Greece's sovereign debt could still need to be restructured. Lawyers must learn the lessons of previous national crises if they are to succeed
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% 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 May 3 2010, the ECB announced that those bonds would continue to be eligible for discounting, notwithstanding the downgrading of Greek bonds that occurred the previous week.
Legal aspects of the debt stock
The salient feature of Greece's bond debt is that approximately 90% of the total is governed by Greek law. Only about €25 billion of the bond debt was issued under the law of another jurisdiction, and most of that was under...