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The European, Middle Eastern and African Restructuring Review 2017

Overview: Restructuring of Greek sovereign debt

Introduction

The Greek sovereign debt crisis and the consequent wider eurozone crisis came at the heels of the global financial crisis of 2008. From the news in October 2009 that Greece’s deficit was more than twice higher than what the Greek authorities had previously announced, to the country’s struggle to maintain market access, to the collective denial that this could be happening to a developed economy and member of the largest economic group in the world, and to the final resigned acceptance in May 2010 that a eurozone and International Monetary Fund (IMF) rescue package was inevitable, seven long months passed with almost everyone watching the impending crash in utter disbelief and near helplessness. What followed was a traumatic six years whose rollercoaster of events saw the largest-ever debt restructuring in the world. Nonetheless, the resolution needed for Greece to recover as Ireland and Cyprus have done has not yet come. Discussions about the size of the debt continue; the country, after a bold and successful attempt to access the debt markets finds itself again locked out of them; the economy languishes; unemployment is blighting the lives of many; those who are able to do so emigrate; and the debates with the Troika/Institutions (the IMF, the EU Commission, the European Central Bank and, of late, the European Stability Mechanism) continue on what seem to be exactly the same topics as five years ago.

How did Greece and the eurozone find themselves in this position; what role did the IMF play; what has been done since the outbreak of the crisis; and what has been learned from this sorry saga?1

The start of the Greek crisis

In September 2009, the Greek government of New Democracy, a centre-right party, called an early election that, one month later, brought into power the opposition, centre-left PASOK. At the time, the country did not appear to face any difficulties that set it apart from other countries. It reported its fiscal deficit as just over 6 per cent of Greek GDP, certainly over the 3 per cent limit agreed in the European Union Treaties, but not very surprising given the global economic turmoil at the time. Shortly after the election, the Governor of the Bank of Greece stated publicly that the deficit was going to be closer to 12 per cent of GDP or possibly higher. This was a turning point. With loss of confidence in the numbers (the deficit was later revised to 13.5 per cent and finally to 15.9 per cent), an uncompetitive economy (with chronic current account deficits at over 14 per cent of GDP) and difficult-to-adjust fiscal expenditures (with the contributions to the pensions deficit the most intractable), it did not take long for the markets to start asking for higher and higher amounts for the financing of the deficits and the rolling over of maturing debt.2

The first rescue package and memorandum

Until 2007, the yield differential (‘spread’) of Greek Government Bonds (GGBs) over German Bunds was negligible. It saw some fluctuations in 2008 with the spread coming down during election time, but then rising again very substantially from November 2009. Notwithstanding a government stability programme in January 2010 and a number of supplemental austerity measures, by May 2010 the GGB short-term yields had risen to over 17 per cent and the long-term yields to over 12 per cent, signalling the loss of market access to Greece and paving the way to the first rescue package of up to €110 billion (€80 from the eurozone countries and a further €30 from the IMF). The rescue package included specific policies on the eligibility of GGBs for European Central Bank (ECB) to protect the funding of the banking system, but came with strict policy conditionality set out in separate memoranda agreed with the IMF, on the one hand, and the EU Commission and the ECB on the other. Crucially, the rescue package did not require the restructuring of the Greek debt and made the bold assumption that Greece would be capable of returning to the debt markets within a short period of time.3

An ill-prepared eurozone

The Greek crisis caught the EU and the other eurozone countries by surprise. The EU is not a federation but an association of states who have agreed to bind their policies together by treaty and detailed secondary legislation, while retaining their sovereign nature and autonomous fiscal and financial operations. Instead of federal institutions and fiscal transfers, the EU economies and the eurozone countries in particular sought to remain on the same economic level by marching in lockstep to the tune of the well-known limits on debt (no more than 60 per cent of GDP) and deficit (no more than 3 per cent of GDP). The assumption was that member states would adhere to these limits through a combination of respect for their Treaty obligations, light-touch oversight by the EU Commission and the discipline imposed on them by the debt markets. The possibility that countries would not be able to comply with these limits in the long term, thereby challenging the eurozone architecture, had been considered, but the policies put in place were weak. Sanctions were discretionary, the deadlines were long and the procedural red tape considerable. More importantly, statistics were still provided by the national agencies, while Eurostat, the European statistical agency, which could provide both rigorous guidance and act as auditor of national accounts, played no major institutional role. The Prospectus Directive permitted (and still permits) European sovereigns to issue debt securities with no disclosure whatsoever. The national central banks of the eurozone had lax capital reserves for banks on their eurozone sovereign debt holdings and disapplied the large exposure rule on such holdings. Finally, France and Germany themselves breached the deficit rule around 2005 and offered neither apologies nor suffered any consequences. The rules on debt and deficit were set, but there were no rigorous independent institutional checks on the reported numbers, no real sanctions for breaches, no disclosure to the markets and no leadership by example. So when a small country representing only 2 per cent of the eurozone’s GDP was revealed as an outlier, the response consisted of denial of the problem, moral indignation and condemnation, a series of ad hoc measures and finally a decision not to let Greece default for fear that, notwithstanding its size, the consequences would be far reaching.4

IMF’s participation

By virtue of its size, the IMF’s participation in the Greek 2010 rescue fell under the Fund’s ‘exceptional access policy’. This required the satisfaction of four criteria, including that ‘there is a “high probability” that the member country’s debt is sustainable.’5 Satisfaction of this criterion would have required a prior restructuring of the Greek sovereign debt, then held primarily by private investors. The IMF, concerned that ‘this could lead to severe contagion both in the eurozone and beyond’ bypassed this criterion by introducing:

a ‘systemic exemption’ for cases where there were significant uncertainties around debt sustainability. In such cases, the exemption allowed large-scale financing to go ahead without a debt reduction operation if there was a high risk of systemic international spillovers.6

Even under the new criterion, the country’s debt must have been judged to be sustainable (though not with high probability) and also the country must have satisfied the further criterion of ‘having prospects for … regaining access to private capital markets’. The IMF has since removed the ‘systemic exemption’ and refined its exceptional access rules. But, at the time, its decision not to force a debt restructuring, and to judge that Greece had prospects of returning to the debt markets after a brief adjustment period, proved to be one of the major legacies of the Greek crisis whose consequences are still being played out today.

The mistakes of the first programme

With the benefit of hindsight, the first Greek rescue programme looks like a rushed affair based on an ill-diagnosis and offering corner-cutting solutions. It was also unduly optimistic as to the Greek prospects. The judgements that the country’s debt was sustainable and that it could return soon to the markets entailed that the adjustment programme could be short, the deficit reduction measures could be compressed within a brief period and the domestic political economy reactions would be manageable.

To this mix one has to add the understandable reluctance of Greece’s eurozone partners to provide unlimited funds. Some, like Slovakia (and then Portugal and Ireland), did not participate at all. The others did but, as the lending was, with one exception,7 done directly by the sovereigns, it was adding further to their total debt and in some cases at higher borrowing rates than the ones at which they on-lent to Greece. Finally, there were the Treaty protections against fiscal transfers and assumption of responsibilities8 that had simply sought to reflect the political concerns of the creditor nations that the ever-closer union and the eurozone would result in fiscal solidarity and transfers. On the moral tale of the ‘fallen country’ two further narratives were embroidered: of the rampant tax evasion and of the underutilised state wealth, both of which could, if tackled, materially contribute to the resources Greece needed to get out of its difficulties.9

European reaction

The European Union and the eurozone in particular did not stay idle. They proceeded with a host of initiatives, which included the rescue funds of the European Financial Stabilisation Mechanism (EFSM), the European Financial Stability Facility (EFSF) and the new treaty entity, the European Stability Mechanism (ESM). A new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (‘Fiscal Compact’) was introduced to introduce greater collective monitoring of budgets and deficits. Eurostat was strengthened. The ECB introduced its ‘secondary market purchase programme’ (SMP) to stabilise sovereign bond yields in secondary markets. At the same time, the reluctance of countries to have their taxpayers pay for what were regarded as the ill policies of their partners was growing, while the ECB opposed anything that might weaken banks’ balance sheets and diminish their liquidity.

Deauville and PSI

This tension came to a head on 19 October 2010 in Deauville, France. There Angela Merkel and Nicolas Sarkozy agreed that in future, sovereign bailouts would require private sector involvement (PSI), ie, losses would have to be imposed on private creditors. The markets that had come to believe that the official sector would continue bailing out distressed sovereigns, and possibly banks, reacted. The Irish crisis came to a head in November 2010, and the Portuguese in April 2011. In the meantime, everyone seemed resigned to the fact that the Greek programme was insufficient and that Greece would require a new rescue package.

The first PSI

On 20 and 24 June 2011, the Eurogroup, and then the European Council, officially spelled out what everyone already knew.10 After praising the Greek government for its efforts and allowing the disbursement of funds under the current programme, it acknowledged that ‘Greece [was] unlikely to regain private market access by early 2012’, spelled a new ‘way forward’ with a new programme focused on more fiscal austerity and privatisations. Significantly, the new programme would be ‘financed through both official and private sources [with a] voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece’.

A proposal was aired by a number of European banks for such ‘voluntary roll-overs’, which, in practice, amounted to a liability management exercise by Greece exchanging its bonds with short-term maturities to long-dated ones with a coupon well below the market yields of the time.11 The discussions went on for a further month and culminated on 21 July 2011 in a further statement by the heads of the eurozone and of the European institutions,12 which outlined the elements of the new programme. It included a €109 million loan from the EFSF with longer maturities and lower coupons than previously proposed, maturity extensions and lowering of interest rate of the 2010 loans, the creation of a Task Force to ‘work with the Greek authorities to target the structural funds on competitiveness and growth, job creation and training’, as well as mobilisation of other European resources, principally the EIB. Most notably, it included particulars of the proposed private sector involvement, the PSI. 

In essence, the PSI was to be a liability management exercise whereby existing GGBs would be exchanged for new 30-year GGBs whose principal would be fully repaid by Greece handing over at the moment of exchange 30-year zero-coupon EFSF bonds. Greece would be responsible for the coupon payments on the new GGBs and repaying the amounts borrowed from the EFSF to buy the 30-year EFSF bonds. The scheme (which was available in four variations to cater to the special accounting and regulatory requirements of the greatest number of investors) was designed to result in an accounting loss of 21 per cent for the holders of Greek debt. Discussions and detailed work on the exchange continued feverishly until mid-October when the initial PSI was abandoned.13 

The concern for the banks

European and, in particular, Greek banks were big holders of GGBs, partly because of the regulatory advantages highlighted earlier. The ECB was very concerned that the system would not be destabilised by the temporary ineligibility of GGBs as eligible collateral with it (an exchange would result in all GGBs being deemed to be temporarily in ‘selective default’ by the rating agencies making them thus ineligible) and by the capital losses to the Greek banking system. The 21 July package, therefore, included an express provision aiming to reassure the markets that European funds would be available ‘to recapitalise Greek banks if needed’.

The second PSI: a turning point for the eurozone

With the Greek economy performing below programme expectations and with the debt relief afforded to Greece by the first PSI not being significant (and in any event substantially less than the 21 per cent accounting loss to be suffered by the creditors), the first PSI was abandoned. On 26 October 2011, the Eurogroup came out with one of its most comprehensive statements since the crisis erupted.14 The statement covered all countries that were under a programme or were simply vulnerable and contained exhortations to everyone.

The new PSI was far more radical. Existing bonds would have to be ‘voluntarily exchanged’ with a nominal haircut of 50 per cent, but with an accounting loss (depending on maturities and coupons of the new bonds) sufficient to show projections of a Greek debt-to-GDP ratio of 120 per cent by 2020. Although not spelled out in the announcement, these projections would be as shown in the IMF’s and the EU’s debt sustainability analyses (ie, spreadsheet models based on agreed parameters, some current data and assumptions about the future).15 The PSI package would include a €30 billion ‘sweetener’, but the whole exchange had to be ‘implemented at the beginning of 2012’, a phrase signalling the date of 20 March 2012 when GGBs with a very large nominal amount were maturing, for which Greece did not have the resources to meet their payment, and leading to legal default for the first time since the outbreak of the crisis.

Special mention was made again to Greek privatisation revenues to be contributed to the new programme well in excess of what was already proposed. The Eurogroup finally promised a recapitalisation of the Greek banks to offset the effects of the PSI.

Having publicly accepted a radical debt restructuring and faced more directly than ever before the challenges of the crisis, the Eurogroup’s statement also sought to reassure the markets that what was happening with Greece was unique and that the remaining eurozone countries were expected to honour in full their obligations.

Creditors’ committee

Following initiatives by the Institute of International Finance (IIF) and some of the larger European banks, private bondholders established a Private Creditor-Investor Committee which in turn appointed a Steering Committee. The Steering Committee held many discussions with Greece and its advisers, with the EFSF, and the “Troika” of the ECB, the IMF and the EU Commission and helped shape the nature of the offer and in particular the structure of the new GGBs.

Form and content of the debt restructuring

The form of the debt restructuring was an exchange of old GGBs for new GGBs. Investors accepting (or being forced to accept through the use of collective action clauses) the Greek offer that finally came on 21 February 2012 would receive for every €100 of their old GGBs a consideration of:

  • €15 in short term EFSF securities (in essence cash);
  • new GGBs of a total face value of €31.5 with maturities from 2023 to 2042 and escalating annual coupons ranging from 2 per cent to 4.3 per cent;
  • a detachable GDP-linked security that could provide an extra payment stream of up to 1 per cent of the face value of the outstanding new GGBs if GDP were to exceed the IMF’s growth projections for Greece; and
  • payment of all accrued interest under the old GGBs, in the form of six-month EFSF securities.

To make the offer more attractive to investors who would lose 53.5 per cent of their nominal principal amount and closer to 70 per cent in NPV terms, Greece offered not only a substantial amount of near-cash (the 15 per cent and the accrued interest) and the moderately structured GDP warrants, but also an array of more attractive legal terms for the new GGBs. These were now all governed by English law and subject to the jurisdiction of the English courts, contained negative pledge and cross-default provisions (but only in respect of the new and future GGBs). Most crucially, and unusually, they were subject to a Co-Financing Agreement with the EFSF, in essence, an intercreditor arrangement that provided that any payments to the EFSF in respect of one its facilities for an amount of €30 billion and to the holders of the new GGBs would be split pro rata according to what was due to them on the relevant days. This ensured that it would not be possible for Greece to default on the new GGBs without at the same time defaulting on the EFSF loan.

Universe of old GGBs

The aim of any restructuring is to include as much of the debt as possible. In the event, Greece sought to include all GGBs issued before 1 January 2012 and it also included a number of guaranteed bonds of state-owned enterprises whose debt was already serviced by Greece and accounted for as Greek debt. At the moment of the exchange there were 117 eligible securities with a total nominal amount of €205.6 billion (of which €9.8 billion in 36 securities were the guaranteed ones). Of these €177.3 billion were Greek-law directly issued GGBs, €6.7 billion were Greek-law guaranteed, €19.9 billion English-law directly issued and guaranteed, with the balance of €1.7 billion being governed by Italian, Swiss or Japanese law.16

Official sector holdouts

The total Greek debt as at the end of 2011 far exceeded €205.6 billion as it included bonds held by the ECB (€42.7 billion), national Central Banks (€13.5 billion) and the EIB (€315 million). These additional €56.51 billion were not included in the February offer as, days before the offer was published, Greece swapped these bonds for new ones with identical characteristics other than their issue date, which was now after the cut-off date of 1 January. The rationale for the exclusion was that these were not purchased as market investments, but as policy interventions through ECB’s SMB programme to stabilise the market and should not therefore result in losses for their holders.  

The ‘retrofitted CACs’ in Greek GGBs

Greek GGBs contained almost no terms and conditions other than the coupon, a general status statement, a promise to pay the interest and the principal on set days and the governing law and jurisdiction. In theory, this allowed Greece to change the terms of the bonds by legislative fiat. This would have, however, exposed Greece to much more effective challenges based on its own constitution, the European Convention of Human Rights (both of which protect property rights) and bilateral investment treaties (which protect foreign investors against expropriation). Instead, Greece opted for a combination of the exchange offer described above and a consent solicitation that invited holders of all series with a 50 per cent quorum and a two-thirds majority to agree to insert in all the Greek law GGBs collective action clauses (CACs) binding across all series. A law was enacted that provided that the Greek government could proceed, once the holders had so decided, with the insertion of the CACs. Greece, therefore, chose to show that the decision for the variation of the GGB holders’ contractual rights was shared with the holders themselves. This and the characterisation of the law as being mandatory and for the protection of a ‘supreme public interest’ helped to buttress the defences against potential challenges.17

Subsequent challenges

In the event, challenges were eventually made before the Greek courts, the European Court of Human Rights and under a bilateral investment treaty (BIT). The BIT claim failed on jurisdictional/procedural grounds, the challenge before the Greek courts failed because of the ‘supreme public interest’ defence and the challenge before the ECHR failed because the court held, in addition to public interest reasons, that steps taken to resolve the collective action problem are ultimately beneficial because, overall, they better preserve property.18

Outcome

Holders of 82.5 per cent of the €177.3 billion Greek law GGBs agreed to insert the retrofitted CACs and accepted the exchange offer. The two-thirds threshold was, therefore, easily met and this carried along all the Greek law GGBs. Although the participation in the non-Greek law GGBs was initially lower (their voting deadline was extended twice to early April 2012), together the total participation at 96 per cent was well beyond the 90 per cent threshold set out in the offer as necessary for Greece to proceed with the exchange and the Troika’s requirements. Since the other major condition of the exchange – effective approval by the eurozone for the EFSF loans – had been satisfied, the exchange proceeded and the Greek debt was restructured.

CACs in the foreign law GGBs and holdouts

English law GGBs had their own, series-by-series CACs. Meetings were called and, where they were inquorate, further meetings were called in accordance with the provisions of the GGBs. There was no voting in the Italian, Japanese and Swiss law bonds but a number of holders tendered their bonds in any event. In aggregate, €6.4 billion of non-Greek law GGBs held out and did not participate in the exchange. These bonds have so far all been paid in full.

Final outcome

The total nominal amount of participating GGBs was €199.2 billion (ie, a 96.9 per cent total participation). They received €29.7 billion in EFSF notes and €62.4 billion in new GGBs.19 In terms of sheer size, the Greek restructuring remains the largest debt restructuring ever.

CDSs

From the outset of the Greek crisis there was a lot of publicly voiced concern about CDSs on GGBs, whether these would be triggered and what this meant for Greece, the eurozone and the market. A lot of the discussion, and indeed much of the concern, was probably exaggerated, and resulted from an incomplete understanding of CDSs. However, when the PSI exchange was initiated, it became important to ensure that CDSs would not be triggered ahead of the exchange, so that a contemporaneous triggering and ability to settle would persuade covered holders to participate in the exchange and not to hold out. This, indeed, is what happened.20

Greece post the 2012 bond exchange

Despite the success of the restructuring, Greece did not emerge from it ready to turn the page. Elections were called and a new three-party government was formed. Yields on the Greek bonds remained high as the market expected that Greece would have to abandon the monetary union. In December 2012, taking advantage of the high yields, Greece, funded by the EFSF, purchased in the market GGBs and then had them cancelled, thereby achieving a very beneficial further reduction of its nominal debt.

Discussions with the Troika continued through 2013 and most of 2014, and a series of new concessions on the programme were agreed. Disbursements under the new programmes continued as the prior actions were satisfied. Crucially, the Grexit fears receded as senior European politicians started sounding genuinely more optimistic. The Greek banks were recapitalised in 2013 with private investor fund and EFSF loans to Greece invested by it through the specially created Hellenic Financial Stability Fund. In April 2014, and then again in July 2014, Greece re-entered the markets with two small issues of €3 billion and €1.5 billion respectively. Greece’s return to the markets paved the way for the return to the debt markets also of its banks and a number of its larger corporates. Although some substantial issues were still outstanding in its negotiations with the Troika, the parties were not that far apart on the size of the required further fiscal measures to be taken and Greece was a further return to the markets.

At the end of 2014, new elections were called, which took place in January 2015. The new Greek government followed a policy of confrontation with the Institutions and with a number of Greece’s eurozone partners in the belief that it could obtain better benefits for Greece. The Greek government failed to extend the expiring availability periods under the EFSF loan facilities. As a result, Greece lost the ability to draw under these facilities, and Greek banks lost access to direct ECB liquidity and had to revert to the more expensive Emergency Liquidity Assistance provided by the Bank of Greece. The economy, which had started showing signs of improvement, again took a dive. Liquidity was becoming scarce. Grexit fears grew and were even possibly used as arguments in the discussions with the Institutions. The European bailout programme expired at the end of June and was not replaced. A proposal by the Institutions for a new programme was made on 25 June. On 27 June, the government decided to call a referendum for 5 July on whether the terms of the new programme should be agreed. To avert a growing run on the banks, the government introduced capital controls during the weekend of 27 and 28 June. On 30 June (and then again on 13 July), Greece defaulted on its payments to the IMF. The referendum rejected the new terms of the new programme by a majority of 61 per cent to 39 per cent. Nonetheless, the Greek government asked the Institutions on 8 July for a stability facility and from 15 July the Greek parliament started enacting the legislation required to effect the prior actions for this stability facility and in essence the restart of the programme. New elections were held again in September, and a new round of recapitalisation for the Greek banks started, which ended successfully in December 2015. More fiscal measures were taken and contingent ones agreed in case the goals were not reached.

Current position

At the time of writing (mid-October 2016), Greece still needs to agree with the IMF and its European partners whether and on what terms the IMF will participate in the next phase of the rescue programme, what the target level of budget primary surpluses should be, and from this, what kind of debt relief should be given to the country. 

The Greek debt restructuring brought to the fore some key legacies. Creditors’ committees had tended to disappear and become less relevant as sovereign borrowing moved away from bank loans and into bonds. The fact that many creditors were European banks and that collectively these creditors believed in the stability of the eurozone no doubt allayed the fears that the official sector and the debtor often have of committees. But whatever the reasons, the return of a creditors’ committee was significant.

The effective priority of official sector creditors through the exemption of the ECB, NCBs and EIB’s bond holdings was also significant. It underscored that the official sector participation in sovereign lending is now much more diverse and often, as in the case of central banks, systemic. It also highlighted that its participation and priority can further subordinate private investors making a return to the markets more difficult for the distressed sovereign. The matter has not yet been fully debated, but it was effectively acknowledged by Mario Draghi when he sought to reassure markets that ECB holdings in the successor programme to the SMP, the OMT, would be pari passu with the holdings of other investors.

The IMF’s requirements for programme participation have already been discussed. The Greek debt restructuring together with the Argentinean litigation in New York have led the IMF to launch a comprehensive review of its debt restructuring policies and to encourage a vigorous discussion of these policies with other official sector bodies and market participants.21

As a result of debates with the Creditors’ Committee on the correct way to judge debt sustainability and hence determine what should be the participation of the private sector, the IMF changed its policy of not disclosing any information on its own debt sustainability analyses and made available publicly its base models, key assumptions and approach.22 

Finally, and most importantly, the need for early recognition of the issues, early restructuring of the debt and adjustment programmes, which are long and do not subvert radically the domestic political economy, have been universally, even when not always explicitly, acknowledged.

So, although very different, it is not unhelpful to consider the many similarities between sovereigns and corporates when it comes to economics. Does the economy or business produce goods or offer services that others (outside the country or company) want to buy in sufficient value to meet the demands of imported or purchased goods and services? Is the economy or business generating enough income in the right currency to meet its obligations and if not can it borrow in a viable way? Is the sovereign or business operating as a unity bound by common values and goals? Are the managers or administrators competent and do they have the appropriate approval of the other relevant stakeholders?

Similarly, in stress situations, the solutions turn back to restructuring basics: early recognition of the problem, maintenance of the business, economy or civil society as much as possible, early debt reduction, removal of recurrent not viable expenses, disposal of not required assets, but most importantly, alignment of interests on a long-term plan.

With Greece resuming its efforts to get out of the crisis, let’s hope that this time all stakeholders will help ensure that the effort is not a Sisyphean one, but one which results in the return of stability and renewed welfare.

Notes

  1. Readable and insightful accounts can be found in Martin Sandbu’s book ‘Europe’s Orphan: The Future of the Euro and the Politics of Debt’ and in George Papaconstantinou’s ‘GAME OVER: The Inside Story of the Greek Crisis’.
  2. A summary presentation of the deterioration of the Greek numbers and the effects of the crisis on the Greek economy; see Peterson Institute’s Paolo Mauro’s short presentation ‘Greece, An Economic Tragedy in Six Charts’ (https://piie.com/newsroom/short-videos/greece-economic-tragedy-six-charts).
  3. The official EU reports and Memoranda of all the rescue packages and a lot of other useful information can be found in the European Commission’s webpage ‘Financial Assistance to Greece’ (http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm). The IMF page ‘Greece and the IMF’ (www.imf.org/external/country/grc/index.htm) has also copies of the IMF memoranda, IMF announcements, Greece Article IV reviews, press reports on Greece, etc.
  4. A useful discussion of the fear of a sovereign default in the eurozone can be found in ‘Life in the Eurozone: With or Without Sovereign Default?’ (http://finance.wharton.upenn.edu/FIC/FICPress/eurozone.pdf).
  5. For the other criteria, as well as the IMF’s reconsideration of this policy, see www.imf.org/en/News/Articles/2015/09/28/04/53/sopol012916a.
  6. Ibid.
  7. In 2010, Germany did not lend directly itself, but through its state-owned, state-guaranteed development bank, KfW.
  8. Principally, articles 125 and 123 of the Treaty on the Functioning of the European Union (www.gov.uk/government/uploads/system/uploads/attachment_data/file/228848/7310.pdf).
  9. For a counterfactual narrative of the handling of the Greek crisis, see ‘How the Euro Crisis was successfully resolved’, by Barry Eichengreen and Charles Wyplosz in ‘How to fix Europe’s monetary union: Views of leading economists’, a VoxEU.org eBook edited by Richard Baldwin and Francesco Giavazzi, 12 February 2016, available at http://voxeu.org/content/how-fix-europe-s-monetary-union-views-leading-economists.
  10. Eurogroup statement at www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/122908.pdf and European Council conclusions at www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/123075.pdf. More generally, information on the chronology of European decisions and links to them can be found at the European Commission’s website ‘The financial and economic crisis – a chronological overview’ (http://ec.europa.eu/economy_finance/crisis/2011-07_en.htm).
  11. The proposal was leaked (http://ftalphaville.ft.com) on the day of a meeting between bankers, Eurogroup and EU representatives to start a discussion on this.
  12. The full statement here: www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/123978.pdf.
  13. Fuller details on the second rescue package, the first and second PSI offering very valuable summaries and comparisons can be found in ‘The Greek Debt Restructuring: An Autopsy’ by Jeromin Zettelmeyer, Christoph Trebesch and Mitu Gulati, August 2013 (https://piie.com/sites/default/files/publications/wp/wp13-8.pdf).
  14. The full statement here: www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/125644.pdf.
  15. It is to be noted that the IMF and EU did not share these models with anyone and this resulted in unnecessary friction and delays in the negotiations that followed. See below on how the IMF has since modified its policy.
  16. See Zettelmeyer, Trebesch and Gulati, ibid, or the Greek offer documents themselves which can be found in Volume B of the Greek Government Gazette, issue 682, dated 9 March 2012.
  17. For a presentation of the key strategy followed to achieve this outcome see Lee C. Buchheit and Mitu Gulati ‘How to Restructure Greek Debt’ (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1603304) as well as their follow-up paper ‘Greek Debt – the Endgame Scenarios’ (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1807011).
  18. For an excellent discussion of the bond exchange, the potential merits of challenges and of the collective action problem in the context of the exchange see Alexander Metallinos ‘Sovereign debt and debt restructuring: legal, financial and regulatory aspects’, published by Globe Law And Business, Consulting editor, Eugenio A. Bruno, London 2013. See also the ECHR’s press release (www.humanrightseurope.org/2016/07/greece-court-rules-against-haircut-on-bonds-human-rights-challenge/) and decision (https://cases.legal/en/act-echr1-151137.html).
  19. For another discussion of the bond exchange and why it was a landmark, see the paper published by Allen & Overy’s Global Law Intelligence Unit ‘How the Greek debt reorganisation of 2012 changed the rules of sovereign insolvency’ (www.allenovery.com/SiteCollectionDocuments/AO%20-%20Greek%20debt%20reorganisation%20of%202012.pdf).
  20. For a detailed discussion of CDSs in the context of sovereign restructurings, see the paper published by Allen & Overy’s Global Law Intelligence Unit ‘Sovereign state restructurings and credit default swaps’ (www.allenovery.com/archive/Documents/Legacy/64485.pdf).
  21. See ‘Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy Framework’ (www.imf.org/external/np/pp/eng/2013/042613.pdf) for the launch of this debate. Several other papers have been published and can be found at the Fund’s website.
  22. For the IMF’s work on this see www.imf.org/external/pubs/ft/dsa/.