Buchheit and Gulati on Greek Debt

Today’s article by Wolfgang Munchau is a summary of the dinner talk that he gave at last week’s EUI workshop on sovereign default. A very interesting counterpart to Munchau’s article is this paper by veteran sovereign debt lawyer Lee Buchheit (lead negotiator for Iceland! with its creditors) and Mitu Gulati (Duke law professor) which discusses other scenarios for Greek debt. Buchheit and Gulati gave very interesting presentations on this and other relevant topics at the EUI conference (a podcast is due to go up this week and I will pass on the link when it does). It perhaps goes without saying that this paper has a lot of relevance for Ireland.

10 thoughts on “Buchheit and Gulati on Greek Debt”

  1. Excellent paper. On a positive note, little old Ireland looks relatively safer than Greece. It truly looks as if we are entering the end game stage as regards Greece.

  2. Some very interesting scenarios in this paper; well worth looking at what an equivalent presentation along similar lines for Ireland would look like.

  3. @ My Lawyers

    I got this far;

    It would work as follows: each tender of an existing bond
    containing a CAC would contain a power of attorney from the owner of that
    bond in favor of the government (or its exchange agent) to vote that bond at
    a bondholders’ meeting (or in a written action by bondholders) in favor of a
    resolution that, if approved by the requisite supermajority of holders of that
    instrument, would either cause the totality of that bond to be tendered in the
    exchange or cause the payment terms of the bond to be amended so as to
    match the terms of one of the new instruments being offered in the
    exchange. Such a resolution, if approved by the requisite supermajority of
    holders (66% or 75% in Greek bonds governed by English law) would
    automatically bind all holders.’

    ‘Aide Memoire’ please. 🙂

    @ DO’D
    Fantastic paper, where are ‘our guys’ to your suggestion?

    I just can’t understand how no one gamed this out for Ireland before now – really so disappointing.

  4. @ MH-Finfacts

    Many thanks for this very interesting and informative contribution. Coming events cast their shadows before them, as the saying goes.

    Incidentally, there is a word in Finnish called ‘sisu’ which describes the country admirably. I wonder if there is a translation into Irish!


    P.S. It is rather surprising that this thread has such a short list of contributors.

  5. @ Michael Hennigan

    Good link.

    Sorry to add to your burden but didn’t the Finnish get themselves out of their most recent financial crisis in the 90s on their own recources without significant external assistance?

    re: previous threads.

    Regarding Finland.

    A relevant Abstract.

    “In the 1990s, Finland underwent a deep depression as its GDP dropped about 14% and unemployment rose from 3 to almost 20%.

    This is a story of bad luck and bad policies. Bad luck took the form of external shocks: the collapse of trade with the former Soviet Union in 1991, but also sharp cycles in the OECD area. However, bad luck is far from being the whole story.

    In the absence of bad policies, Finland would have experienced a recession, not a depression. Bad policies included a poorly designed financial regulation and mistaken reactions to the onset of the crisis.

    Of particular interest is the role of financial factors in triggering the crisis and aggravating the effects of bad policies. Not only were consumption and investment spending hurt by the credit crunch, but there is evidence that the private sector’s indebtedness has increased structural unemployment, which explains why the recovery is proceeding with few job creations.

    A number of general lessons emerge. They concern the deregulation of financial markets, the policy reaction to massive capital inflows and the role of employment policies.”

    Author Info
    Seppo Honkapohja
    Erkki Koskela

    Copyright Centre for Economic Policy Research, Center for Economic Studies, Maison des Sciences de l’Homme, 1999. IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut. http://repec.org

    Obviously an obscure piece of economic literature.


    The Economist Chart

    I noted this last week and see that most governments are covering all public exposure and a proportion of the banks to relative degrees.

    Any thoughts on why Italy is a ‘super contributor’ relative to the rest and their relevant exposure?

    Are the contributions related to specific bond issuances?


    Sisu – indeed a quality we are going to need in the coming years.

  6. @ MH-Finfacts

    One could reflect on what might be attractive from a German point of view in a Brady Bonds style solution to the Greek problem. Some of the elements might be as follows.

    It would recognise that the two-step solution – EFSF morphing into the ESM – as imagined at Deauville is impracticable both technically and politically.

    It would confront the real problem, that of the exposure of European banks – although only the fate of German banks is of concern to Berlin – in a manner that might be saleable politically.

    It would cost the AAA rated countries very little, assuming the EFSF provided the necessary guarantee or collateral for the bonds exchanged.

    It should prove attractive to banks, in particular, who want to clean up their balance sheets and could therefore be viewed as voluntary.

    It would not be seen as a general move to eurobonds but one tailored to meet one particular problem: that of Greece.

    It does not, however, provide a get out of jail card for Ireland. We will be required to continue to stick to the programme as it is far from established that the problem for Ireland is “unsustainable”. Proof that is will emerge only in the light of developments in the real economy.

    Neither should it be assumed that the card would be to Ireland’s benefit. Far from it. Any possibility of an early return to normality for the Irish economy in international financial markets would be ruled out.

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