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How to make a drachma out of a crisis

Greece remains the crux of the problem for investors in the eurozone. Until there is visibility over what will happen in Greece sovereign contagion will continue to spread and the rolling crises will keep on coming.

In July the EU announced a further €109 billion package for Greece that incorporated a €135 billion distressed debt exchange. Although it seemed that policymakers were at last inching in the right direction ("Buying back bonds was only the most obvious solution, and look how many rounds of negotiations it took for them to get there," sniffs one expert) the situation remains far from straightforward. Take-up by the private sector of the offer for bonds that mature before 2020 to be swapped for new longer-dated instruments of up to 30 years has been lacklustre. When just €65 billion was pledged to the scheme it was extended to bonds maturing after 2020 to incorporate a further €20 billion of bonds. (The scheme is designed to shave €13.5 billion from the country’s €350 billion public debt.) The debt exchange has presented the European Central Bank with a headache as to the eligibility of such selectively defaulted collateral for funding.

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