restructurings good faith negotiations are a key part of ensuring an orderly restructuring. But several key features of the greek debt stock could make this operation significantly different from any previous sovereign debt workouts. Debt restructuring is a method used by companies to alter the terms of debt agreements in order to achieve some advantage with outstanding debt obligations. The greek operation was one of the largest sovereign debt restructuring in history4, paralleled only by the.
Certain official measures executed during greeces state debt restructuring process and the subsequent private sector involvement were not covered by existing isda provisions for cds contracts, as the international monetary fund conceded 33. In particular, there are a number of lessons to be learned from the greek debt restructuring of 2012. It stands out in the history of sovereign defaults. John milios, chief economist, syriza, greece ludger schuknecht, director general, federal ministry of finances, germany hernan lorenzino, ambassador of argentina to the eu interviewed. The imf is now asking eurozone membersgreeces main creditorsto accept a debt restructuring in the form of a haircut on the outstanding debt, and increase of maturity, andor a reduction of interest rates. The greek operation was one of the largest sovereign debt restructuring in history4, paralleled only by the exchange set up by argentina in 20045. New york cnnmoney greece announced friday that its privatesector creditors will take part in a historic restructuring of the governments debt, setting the stage for the nation to secure. Rock center restructuring sovereign debt in the 21st. Is debt restructuring the right solution for greece. According to a dataset from the national bureau of economic research, there have been at least 153 sovereign debt restructurings since 1980.
This presentation includes estimations and forecasts of the company in connection with the companys debt restructuring and its implications on the companys operations and its ability to repay its debt towards its creditors. After the biggest debtrestructuring in history, in which securities totaling about 200 billion euros suffered losses, greeces tradeable debt is now just 67. Greeces new debt restructuring plan hear it from the experts let our global subject matter experts broaden your perspective with timely insights and opinions you cant find anywhere else. Joanna dreger why is sovereign debt restructuring a challenge. Reform and restructuring costas meghir, dimitri vayanos and nikos vettas 1 greeces public debt reached 142% of gdp in 2010 and is projected to rise to 160% in 2012. Earlier this month, the imf which was urging for more austerity and describes athens debt as unsustainable, called for significant debt relief to stop greeces debts becoming explosive. This brief note focuses first on the cost greece faces in servicing its debt and then asks whether this is a manageable or a sisyphean task. Because of a lack of trust in greece s ability to repay its debt, two programs were organized that provided financial assistance to greece. Ideally, greece s government will be able to reduce the overall debt load, now around 192%, to something manageable, perhaps around 50% of gdp. Giddy corporate financial restructuring 15 dear michael, february 11, 2004 mr. For some months now, discussions over how greece will restructure its debt have been constrained by the requirement that the deal be voluntary. Engineering an orderly greek debt restructuring by g. Greek debt restructuring of 2012 achieved very large debt relief with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors.
It generated fears of contagion and was viewed as a threat to the euro itself. Debt crisis is a situation in which a government nation, stateprovince, county, or city etc. Authors kirsten erichsen and andrew wilkinson sovereign debt restructuring. Greece s new debt restructuring plan hear it from the experts let our global subject matter experts broaden your perspective with timely insights and opinions you cant find anywhere else. The timing and design of the restructuring left money. This column discusses the lessons from this historically unprecedented episode. The 2012 greek debt restructuring is a recent case where a small number of creditors were able to hold out from a restructuring even in the presence of cacs. A key component of greeces economic reform programme is a reduction in the countrys debttogdp.
Lessons for the eurozone from the greek debt crisis. The greek restructuring took place in the form of a socalled private sector involvement psi. Eisner the walt disney company 500 south buena vista. Since independence in the 1830s, greece has been in a state of default about 50% of the time. Approaches to corporate debt restructuring in the wake of. Hungary, the czech republic, serbia, bulgaria, greece and india with a portfolio of 30 assets and a strong. Greece plans to hire rothschild as debt adviser rt. An estimation for korea prepared by jae chung and lev ratnovski1 authorized for distribution by kalpana kochhar october 2016 abstract the paper offers a method to quantify benefits and costs of corporate debt restructuring, with an application to korea. Greece completes 30bn debt swap as it eyes return to bond market leverage our market expertise expert insights, analysis and smart data help you cut through the noise to spot trends, risks and. Agreement on restructuring athens debt buys time to secure countrys financial future. Second, how was the free rider problem addressed, i. The 1990s debt crisis in russia is a further exception, as western banks played an important role in the restructuring of sovietera debt in 1997 and, again, in 2000. Section 3 provides an appraisal of the main features of the euro cac developed pursuant to the esm treaty. How is the worlds mass homeworking experiment going.
784 821 517 624 1166 922 207 227 188 913 1155 1456 458 1213 337 758 1420 889 1285 1327 193 1497 875 296 557 1098 942 28 494 255 11 99 232 1329 1050 1410 1227 573 1002 692 1446 340 1242 1293 800 652 51 1168 743 191