The FT carries has an op-ed with an interesting proposal for resolving the eurzone crisis. (A shorter version of the article appeared following the Roubini piece that Kevin linked to yesterday.)
The essence of the proposal is a selective Greek default, with preferential treatment given to official creditors. Whatever the merits of such selectivity, the proposal does offer a way for Ireland (and Portugal) to differentiate itself from Greece. This is done through the use of explicit triggers before invoking restructuring under the ESM.
[C]ontagion to Ireland and Portugal can be avoided through the introduction of an ESM clause that allows debt restructuring only when the debt/GDP ratio and debt servicing/GDP ratios exceed 110 per cent and 6 per cent respectively, levels that neither Ireland nor Portugal are expected to breach. The markets recognise that Greece is different.
The proposed debt/GDP ratio looks too low based on current projections. It would probably need to be in the vicinity of 130 per cent to allow for adverse shocks. But an explicit trigger set at reasonable level would give confidence to markets that a country following its programme would not be forced to impose a restructuring as a condition of any future programme. (However, the preference given to official creditors would make a restructuring very costly for non-official creditors in the event that the trigger was breeched.) The threat of restructuring is now making it almost impossible for Ireland to regain market access. The proposal offers a way of both resolving the Greek crisis and avoiding rolling contagion through policy precedent.