ISSUE 2011/07

JUNE 2011
DEBT RESTRUCTURING IN THE
EURO AREA: A NECESSARY
BUT MANAGEABLE EVIL?
ZSOLT DARVAS
Highlights
There are two possible responses to the Greek debt crisis: Plan A, continued
official lending, for as long as needed, with possible voluntary private sector
involvement, and Plan B, coercive pre-emptive or post-default restructuring
with significant face value reduction. Both options have risks, but it is neces-
sary to move to Plan B sooner or later. The impact on Greece could be mitiga-
ted by foreign bank ownership and proper liquidity support measures. The
direct spillover impact on the rest of the euro area seems small. But there is
the risk of contagion, which is a serious concern. There is a cautious case for
delaying somewhat Plan B in order to prepare for it.
Zsolt Darvas (zsolt.darvas@bruegel.org) is a Research Fellow at Bruegel. This
Policy Contribution was originally prepared as a briefing paper for the European
Parliament's Economic and Monetary Affairs Committee ahead of the Monetary
Dialogue with European Central Bank president Jean-Claude Trichet on 20 June
2011, on the subject of Debt restructuring ramifications for the euro area.
Copyright remains with the European Parliament at all times.
The author would like to thank Ed Brau, Jean Pisani-Ferry and several Bruegel
colleagues for very helpful comments and suggestions, and Christophe Gouardo,
Lucia Granelli and Silvia Merler for excellent research assistance.
Telephone
+32 2 227 4210
info@bruegel.org
www.bruegel.org
BRUEGEL
POLICY
CONTRIBUTION

8|ucgc| 2011 1
!"#$%&'(#)*%++,-.)

8ac|g|ouod

lt |s |oc|cas|og |||c|u t|at 0|cccc W||| oot bc ab|c to |ctu|o to oa||cts aou t|oc sooo. !|c|c a|c tWo
uoss|b|c sccoa||os. t|c so ca||cd 'l|ao /', coot|oucd ott|c|a| |cod|og W|t| uc||aus vo|uota|u u||vatc
sccto| |ovo|vcocot, aod 'l|ao 8', W||c| s|ou|d cota|| a s|go|t|caot dcbt |cduct|oo. !|c goa| ot t||s
b||ct|og uauc| |s to asscss t|csc tWo out|oos |o ||g|t ot ||sto||ca| cxuc||cocc.

Ha|o cooc|us|oos

8ot| out|oos |avc sc||ous ||s|s.
!|c ||s|s ot l|ao / |c|atc to |ou|cocotat|oo, sutt|c|cocu, cxtc|oa| uo||t|cs, aod t|c ott|c|a|
ta|covc| |o 0|cc| |cod|og. !|c|c Wou|d a|so bc a ||s| ot a cu|o-a|ca uo||t|ca| c||s|s.
'\o|uota|u' u||vatc sccto| |ovo|vcocot |s uo|||c|u to Wo||.
l|ao 8 |as t|c uotcot|a| to| c|cat|og s|go|t|caot advc|sc cttccts W|t||o 0|cccc aod bcuood
|ts bo|dc|s. 8ut s|occ l|ao 8 |s occcssa|u, Lu|ouc s|ou|d u|cua|c to| |t. / suddco dctau|t
W|t|out u|cua|at|oo Wou|d |avc oo|c sc||ous advc|sc cttccts.
!|c ||s|s to| 0|cccc oa|o|u |c|atc to t|c bao||og sccto|, bccausc ooo-bao| |cs|dcot
|o|d|ogs ot 0|cc| dcbt a|c oot |a|gc. lo||cuoa|c|s s|ou|d cxu|o|c out|oos to| b||og|og
s|go|t|caot to|c|go bao| oWoc|s||u to t|c 0|cc| bao||og sustco, W||c| Wou|d |c|u o|t|gatc
t|c t||cc oa|o| u|ob|cos. cau|ta|, acccss to ||qu|d|tu aod c|cd|b|||tu to avo|d |uos oo bao|s.
lt add|t|ooa| bao| cau|ta| t|oo u||vatc sou|ccs caooot bc sccu|cd, cc|ta|o Lu tuods s|ou|d
bc uscd. / Wc||-dcs|gocd dcbt cxc|aogc aod |c||aocc oo t|c Lxccut|ooa| L|qu|d|tu
/ss|staocc cou|d a|so |c|u |o suuuo|t|og 0|cc| bao|s W|t| ||qu|d|tu.
!|c |c|at|vc|u soa|| d||cct cxuosu|c ot ooo-0|cc| cu|o-a|ca bao|s suggcsts t|at d||cct
su|||ovc| |s a oaoagcab|c ||s|. 8ut cootag|oo |s a sc||ous Wo||u aod t|c|c |s a st|oog casc
to| a t|o|oug| L888 aoa|us|s. uoWcvc|, t|c 0|cc| casc |s tuodaocota||u d|ttc|cot t|oo t|c
bao||uutcu ot Lc|oao 8|ot|c|s. /|so, ot|c| cu|o-a|ca couot||cs cou|d Wc|| d|ttc|cot|atc
t|cosc|vcs t|oo t|c t||cc u|og|aooc couot||cs at a t|oc W|co t|c u|obab|||tu ot a 0|cc|
dctau|t |s vc|u ||g|.
!|c|c |s a caut|ous casc to| dc|au|og soocW|at l|ao 8 |o o|dc| to u|cua|c to| |t.
l|ao 8 |s oot ao a|tc|oat|vc to t|sca| ad|ustocot, st|uctu|a| |cto|os aod u|ouc| |cto|o o|
u||vat|sat|oo ot statc-oWocd cotc|u||scs, but a u|c|cqu|s|tc to| a succcsstu| t|sca|
cooso||dat|oo.
l|ao 8 |as oo |ou||cat|oo to| ao cx|t t|oo t|c cu|o a|ca.
8cst|uctu||ogs |o coc|g|og couot||cs du||og t|c |ast 1L uca|s Wc|c to||oWcd bu a qu|c|
|cbouod |o outuut, W|t| 0ul |oc|cas|og bu 17 uc|ccot oo avc|agc |o t||cc uca|s attc|
|cst|uctu||og. uoWcvc|, t|c 0|cc| s|tuat|oo |s tuodaocota||u d|ttc|cot aod suc| qu|c|

8|ucgc| 2011 2
tu|oa|ouod |o ccoooo|c uc|to|oaocc caooot bc cxucctcd.
!|oc to oa||ct acccss attc| sovc|c|go |cst|uctu||ogs |as s|o|tcocd substaot|a||u |cccot|u.
lt |a|gc|u dcucods oo t|c Wau t|c |cst|uctu||og |s o|gao|scd aod |t uost-|cst|uctu||og uub||c
dcbt |s scco as susta|oab|c.


1. INTRODUCTION

!|c cu|o-a|ca sovc|c|go dcbt c||s|s |as cotc|cd a ocW u|asc. lt |s |oc|cas|og |||c|u t|at 0|cccc W|||
oot bc ab|c to |ctu|o to oa||cts aout|oc sooo aod Lu|oucao uo||cuoa|c|s d|sag|cc oo t|c so|ut|oo
to |cocdu to t||s u|ob|co. !|c |at|og ot 0|cc| sovc|c|go dcbt |as bcco doWog|adcd tu|t|c|, to t|c
|oWcst |cvc| aooog couot||cs cu||cot|u |atcd, aod sccooda|u oa||ct u|c|ds |avc s|u|oc|ctcd.
!|c|c |s ooW a vc|u ||g| uc|cc|vcd u|obab|||tu ot a 0|cc| |cst|uctu||og.

!|c cu|o a|ca |as cotc|cd t||s s|tuat|oo dcsu|tc vc|u s|go|t|caot ctto|ts oadc bu t|c 0|cc|
govc|oocot to |ou|cocot t|c Hau 2010 u|og|aooc W|t| t|c t|oaoc|a| aod tcc|o|ca| suuuo|t ot
Lu|oucao ua|toc|s aod t|c lHl. 8ut duc to d|tt|cu|t|cs |o |ou|cocot|og t|c u|og|aooc aod t|c
Wca|c| t|ao cxucctcd ccoooo|c uc|to|oaocc, t|c 0|cc| uub||c dcbt to 0ul |at|o |as bcco tu|t|c|
|cv|scd uuWa|ds oa||og |t cvco oo|c uo|||c|u t|at add|t|ooa| u||vat|sat|oo aod austc|c ocasu|cs
W||| |csto|c uub||c dcbt susta|oab|||tu.

toocc|os ovc| t|c cooscqucoccs ot a 0|cc| |cst|uctu||og a|c |ust|t|cd. lt |as t|c uotcot|a| to c|catc
s|go|t|caot advc|sc cttccts W|t||o 0|cccc aod bcuood |ts bo|dc|s. \ct out|oos a|c ||o|tcd. !|c|c a|c
bas|ca||u tWo out|oos, d|ttc||og W|ct|c| a s|go|t|caot dcbt |cduct|oo |s soug|t o| oot.

l|ao /. toot|oucd ott|c|a| |cod|og, to| as |oog as occdcd, W|t| uoss|b|c vo|uota|u u||vatc
sccto| |ovo|vcocot {l8l) W|t|out tacc va|uc |cduct|oo aod W|t| ao attcout to avo|d a c|cd|t
cvcot {scc /uucod|x 1 to| t|c dct|o|t|oo ot c|cd|t cvcots),
l|ao 8. toc|c|vc u|c-cout|vc o| uost-dctau|t |cst|uctu||og W|t| s|go|t|caot tacc va|uc
|cduct|oo, W||c| cao bc Wc||-u|cua|cd o| ocssu, uct t||s out|oo W||| a|so |cqu||c t|c
coot|ouat|oo ot ott|c|a| |cod|og {but oo a soa||c| sca|c).

!|c goa| ot t||s lo||cu toot||but|oo |s to asscss t|csc tWo out|oos |o ||g|t ot ||sto||ca| cxuc||coccs.


8|ucgc| 2011 3
2. CAN RESTRUCTURING BE AVOIDED IN THE EURO AREA?

lo a uauc| uub||s|cd |o lcb|ua|u 2011 ua|vas, l|sao|-lc||u aod 8au|| {2011) caoc to t|c
cooc|us|oo t|at 0|cccc |s t|c oo|u cu|o-a|ca couot|u |o W||c| uub||c dcbt |s uoaob|guous|u
uosusta|oab|c
1
. Ho|c |cccot |oto|oat|oo oo|u coot||ocd t||s asscssocot.

!ab|c 1 s|oWs dcbt aod u||oa|u ba|aocc to|ccasts to| 2012. lo|ccasts uub||s|cd |o uovcobc|
2010 aod |o Hau 2011 a|c |cuo|tcd |o o|dc| to oa|c |t uoss|b|c to asscss c|aogcs |o t|c
cood|t|oo|og |oto|oat|oo sct ot to|ccasts.

0|cccc c|ca||u staods out |o tc|os ot uub||c dcbt. lu|t|c|oo|c, to|ccasts dctc||o|atcd |o t|c
uast |a|t uca| {10.1 uc|ccotagc uo|ots ||g|c| dcbt aod 1.L uc|ccotagc uo|ots ||g|c|
u||oa|u dct|c|t), suggcst|og t|at |o su|tc ot s|go|t|caot ad|ustocots, t|c Hau 2010
u|og|aooc |s oot oo t|ac|.
lo t|c ot|c| couot||cs to|ccasts |avc c|t|c| |ou|ovcd o| |coa|ocd b|oad|u stab|c. !|c
cxccut|oo |o tc|os ot dcbt |s lo|tuga|, W|c|c dcbt Was |cv|scd uuWa|ds bu 1L uc|ccotagc
uo|ots, uct t|c 107 uc|ccot |cvc| |s Wc|| bc|oW 0|cc| va|ucs, aod t|c u||oacu dct|c|t
to|ccast |as |ou|ovcd. !|csc |cv|s|oos do oot c|aogc t|c asscssocot t|at t|c s|zcs ot t|c
|cqu||cd t|sca| ad|ustocot aod t|c uc|s|stcot u||oa|u su|u|us a|c oot ||g| cooug| to |u|c
out susta|oab|||tu.

Table 1: Public debt and primary balance forecasts for 2012 in selected euro area countries


!"#$%&'()#*'%+',-.,'/0'12!3' !4%5647'#6$6+&)'%+',-.,'/0'12!3'

lo|ccast
uub||s|cd |o
uovcobc|
2010
lo|ccast
uub||s|cd |o
Hau 2011
t|aogc
|o
to|ccast
lo|ccast
uub||s|cd |o
uovcobc|
2010
lo|ccast
uub||s|cd |o
Hau 2011
t|aogc
|o
to|ccast
l|og|aooc
couot||cs
0|cccc 1L.0 1.1 10.1 -0.8 -1.8 -1.L
l|c|aod 114.8 117.0 8. -4.8 -4.2 0.
lo|tuga| 02.4 107.4 1L.0 -1.1 0.8 1.4
8c|cctcd
ot|c|
couot||cs
8ua|o 78.0 71.0 -2.0 -2.7 -2.0 -0.2
lta|u 110.0 110.8 -0.1 1.4 1.0 0.L
8c|g|uo 102.1 07.L -4. -1.1 -0.7 0.4
0c|oaou 7L.2 81.1 L.0 0. 1.2 0.
8ou|cc. u0 Ltllu /utuoo 2010 aod 8u||og 2011 to|ccasts.

1
8ot| 0|cccc aod l|c|aod |avc to |ou|cocot vc|u s|go|t|caot t|sca| ad|ustocot. 8ut |t |s oot oo|u t|c s|zc ot t|c ad|ustocot ctto|t
t|at oattc|s. 0u| |cu |od|cato| ot so|vcocu |s t|c s|zc ot t|c u||oa|u budgct su|u|us W||c| occds to bc oa|ota|ocd ovc| a uc||od ot
scvc|a| uca|s to ac||cvc, |o t|c ocd|uo tc|o, a g|adua| |ctu|o to satc |cvc|s ot uub||c dcbt. uc|c 0|cccc staods aua|t t|oo t|cot|c|
couot||cs W|t| t|c occd to| a ||sto||ca||u uou|cccdcotcd u||oa|u su|u|us, W|||c t|c l||s| u||oa|u su|u|us occd |s oot cxt|ao|d|oa|u.
8casoos to| t||s d|ttc|cocc a|c t|c |oWc| |cvc| ot l||s| uub||c dcbt at cod-2010 aod t|c bcttc| g|oWt| out|oo|.

8|ucgc| 2011 4

toocc|o|og 0|cccc, t|c u|aoocd L L0 b||||oo u||vat|sat|oo |cvcoucs u|ao |s vc|u aob|t|ous. lt
aoouots to about 22 uc|ccot ot 0ul aod, |o su|tc ot t|c aooouoccd c|cat|oo ot ao |odcucodcot
u||vat|sat|oo agcocu, |t cou|d u|ovc d|tt|cu|t to |ou|cocot |o tu||. \ct cvco |o t|at casc, u||vat|sat|oo
|ccc|uts W||| oot bc sutt|c|cot to uut 0|cc| uub||c dcbt oo a susta|oab|c uat|. lo su|tc ot t|c c|ca||u
statcd ouuos|t|oo ot t|c Lu|oucao uo||cu cooouo|tu, |t |s d|tt|cu|t to scc |oW a |cst|uctu||og cao bc
avo|dcd.


3. SOME LESSONS FROM RECENT DEFAULTS AND RESTRUCTURINGS

Lcssoos t|oo ||sto||ca| |cst|uctu||ogs to| t|c cu|ozooc a|c |ost|uct|vc but ||o|tcd, bccausc a||
|cccot |cst|uctu||ogs too| u|acc |o coc|g|og aod dcvc|ou|og couot||cs uodc| d|ttc|cot
c||cuostaoccs. uoWcvc|, t|c|c a|c |ouo|taot gcoc|a| |cssoos W|t| |ou||cat|oos to| a uoss|b|c
sovc|c|go |cst|uctu||og W|t||o t|c cu|o a|ca.

3.1. Channels through which sovereign defaults and restructurings impact the economy
'
!|c|c a|c va||ous c|aooc|s t||oug| W||c| a sovc|c|go dctau|t o| dcbt |cst|uctu||og cao |ouact t|c
ccoooou, as cou|as|scd bu, to| cxaou|c, lHl {2002).

/ d||cct, ocgat|vc Wca|t| cttcct oo |ousc|o|ds aod ooo-t|oaoc|a| co|uo|at|oos cao squcczc
coosuout|oo aod |ovcstocot,
toot|dcocc cao u|uooct aod aou||tu t|c outuut ta||,
lub||c dcbt |cst|uctu||og cao |cad to a co||ausc ot t|c cxc|aogc |atc, W||c| advc|sc|u
|ouacts a|| lx bo||oWc|s,
8ovc|c|go dcbt c||scs uscd to co|oc|dc W|t| bao||og aod cu||coc|cs c||scs, aou||tu|og t|c
|ouact ot cac| ot|c|s,
!|c bao||og sustco |as a c|uc|a| |o|c. !||s |ovo|vcs scvc|a| c|aooc|s t||oug| W||c| bao|s
cao bc |ouactcd aod |o tu|o |ouact ccoooo|c act|v|tu.
o 8ao|s' asscts suttc| d||cct|u t|oo uub||c dcbt |cst|uctu||og,
o !|c|c cao bc a bao| |uo {dcuos|t W|t|d|aWa|) duc to |oss ot coot|dcocc,
o lo t|c cvcot ot ao cxc|aogc |atc co||ausc, uo|cdgcd lx uos|t|oo ot t|c bao|s cao
tu|t|c| coou|oo|sc bao|s' ba|aocc s|ccts, as Wc|| as |osscs oo lx |cod|og,
o 8||tt t|oo doocst|c cu||cocu to to|c|go cu||cocu dcuos|ts cao tuc| cxc|aogc |atc
dcu|cc|at|oo,
o !|c |otc|bao| oa||ct cao t|cczc duc to ta|||og bao|s aod |ac| ot coot|dcocc |o t|c
ot|c|s,

8|ucgc| 2011 5
o lotc|cst |atc |||cs, W||c| tuu|ca||u accoouao|cs c||scs, cao |oc|casc t|c cost ot
tuod|og,
o l||g|t to qua||tu cao |ouact Wca|c| bao|s, as dcuos|t cao s||tt to |ca|t||c|, ottco
to|c|go oWocd, bao|s,
o lo t|c cvcot ot a bao| ta||u|c dcuos|to|s cao susta|o |osscs, |cad|og to tu|t|c|
Wca|t| cttccts,
o /s a cooscqucocc, c|cd|t c|uoc| cao occu| aod t|c uauocot sustco cao a|so
suttc|, uus||og t|c ccoooou tu|t|c| doWo.
!|c |otc||uut|oo ot cau|ta| |ot|oWs oau to|cc to a u|oout cu||cot accouot ad|ustocot {t|at
tuu|ca||u c|a|actc||scs couot||cs cod|og |o a |cst|uctu||og), W||c| |s cost|u |o tc|os ot
outuut,
!|c |ouact oo ooo-t|oaoc|a| co|uo|at|oos cao bc o|xcd. ||g||u |cvc|agcd co|uo|at|oos cao
suttc| c|t|c| to|o t|c ba|aocc s|cct cttcct |o t|c casc ot lx bo||oW|og, o| t|oo t|c
|otc|cst |atc |||cs |o t|c casc ot |oca| cu||cocu bo||oW|og , W|||c |css |cvc|agcd t||os cao
bcoct|t t|oo t|c cxc|aogc |atc dcu|cc|at|oo,
8cst|uctu||og ot t|c sovc|c|go's ob||gat|oos cao uodc|o|oc t|c coot|dcocc |o t|c va|uc ot
ot|c| ccoooo|c coot|acts,
l|oa||u, |cst|uctu||og |o a couot|u oau |avc su|||ovc|s aod cootag|ous cttccts oo ot|c|
couot||cs, W||c| oau tccd bac| to t|c couot|u t||oug| t|adc aod t|oaoc|a| ||o|agcs.

3.2. Some recent examples

8cst|uctu||ogs |avc s|zcab|c doocst|c costs as cou|as|scd bu cg lao|zza, 8tu|zcocggc| aod
cttc|ocuc| {2000). !|c |ouo|taocc ot t|c c|aooc|s d|scusscd |o t|c u|cv|ous subscct|oo
dctc|o|ocs t|c |ouacts. \ct ccoooo|c outcoocs !"#$% |cccot sovc|c|go dctau|ts aod |cst|uctu||ogs
Wc|c qu|tc tavou|ab|c, csucc|a||u |o ||g|t ot t|c attc|oat| ot t|c Lat|o /oc||cao dcbt |cst|uctu||ogs
ot t|c 1080s. 0ul u|c|cd uu qu|c||u aod t|c outuut |cvc| |o t|c 12 cascs s|oWo oo l|gu|c 1 Was oo
avc|agc 17 uc|ccot ||g|c| t||cc uca|s attc| |cst|uctu||og {scc /uucod|x 2 to| t|c ||st ot t|csc
cascs aod sooc add|t|ooa| |oto|oat|oo)
2
. 8|o||a| |csu|ts auu|u to cou|ouocot dcvc|ouocots.


2
0ua|tc||u data |s oo|c |oto|oat|vc t|ao aooua| data, W||c| |s cxcou||t|cd bu t|c casc ot /|gcot|oa. !|c dctau|t occu||cd |o 04
2001. &'$%!($ aooua| 0ul Was 11 uc|ccot |oWc| |o 2002 t|ao |o 2001, suggcst|og t|at t|c|c Was a s|go|t|caot outuut ta|| !"#$% t|c
dctau|t. 8ut qua|tc||u data c|ca||u |od|catc t|at t|c duoao|cs Was d|ttc|cot {l|gu|c 1). t|c|c Was a s|zcab|c outuut ta|| bcto|c t|c
dctau|t aod |o t|c qua|tc| ot dctau|t, but attc| |t t|c|c Was a s|og|c qua|tc| {01 2002) W|co 0ul tc|| tu|t|c|. uotc t|at t|c cxc|aogc
|atc co||auscd |o )aoua|u 2002 W|t| a|| assoc|atcd cooscqucocc oo to|c|go cu||cocu bo||oWc|s aod t|c bao||og sustco. 0ul
sta|tcd to |ccovc| a||cadu |o 02 2002. /cco|d|og to 8|c|c| {2011), stab|||sat|oo ot t|c bao||og sustco u|aucd a c|uc|a| |o|c |ot|c
qu|c| |ccovc|u.

8|ucgc| 2011 6
Figure 1: Quarterly GDP developments before and after twelve public debt defaults or
restructurings during the past 15 years (quarter of restructuring = 100, at constant prices)
80
85
90
95
100
105
110
115
120
125
130
80
85
90
95
100
105
110
115
120
125
130
T
-
8
T
-
4 T
T
+
4
T
+
8
T
+
1
2
Argentina, Q4 2001
Dominican Republic, Q2 2005
Ecuador, Q3 1999
Ecuador, Q4 2008
Indonesia, Q2 1998
Moldova, Q2 2002
Average of the 12 cases
80
85
90
95
100
105
110
115
120
125
130
80
85
90
95
100
105
110
115
120
125
130
T
-
8
T
-
4 T
T
+
4
T
+
8
T
+
1
2
Pakistan, Q3 1999
Peru, Q3 2000
Russia, Q3 1998
Ukraine, Q1 2000
Uruguay, Q2 2003
Venezuela, Q3 1998
Average of the 12 cases

8ou|ccs. uat|ooa| lost|tutc ot 8tat|st|cs aod tcosuscs ot /|gcot|oa, 8aoco tcot|a| dc |a 8cuub||ca uoo|o|caoa, 0Ltu {to| lodoocs|a),
lHl ll8 {to| Ho|dova. oo|u 0ul |o cu||cot u||ccs |s ava||ab|c t|at l dct|atcd W|t| t|c coosuoc| u||cc |odcx), lost|tuto uac|ooa| dc
Lstad|st|ca c loto|oat|ca {lc|u), lcdc|a| 8tat 8tat|st|cs 8c|v|cc ot t|c 8uss|ao lcdc|at|oo, 8tatc 8tat|st|cs tooo|ttcc ot u||a|oc,
8aoco tcot|a| dc| u|uguau, 8aoco tcot|a| dc \coczuc|a aod kcoa| aod Hu|aooad la|ooq /|bu {2004) to| la||stao. 8casooa||u
ad|ustcd 0ul |s ava||ab|c oo|u to| Lcuado|, l |avc ad|ustcd a|| ot|c| sc||cs us|og tcosus x12.
uotc. ! oo t|c |o||zoota| ax|s |od|catcs t|c qua|tc| ot dctau|t. 8cc /uucod|x 2 to| a b||ct dcsc||ut|oo ot t|c s|oWo cascs.

w|at tacto|s cxu|a|o t|c o|oo| g|oWt| |ouact ot |cccot dctau|ts aod |cst|uctu||ogs aod t|c qu|c|
ccoooo|c g|oWt| |o t|c attc|oat|
8
8cvc|a| tacto|s oau |avc u|aucd a |o|c.

lt |s |ouo|taot to obsc|vc t|at |o s|x cascs s|oWo |o l|gu|c 1 {/|gcot|oa, lodoocs|a, t|c
1000 casc ot Lcuado|, 8uss|a, \coczuc|a aod u|uguau) a s|zcab|c outuut ta|| u|cccdcd
|cst|uctu||og. 0o t|c ooc |aod, t||s suggcsts t|at dctc||o|at|og ccoooo|c uc|to|oaocc

8
lo aosWc||og t||s qucst|oo l d|aW oo lHl {2002) aod 8tu|zcocggc| aod cttc|ocuc| {200).

8|ucgc| 2011 7
oau |avc b|oug|t about t|c dctau|t/|cst|uctu||og, but oo t|c ot|c| |aod, t|c outuut ta||
|as |||c|u |cad to ocgat|vc outuut gaus aod |t |s cas|c| to g|oW W|co t|c|c a|c |d|c
cauac|t|cs,
8uuuo|t ot t|c bao||og sustco u||oa|||u t|oo t|c ccot|a| bao|s, as govc|oocots |avc vc|u
||o|tcd |csou|ccs |o t|c o|dst ot a c||s|s,
8ooc so|t ot dcuos|t t|cczc to avc|t a tu|t|c| csca|at|oo ot bao||og u|ob|cos,
8ooc so|t ot |cst||ct|oos oo cau|ta| outt|oWs, |o sooc cascs cvco oo cu||cot t|aosact|oos,
to |ccu ooocu |os|dc t|c couot|u,
0|v|og uu t|c t|xcd cxc|aogc |atc |o sooc couot||cs. lo s|x ot t|c 11 cascs t|c |ca| cttcct|vc
cxc|aogc |atc {8LL8) dcu|cc|atcd s|a|u|u c|t|c| bcto|c o| attc| |cst|uctu||og {auucod|x
l|gu|c 1), W||c| oau |avc boostcd cxuo|ts. 0o avc|agc ac|oss t|c 11 cascs, 8LL8 Was 10
uc|ccot |oWc| t||cc uca|s attc| cooua|cd to tWo uca|s bcto|c {W|t| W|dc va||at|oos),
!|c d||cct Wca|t| cttcct oo |ousc|o|ds aod ooo-t|oaoc|a| co|uo|at|oos Was ||o|tcd. ua|t|u
duc to ||tt|c d||cct |o|d|og ot govc|oocot uauc|s, ua|t|u bccausc cc|ta|o g|ouus ot
govc|oocot uauc| |o|dc|s Wc|c cxc|udcd t|oo t|c |cst|uctu||og {cg |ousc|o|ds |o 8uss|a),
aod ua|t|u duc to t|c ucos|oo sustcos, Wc|c |a|gc|u uau-as-uou-go tuuc sustcos aod
t|c|cto|c d|d oot |avc s|go|t|caot govc|oocot bood |o|d|ogs,
uctau|ts aod |cst|uctu||ogs |o scvc|a| cascs |cad to a |ctu|o ot doocst|c coot|dcocc, W||c|
|s a|so |ct|cctcd |o acccss to oa||ct tuod|og. dct|o|og acccss |o tc|os ot bood |ssuaocc
o| bao| bo||oW|og |o |otc|oat|ooa| oa||cts, 0c|os, 8aod|c||s aod 8a|au {2004) t|od t|at
t|c du|at|oo ot dctau|t cu|sodc |as s|o|tcocd coos|dc|ab|u bctWcco t|c 1080s aod t|c
1000s t|oo 4.7 uca|s to |css t|ao 1 uca| oo avc|agc {/uucod|x 2).
4
/o ca|||c| oa||ct
acccss |s ao |od|cat|oo ot |ou|ovcd coot|dcocc, W||c| |s suuuo|t|vc to| ccoooo|c g|oWt|,
loc|cascd |ud|oca|boo u||ccs |o t|c uca|s attc| t|c 8uss|ao aod \coczuc|ao dctau|ts
|c|ucd ccoooo|c |ccovc|u,
Lcssc| |o|c ot t|c bao||og sustco |o t|c ccoooou |csscocd t|c |ouact ot t|c bao||og
c||s|s. lo| cxaou|c, cvco t|oug| 8uss|a suttc|cd t|oo a scvc|c bao||og c||s|s attc|
|cst|uctu||og, t|c |o|c ot t|oaoc|a| |otc|ocd|at|oo Was |casooab|u soa||. c|cd|t to 0ul Was
oo|u about 80 uc|ccot bcto|c t|c dctau|t {lHl, 2002).
L

l|sca| t|g|tco|og tuu|ca||u accoouao|cd t|c u|og|aoocs, W||c| oau |ad ooo-kcuocs|ao
cttccts duc to |ou|ovcd coot|dcocc, aod st|uctu|a| |cto|os cou|d |avc boostcd ccoooo|c
g|oWt|.


4
/oa|us|og 10 cu|sodcs ot dctau|t aod us|og a st|oogc| dct|o|t|oo ot acccss {as uos|t|vc oct t|aostc|s), 8|c|oood aod u|as {2000)
t|od t|at couot||cs Wc|c ab|c to |c-cotc| t|c cau|ta| oa||ct attc| L.L uca|s oo avc|agc |o t|c 1080s aod attc| 2.L uca|s |o t|c1000s.
L
/cco|d|og to lHl {2002), govc|oocot uauc|s coost|tutcd 81.L ot tota| asscts ot bao|s |o )uoc 1008 {08 uc|ccot ot t|csc uauc|s
Wc|c |cst|uctu|cd). Lxc|ud|og t|c statc-oWocd 8bc|bao|, W||c| accouotcd to| a|oost a qua|tc| ot a|| asscts, oost ot t|c |coa|o|og
tou L0 bao|s bccaoc |oso|vcot to||oW|og t|c govc|oocot dctau|t. /ttc| t|c ta||u|c ot sooc bao|s, |ousc|o|d dcuos|ts Wc|c
t|aostc||cd to t|c 8bc|bao|, W|c|c t|cu Wc|c gua|aotccd.

8|ucgc| 2011 8
3.3. Lessons for the euro area

!|c s|tuat|oo ot 0|cccc |s tuodaocota||u d|ttc|cot t|oo t|csc |cccot ||sto||ca| cascs duc to t|c
to||oW|og |casoos.

Huc| ||g|c| dcbt |cvc|,
Huc| oo|c |ouo|taot |o|c ot bao||og |o t|c ccoooou,
8c|og ua|t ot ao |otcg|atcd uo|oo,
Lac| ot a staod-a|ooc ccot|a| bao|,
Lac| ot a staod-a|ooc cu||cocu,
Lu |cgu|at|oos u|cvcot t|c adout|oo ot sooc ocasu|cs {cg cau|ta| coot|o|s).

8ut t|c|c a|c |ouo|taot |cssoos aod |ou||cat|oos to| ao cvcotua| 0|cc| |cst|uctu||og.

l||st ot a||, t|c oost |ouo|taot |cssoo t|oo uast c||scs |s t|at t|c co||ausc ot t|c bao||og sustco
s|ou|d bc avo|dcd. !o t||s cod, |ccau|ta||sat|oo, coot|oucd acccss to ||qu|d|tu W||| bc occdcd as Wc||
as coot|dcocc to avo|d bao| |uos. l a|guc |o t|c ocxt scct|oo t|at sc|||og 0|cc| bao|s to oa|o| cu|o
a|ca bao||og g|ouus Wou|d b||og a|| ot t|csc c|cocots aod t|c|c a|c Waus to suuuo|t t|c 0|cc|
bao|s W|t| ||qu|d|tu.

8ccood, |t |s c|uc|a| to cstab||s| coot|dcocc. toocc|o|og 0|cccc, |t |s d|tt|cu|t to scc |oW suc| a
coot|dcocc cao bc |csto|cd |o t|c abscocc ot a s|zcab|c dcbt |cduct|oo. 8ctu|o ot coot|dcocc |o t|c
cvcot ot dcbt |cduct|oo vc|u ouc| dcucods oo t|c Wau t|c dcbt |cduct|oo |s o|gao|scd.

!|||d, W|||c |ca| cxc|aogc |atc dcu|cc|at|oo c|a|actc||scd oost cascs, |o sooc ot t|c cascs
{uoo|o|cao 8cuub||c, t|c 2008 casc ot Lcuado|, Ho|dova, lc|u, aod \coczuc|a) tast ccoooo|c
g|oWt| coc|gcd attc| t|c dctau|t W|t|out s|zcab|c |ca| cxc|aogc |atc dcu|cc|at|oo. !|c|cto|c, ooc
caooot cooc|udc t|at |t |s |ouoss|b|c to g|oW attc| a |cst|uctu||og W|t|out |ca| cxc|aogc |atc
dcu|cc|at|oo. uoWcvc|, t|c ooo-dcu|cc|at|og couot||cs |ad sooc succ|a| tcatu|cs {suc| as t|c
|c||aocc oo o|| |cvcoucs |o t|c casc ot \coczuc|a) aod t|c vo|uocs ot dctau|tcd c|a|os Wc|c
gcoc|a||u soa||c| aod qu|c| so|ut|oos Wc|c touod.


8|ucgc| 2011 9
4. EURO-AREA OPTIONS AND IMPLICATIONS

!|c|c a|c bas|ca||u tWo out|oos

coocc|o|og 0|cc| uub||c dcbt, dcucod|og W|ct|c| a s|go|t|caot

dcbt |cduct|oo ot u||vatc|u |c|d dcbt |s soug|t o| oot.

l|ao /. toot|oucd ott|c|a| |cod|og, to| as |oog as occdcd, uoss|b|u W|t| ')*+,#!%- u||vatc
sccto| |ovo|vcocot {l8l) t||oug| t|c |o||-ovc| ot cx|st|og cxuosu|c but W|t|out tacc va|uc
|cduct|oo aod W|t| t|c a|o ot avo|d|og a so ca||cd 'c|cd|t cvcot' {scc t|c /uucod|x to| t|c
d|scuss|oo ot c|cd|t cvcots),
l|ao 8. toc|c|vc u|c-cout|vc o| uost-dctau|t |cst|uctu||og, uoss|b|u W|t| s|go|t|caot tacc
va|uc |cduct|oo. 8cst|uctu||og cao c|t|c| bc Wc||-u|cua|cd o| ocssu, uct t||s out|oo W|||
a|so |cqu||c t|c coot|ouat|oo ot ott|c|a| |cod|og {but oo a |oWc| sca|c).

8ot| out|oos |avc scvc|a| va||aots aod ou d|v|d|og ||oc |s d|ttc|cot t|oo |cccot uo||cu d|scuss|oos.
lo| cxaou|c, |o ou catcgo||sat|oo t|c uos|t|oos ot bot| t|c 0c|oao govc|oocot {'sott
|cst|uctu||og' |ou|u|og a scvco-uca| oatu||tu cxtcos|oo ot u||vatc |cod|og at a ooo-oa||ct |otc|cst
|atc, but W|t|out a tacc va|uc |cduct|oo) aod t|c Lt8 {oo|u a uu|c|u vo|uota|u u||vatc sccto|
|ovo|vcocot |s acccutab|c) bc|oogs to l|ao /, uct t|c|c |s a s|go|t|caot d|ttc|cocc bctWcco t|co.
w|||c bot| cou|d bc |c|utu| as g|v|og oo|c t|oc to 0|cccc, t|csc out|oos Wou|d oot b||og a
s|go|t|caot |cduct|oo |o t|c oct u|cscot va|uc ot dcbt.

4.1. Plan A

Lvco t|oug| ocWs |cuo|ts a|c coot||ct|og, l|ao / W||| |||c|u coot|ouc, at |cast |o t|c s|o|t |uo. / ||od
ot u||vatc sccto| |ovo|vcocot oau bc soug|t, uct W|t| t|c a|o ot avo|d|og a c|cd|t cvcot. 8ut
coot|oucd ott|c|a| |cod|og W|t|out dcbt |cduct|oos |as sc||ous ||s|s aod l8l W|t| t|c a|o ot
avo|d|og a c|cd|t cvcot |s uo|||c|u to Wo||, but cvco |t |t Wo||s, |t W||| oot |cso|vc t|c |ssuc ot uub||c
dcbt uosusta|oab|||tu.

!|c ||s|s |o coot|oucd ott|c|a| |cod|og W|t|out a s|go|t|caot dcbt |cduct|oo a|c ouoc|ous.

./0123*$2$,#!#4),0%456. uoocst|c soc|a| aod uo||t|ca| dcvc|ouocots, as Wc|| as t|c |cs|staocc ot t|c
uub||c sccto| W||c| tca| t|c |oss ot u||v||cgcs, oau ||odc| t|c u|ouc| |ou|cocotat|oo ot t|c
u|og|aooc cvco |t t|c u||oc o|o|stc| |s dctc|o|ocd to uus| t|c u|og|aooc t||oug|.

7/08+""494$,9-0%456. Lvco |t t|c u|og|aooc W||| bc |ou|cocotcd |o tu|| aod a|| u|aoocd u||vat|sat|oo

lo u||oc|u|c, t|c|c |s a t|||d out|oo as Wc||. buubac| ot 0|cc| dcbt at d|scouotcd u||ccs bu ao Lu-tuod. uoWcvc|, as Wc |avc a|gucd
|o ua|vas, l|sao|-lc||u aod 8au|| {2011), t||s |s uo|||c|u to Wo|| aod t|c|cto|c Wc do oot d|scuss t||s out|oo |o dcta|| |c|c.

8|ucgc| 2011 10
|cvcoucs W||| bc co||cctcd, t||s W||| oot oa|c uub||c dcbt to a susta|oab|c uat| {scc 8cct|oo 2).

:/0;<#$%,!*03)*4#49!*0%456. uuc to doocst|c uo||t|ca| dcvc|ouocots, a b||atc|a| |codc| oau uo||atc|a||u
dcc|dc to stou d|sbu|s|og tu|t|c| |oaos to 0|cccc, uutt|og ott|c|a| |cod|og |o |coua|du.
7


=/0>456504,0)""494!*0#!6$)'$%04,0?%$$60*$,@4,(. w|t|out a dcbt |cduct|oo aod t|c cooscqucot |ac| ot
oa||ct acccss |o |atc| uca|s as Wc|| ott|c|a| c|cd|to|s W||| coot|ouc to |cu|acc u||vatc c|cd|to|s aod
cvcotua||u W||| |o|d a|| 0|cc| dcbt. !|c|cbu t|c cu|o a|ca W||| cotc| a suuuo|t uo|oo, a u||asc
co|ocd bu wo|t {2011), W||c| oau |cad to a |oss ot sovc|c|gotu ot 0|cccc, uoWa||aotcd d|suutcs
bctWcco t|c 0|cc| govc|oocot aod |ts ott|c|a| |codc|s, aod Wou|d a|so c|catc oo|a| |aza|d.

A/0>4560")%0!0;+%)B!%$!03)*4#49!*09%4545. ucucod|og oo t|c t|o|og, |t aou ot t|c abovc ||s|s cao |cad to
ao cvcotua| |a||cut oo ott|c|a| |cod|og to 0|cccc. !||s |as t|c uotcot|a| ot c|cat|og a cu|o-a|ca W|dc
uo||t|ca| c||s|s W|t| t|c uotcot|a| ot W|dc-|aog|og cooscqucoccs.

ucbatcs aooog uo||cuoa|c|s |avc oovcd aWau t|oo t|c uu|c vc|s|oo ot l|ao / W|t|out aou u||vatc
sccto| |ovo|vcocot, W||c| Was cov|s|oocd |o Hau 2010. / g|oW|og ouobc| ot uo||cuoa|c|s, oost
|oud|u t|oo t|c 0c|oao govc|oocot, dcoaod a ||od ot u||vatc sccto| |ovo|vcocot. Hot|vatcd ua|t|u
bu t|c tca|s t|oo t|c uo|ooWo cooscqucoccs ot a u||vatc dcbt |cduct|oo aod ua|t|u bu |a|s|
ouuos|t|oo t|oo t|c Lt8, a so|ut|oo t|at docs oot t||ggc| a c|cd|t cvcot |s soug|t.

uoWcvc|, suc| a u||vatc sccto| |ovo|vcocot |s uo|||c|u to dc||vc| sutt|c|cot|u. !|c d|scuss|oo |s
about bao| |o|d|ogs. lt at a||, bao|s cou|d at oost bc |cd t||oug| oo|a| suas|oo to acccut a
vo|uota|u oatu||tu cxtcos|oo W|t| t|c saoc tacc va|uc. 8ut bao|s |o|d|og a|c oot ua|t|cu|a||u |a|gc.
at t|c cod ot 2010 0|cc| bao|s |c|d about 21 uc|ccot ot 0|cc| dcbt, W|||c ot|c| cu|o-a|ca bao|s
|c|d about ao add|t|ooa| 1 uc|ccot {!ab|c 2). ucocc cvco |t succcsstu|, suc| a oatu||tu cxtcos|oo
Wou|d b||og a ||tt|c |c||ct oo|u.

8ut cvco to| bao|s t||s so|ut|oo |s uo|||c|u to Wo||, as ||g|||g|tcd, aooog ot|c|s, bu 8oub|o|
{2011b). !|c aoa|ogu to t|c \|cooa lo|t|at|vc {\l) ot ca||u 2000 |s t|aWcd. !|c \l Was about
oa|ota|o|og t|c cxuosu|c ot oa|o| Lu|oucao bao||og g|ouus to t|c|| ccot|a| Lu|oucao subs|d|a||cs.
wcstc|o Lu|oucao bao|s oWocd t|c bu|| ot t|c bao||og sustco |o t|csc couot||cs aod |t Was t|c||
sc|t |otc|cst to |cso|vc a co||cct|vc act|oo u|ob|co {|c |t a bao| W|t|d|aWs |ts ouc|at|oos, t|c
ccoooo|c s|tuat|oo dctc||o|atcs aod |cocc t|c ot|c|s W||| suttc|, W|||c t|c |o|ot cooo|tocot oa|c
a|| bcttc| ott as t|c s|tuat|oo Was oo|c about ||qu|d|tu aod uocc|ta|o|u). 8ut W|t| 0|cccc t|c
s|tuat|oo |s vc|u ouc| d|ttc|cot.

7
!|c 8|ova||ao ua|||aocot dcc|dcd |o /ugust 2010 oot to |cod at a|| to 0|cccc, W||c| Was oot to||oWcd bu ot|c|s. uoWcvc|, at t|at
t|oc t|c u|og|aooc |ust bcguo aod ot|c| cu|o a|ca ua|toc|s Wc|c oo|c dctc|o|ocd to t|oaocc 0|cccc. !|c uo||t|ca| ag|ccocot oo
t|oaoc|og 0|cccc |s oo|c t|ag||c ooW aod oo|c aod oo|c govc|oocot |ccogo|scs t|at t|c s|tuat|oo |s uosusta|oab|c.

8|ucgc| 2011 11

t|c cxuosu|c |s to t|c govc|oocot,
t|c |o|d|ogs ot bao|s |s |c|at|vc|u soa|| aod |o ua|t|cu|a| t|c coob|ocd |o|d|ogs ot ooo-
0|cc| cu|o-a|ca bao|s |s oo|u 1 uc|ccot,
t|c co||cct|vc oa|otcoaocc ot t|csc bao| cxuosu|cs W||| oot oa|c t|c s|tuat|oo
susta|oab|c, bccausc t|c |ssuc |s so|vcocu, aod a s|go|t|caot|u |a|gc |cduct|oo |o t|c oct
u|cscot va|uc ot 0|cc| dcbt |s oot u|c-cout|vc|u ocgot|ab|c,
aod |t |s uocc|ta|o W|ct|c| a u||vatc sccto| |ovo|vcocot, W||c| |s |abc||cd vo|uota|u, Wou|d
oot o| Wou|d coost|tutc a c|cd|t cvcot. t|c u|t|oatc dcc|s|oo |csts oo a cooo|ttcc {scc
/uucod|x 1) t|at oau cooc|udc t|at t|c |csc|cdu||og Was ua|t|u to|ccd.

/|so, t|c |otc|cst |atc to bc auu||cd to t|c |o||cd ovc| dcbt |s at qucst|oo. oa||ct |atcs Wou|d oa|c
t|c s|tuat|oo cvco oo|c uosusta|oab|c {cooua|cd to t|c a|tc|oat|vc ot ott|c|a| |cod|og), W|||c t|c
|occot|vc to| |oW {|c ooo-oa||ct) |atcs |s zc|o, uo|css sco|o| c|cd|to| status o| co||atc|a| |s
u|ov|dcd, W||c| a|c oot |ust|t|cd bu t|c s|tuat|oo.

Table 2. Holdings of gross public debt in selected countries ( billion at face value, end-2010)

Greece Ire|and ortuga| 8e|g|um Ita|y 5pa|n
1ota| debt 329 153 160 341 1,843 639
Domest|c banks !" " ## $% #&# ##"
Cther euro-area banks &' %$ $& && %"% (%
Cther banks ! " ! )*+ )*+ #$
Non-banks (domest|c and fore|gn) %%" %,, -- #&& %.',, $,&
LC8 &, ## #% , , ,
IMI/LU $# , , , , ,
rogramme countr|es Cther countr|es

8ou|cc. uudatcd t|oo ua|vas, 0oua|do, l|sao|-lc||u aod 8au|| {2011).

4.2. Plan B

uav|og sa|d t|at l|ao /, cvco W|t| a 'vo|uota|u' |o||-ovc| ot bao|s' cxuosu|cs, |s uo|||c|u to Wo||, t|c
|ou||cat|oos ot l|ao 8 s|ou|d bc asscsscd. !||s |s a vc|u d|tt|cu|t aod cootcot|ous tas|. uodc| l|ao
8 l cov|sagc a s|zcab|c |cduct|oo |o t|c oct u|cscot va|uc ot 3%4'!#$*-0C$*@ 0|cc| uub||c dcbt
8
.
!|c|cto|c, l do oot coos|dc| ot|c| a|tc|oat|vcs, suc| as a ua|t|a||u coc|c|vc dcbt cxc|aogc W|t| t|c

8
l do advocatc t|at 0|cccc s|ou|d uau bac| |o tu|| a|| coc|gcocu ass|staocc |ccc|vcd to|o ott|c|a| c|cd|to|s s|occ Hau 2010 aodt|c
tacc va|uc |cduct|oo s|ou|d auu|u to u||vatc|u |c|d dcbt oo|u. \ct t|c|c |s a |at|ooa|c to| tu|t|c| |oWc||og ot t|c ott|c|a| |cod|og
|otc|cst |atc to 0|cccc {ua|vas, l|sao|-lc||u aod 8au||, 2011). w|ct|c| {aod |t so, |oW) Lt8 bood |o|d|ogs cao bc cxc|udcd t|oot|c
|a||cut |s a va||d qucst|oo {scc scct|oo 4.L).

8|ucgc| 2011 12
saoc tacc va|uc {8oub|o|, 2011a), bccausc t|at Wou|d oot so|vc t|c so|vcocu u|ob|co aod Wou|d
|ust uostuooc t|c occcssa|u dcbt |cduct|oo sooc uca|s |oto t|c tutu|c, scc a|so l|sao|-lc||u
{2011). !|c|cto|c, l|ao 8 |o ou uodc|staod|og W||| coost|tutc a c|cd|t cvcot aod |ts cooscqucoccs
s|ou|d bc asscsscd.

8cto|c d|scuss|og l|ao 8, tWo |ouo|taot tcatu|cs s|ou|d bc ||g|||g|tcd.

l||st, l|ao 8 |s oot ao a|tc|oat|vc to t|sca| ad|ustocot aod st|uctu|a| |cto|os. t|csc s|ou|d
coot|ouc. 8ut l|ao 8 |s a occcssa|u cood|t|oo to| ac||cv|og a succcsstu| t|sca| ad|ustocot.
8ccood, t|c 0|cc| govc|oocot W||| occd ott|c|a| t|oaoc|og attc| a |cst|uctu||og o| dctau|t,
a|bc|t at a |cduccd |cvc| cooua|cd to l|ao /. !||s |s bccausc 0|cccc st||| |as {aod |s
to|ccastcd to |avc, scc !ab|c 1) a budgct dct|c|t, |oc|ud|og a u||oa|u dct|c|t. Ha||ct
acccss oau |ctu|o oocc a susta|oab|c s|tuat|oo |as bcco ac||cvcd, but t|c|c W||| bc ao
|otc||o uc||od aod g|vco t|c succ|t|c tcatu|cs ot t|c 0|cc| s|tuat|oo {scc scct|oo 8.8), |t |s
d|tt|cu|t to to|cscc t|c |cogt| ot t||s uc||od.

l|ao 8 cao bc u|c-cout|vc, |c a coc|c|vc dcbt cxc|aogc bcto|c actua||u dcc|a||og a dctau|t, o| a
|cst|uctu||og uost-dctau|t. !|c coocc|os W|t| a 0|cc| |cst|uctu||og cao bc d|v|dcd |oto tWo oa|o
catcgo||cs.

uoss|b|c |ouact oo 0|cccc, aod
uoss|b|c su|||ovc|/cootag|oo cttccts oo t|c |cst ot t|c cu|o a|ca aod cvco oo couot||cs
outs|dc t|c cu|o a|ca.

4.2.1. Impact on Greece

w|t| |cga|ds to |ouacts oo 0|cccc, t|c d||cct Wca|t| cttcct oo |ousc|o|ds aod ooo-t|oaoc|a|
co|uo|at|oos t|oo a |a||cut to govc|oocot dcbt oau oot bc too |a|gc. /cco|d|og to cst|oatcs ot
8a|c|aus tau|ta| {2011), L 20.0 b||||oo ot t|c L 284 b||||oo oa||ctab|c 0|cc| govc|oocot uauc|s
a|c |c|d bu |cs|dcot 'Hutua| tuods, ucos|oo tuods aod ot|c|s' aod ao add|t|ooa| L L. b||||oo bu
0|cc| |cs|dcots ot|c| t|ao bao|s, |osu|aocc coouao|cs, outua| tuods, ucos|oo tuods aod
ooocta|u aut|o||t|cs. /|togct|c|, t|csc |o|d|ogs coost|tutc auu|ox|oatc|u 1L uc|ccot ot 0ul. la|t
ot t|csc |o|dc|s oau |avc a||cadu oa||cd to oa||ct t|c|| |o|d|ogs, |ou|u|og t|at t|c add|t|ooa|
|ouact ot a dcbt |cduct|oo cou|d oot bc |a|gc. !|c d|ag oo ccoooo|c g|oWt| {t||oug| |cduccd
dcoaod duc to Wca|t| cttcct) a|so dcucods oo t|c d|st||but|oo ot t|csc |o|d|ogs aooog t|c va||ous
|ovcsto| g|ouus.

!|c oa|o coocc|o |s t|c stab|||tu ot t|c 0|cc| bao||og sustco. lo| t|c bao|s t|c c|uc|a| |ssucs a|c
ocW cau|ta| {as |osscs W||| |||c|u W|uc out cu||cot cau|ta|), acccss to ||qu|d|tu {as t|c dctau|tcd

8|ucgc| 2011 13
boods W||| |||c|u oot bc c||g|b|c aouoo|c at Lt8 ouc|at|oos) aod t|c avo|daocc ot bao| |uos.

/|| ot t|csc tas|s a|c cxt|coc|u d|tt|cu|t to |aod|c. !|c s|tuat|oo Wou|d bc ouc| bcttc| W|t|
s|go|t|caot to|c|go oWoc|s||u |o t|c 0|cc| bao||og sustco, W||c| Wou|d b||og c|cd|b|||tu aod
stab|||tu to t|c 0|cc| bao||og sustco aod add|t|ooa| cau|ta| aod ||qu|d|tu |t occdcd. !|c u|cscocc ot
to|c|go bao|s cao a|so avc|t bao| |uos. u|sto||ca| cxaou|cs s|oW t|at at t|ocs ot st|css
doocst|ca||u oWocd bao|s suttc| oo|c t|ao to|c|go oWocd bao|s aod cvco t|c|c Wc|c cau|ta|
t||g|ts t|oo doocst|ca||u oWocd to to|c|go oWocd bao|s. !|c |cccot cxuc||coccs ot tcot|a| aod
Lastc|o Lu|oucao couot||cs suuuo|t t||s obsc|vat|oo.

!|c|cto|c, a u||o||tu s|ou|d bc to b||og to|c|go oWoc|s||u to t|c 0|cc| bao||og sustco, W||c| |s oot
ao casu tas|. tau|ta| |oss cao bc so substaot|a| attc| a s|zcab|c dcbt |cduct|oo t|at t|c |cs|dua|
va|uc ot 0|cc| bao|s cou|d bc too soa|| o| cvco ocgat|vc. !|c|cto|c, |ccau|ta||sat|oo t|oo ao ott|c|a|
sou|cc
0
aod/o| t|c ba||-|o ot sooc c|cd|to|s ot 0|cc| bao|s oau bc occdcd. 8ut t|c d|tt|cu|t|cs W|t|
t|c so|ut|oo s|ou|d oot ||odc| a u|ouc| aoa|us|s ot t||s out|oo aod u|cua|at|oo to| |t, s|occ b||og|og
to|c|go oWoc|s||u to t|c 0|cc| bao||og sustco Wou|d bc t|c bcst so|ut|oo aooog va||ous
a|tc|oat|vcs to savc 0|cc| bao|s |o t|c cvcot ot a s|zcab|c uub||c dcbt |cduct|oo.

!|c sccood bcst so|ut|oo |s |ccau|ta||sat|oo ot 0|cc| bao|s t|oo ott|c|a| Lu ooocu, suc| as t|oo
t|c Lu|oucao lovcstocot 8ao| o| {|t |ts oaodatc |s aocodcd) t|c Lu|oucao l|oaoc|a| 8tab|||tu
lac|||tu {Ll8l). lovcst|og Lu ooocu |oto 0|cc| bao|s |s st||| ouc| bcttc| so|ut|oo t|ao l|ao /,
W||c| ca|||cs t|c ||s| ot s|go|t|caot d||cct |osscs to Lu |codc|s {scct|oo 4.1). 8ao| s|a|cs |c|d bu
t|c Lu cou|d bc so|d |atc|.

/cccss to ||qu|d|tu |s a tu|t|c| c|uc|a| u|ob|co ot 0|cc| bao|s. /cco|d|og to oa||ct cst|oatcs, 0|cc|
bao|s |avc uostcd auu|ox|oatc|u L 70 b||||oo ot 0|cc| govc|oocot uauc|s at t|c Lt8 as co||atc|a|
to| ||qu|d|tu. !|c Lt8 |as ||g|t|u |od|catcd t|at dctau|tcd/|cst|uctu|cd boods, W|t| t|c|| |cga|
uocc|ta|otu aod uo|ooWo |ccovc|u va|ucs, caooot bc coos|dc|cd as c||g|b|c co||atc|a|s. /o
|oocd|atc |cca|| ot Lt8 ||qu|d|tu Wou|d |||c|u |codc| oost 0|cc| bao|s bao||uut. !|c|cto|c,
coot|oucd acccss to ||qu|d|tu |s csscot|a|. 0oc out|oo |s b||og|og to|c|go oWoc|s||u to 0|cc| bao|s,
W||c| at |cast ua|t|a||u cou|d o|t|gatc t|c ||qu|d|tu u|ob|co. / sccood out|oo Wou|d bc a dcbt
cxc|aogc ot 0|cc| govc|oocot boods. c|t|c| to a ocW bood ot t|c 0|cc| statc suuuo|tcd bu
auu|ou||atc co||atc|a|, o| a 8|adu-tuuc bood gua|aotccd bu, to| cxaou|c, t|c Ll8l. / t|||d out|oo |s a
||qu|d|tu u|ov|s|oo bu t|c 0|cc| ccot|a| bao| W|t| t|c Lxccut|ooa| L|qu|d|tu /ss|staocc {LL/) tac|||tu
{scc 8ox 1).


0
!|c Lu-lHl u|og|aooc uut as|dc L10 b||||oo to| bao| |ccau|ta||sat|oo. !||s aoouot oau oot bc sutt|c|cot |o t|c cvcot ot a |a|gc|
|a||cut to| 0|cc| dcbt bccausc 0|cc| bao|s |o|d L0 b||||oo ot 0|cc| dcbt {scc !ab|c 2) aod |avc bao| cau|ta| ot auu|ox|oatc|u L2L
b||||oo.

8|ucgc| 2011 14

Box 1: Exceptional Liquidity Assistance (ELA) by national central banks of euro-area countries

tcot|a| bao|s uscd to |avc cc|ta|o ocaos to| coc|gcocu ||qu|d|tu suuuo|t {scc cg ladoa-8c||ouua,
2008) aod t||s |s t|c casc |o t|c Lu|osustco as Wc||. !|c tac|||tu |s ca||cd Loc|gcocu L|qu|d|tu
/ss|staocc {LL/). !||s tac|||tu |s |o t|c |aods ot t|c oat|ooa| ccot|a| bao|s aod cao bc uscd ovc|
aod abovc t|c ass|staocc u|ov|dcd bu t|c Lt8 {8u|tc|, H|c|c|s aod 8a|ba||, 2011). !|c statutcs ot
t|c Lt8 aod t|c Lu|oucao 8ustco ot tcot|a| bao|s {L8t8) statc t|at.

.=/=/0D!#4),!*09$,#%!*0E!,6502!-03$%")%20"+,9#4),50)#C$%0#C!,0#C)5$053$94"4$@04,0#C4508#!#+#$0
+,*$550#C$0?)'$%,4,(0F)+,94*0"4,@5G0E-0!02!H)%4#-0)"0#I)0#C4%@50)"0#C$0')#$509!5#G0#C!#0#C$5$04,#$%"$%$0
I4#C0#C$0)EH$9#4'$50!,@0#!5650)"0#C$0;8FJ/08+9C0"+,9#4),505C!**0E$03$%")%2$@0),0#C$0%$53),54E4*4#-0
!,@0*4!E4*4#-0)"0,!#4),!*09$,#%!*0E!,650!,@05C!**0,)#0E$0%$(!%@$@0!50E$4,(03!%#0)"0#C$0"+,9#4),50)"0#C$0
;8FJ.

8u|tc|, H|c|c|s aod 8a|ba|| {2011) tu|t|c| ||g|||g|t t|at t|c cx|st|og |cga| docuocots aod
|ccooocodat|oos oa|c |t c|ca| t|at LL/ tac|||t|cs a|c ")%02)5#03+%3)5$5G0!0,!#4),!*02!##$%G0I4#C0
@$#!4*50K)"0#C$4%L059)3$G0#$%250!,@03%)9$@+%$50#)0E$053$*#0)+#04,0,!#4),!*0*$(45*!#4),0!,@0
!%%!,($2$,#5 {8u|tc|, H|c|c|s aod 8a|ba||, 2011, u. 4). !|cu tu|t|c| st|css t|at a|t|oug| oat|ooa|
ccot|a| bao|s a|c oot coost|a|ocd bu t|c |u|cs t|at auu|u to L8t8 ouc|at|oos, a cc|ta|o ouobc| ot
|cst||ct|oos st||| auu|u. u|o||b|t|oo ot ovc|d|att tac|||t|cs to| ott|c|a| bod|cs, ot uu|c|as|og
govc|oocot boods, aod ot ca||u|og out tas|s t|at go bcuood t|osc ot a ccot|a| bao| {suc| as
suuuo|t|og |oso|vcot |ost|tut|oos).

lu|| d|sc|osu|c ot t|c tc|os aod cood|t|oos ot LL/ tac|||t|cs |s oot |cqu||cd, aod |as oot bcco
uub||s|cd bu t|c ccot|a| bao|s oost act|vc |o us|og t|co. !|c aoouots ot LL/ t|oaoc|og u|ov|dcd
cao bc |otc||cd t|oo t|c ba|aocc s|ccts ot ccot|a| bao|s, g|ouucd uodc| t|c 0t|c| /sscts
catcgo|u, but t|c b|ca|doWo aod t|c aoouots succ|t|ca||u coocc|o|og LL/ a|c oot ava||ab|c.

/|t|oug| t|csc tac|||t|cs do oot |cqu||c cxu||c|t auu|ova| ot t|c Lt8, t|cu cao bc tc|o|oatcd bu votc
|t t|cu a|c dccocd to |uo couotc| to t|c Lt8's oaodatc. Ho|covc|, t|c saoc dcg|cc ot
|odcucodcocc |s |cqu||cd to| oat|ooa| ccot|a| bao|s uc|to|o|og LL/ tuoct|oos as t|cu co|ou |o
ca||u|og out L8t8-|c|atcd ouc|at|oos.

lo t|c cu|o-a|ca t|c uat|ooa| 8ao| ot 8c|g|uo u|ov|dcd ao LL/ to lo|t|s 8ao| bctWcco 2
8cutcobc| 2008 aod 0 0ctobc| 2008 aoouot|og to L L1 b||||oo |o t|c uca| {acco|d|og to l||s|
lodcucodcot, 2011). !|c tcot|a| 8ao| ot l|c|aod |as bcco us|og t||s tac|||tu to| a ouc| |oogc|
uc||od aod cst|oatcs suggcsts t|at cu||cot|u |t aoouots to about L L0 b||||oo.


8|ucgc| 2011 15
4.2.2. Spillover and contagion

!|c sccood oa|o| coocc|o W|t| l|ao 8 |s t|c uoss|b|c su|||ovc| aod cootag|ous cttccts. 8u|||ovc| cao
bc asscsscd W|t| data oo cxuosu|cs aod t||s sccos to bc a oaoagcab|c ||s|. 8ut oobodu |ca||u
|ooWs ouc| about cootag|oo aod va||ous v|cWs t|at a|c cxu|csscd a|c oot bascd oo t|o|oug|
aoa|uscs.

/s to| su|||ovc|s, t|c L L4 b||||oo d||cct bao| coob|ocd cxuosu|c ot cu|o-a|ca bao|s outs|dc 0|cccc
|s s|zcab|c, but oot |a|gc {!ab|c 2). 0utstaod|og tu8 uos|t|oos a|c a|so oot |a|gc. t|c oct uos|t|oos
aoouot to L 8.L b||||oo aod t|c g|oss uos|t|oos to L L2 b||||oo {!ab|c 8 scc t|c ootc to t|c tab|c oo
t|c dct|o|t|oo ot g|oss aod oct uos|t|oos aod /uucod|x 1 to| tu|t|c| dcta||s). 0|oss uos|t|oo cou|d
oattc| |o a c||s|s s|tuat|oo W|co couotc|ua|t|cs dcou to |ooou| t|c|| ob||gat|oos, o| W|co a oa|o|
couotc|ua|tu ta||s. Lac||og bao|-succ|t|c data, |t |s d|tt|cu|t to asscss W|ct|c| aou oa|o| bao| o|
ot|c| t|oaoc|a| |ost|tut|oo |s at ||s|. 8ut t|c soa|| aoouot ot t|c oct tu8 uos|t|oos a|oog W|t| t|c
|c|at|vc|u soa|| d||cct bao| |o|d|ogs ot 0|cc| govc|oocot boods, W||c| a|c d|st||butcd aooog
scvc|a| bao|s, suggcsts t|at t|c d||cct |ouact ot a 0|cc| |cst|uctu||og 4,04#5$*" oau oot t||cat t|c
ta||u|c ot a oa|o| t|oaoc|a| |ost|tut|oo, aod cvcotua| |ccau|ta||sat|oo occd oau oot bc cxccss|vc.

Table 3. Outstanding CDS positions as registered by DTCC ( billion), 25 May 2011

0|oss uct
8c|g|uo 8L.7 L.1
0c|oaou L. 11.4
0|cccc L1.8 8.L
l|c|aod 2.8 2.0
lta|u 18.8 17.2
lo|tuga| 42.8 4.L
8ua|o 08.1 12.
uotc. Wc |cuo|t t|c outstaod|og uos|t|oos |o L b||||oos, W|||c oost ocWs |cuo|ts |od|catc va|ucs |o $ b||||oos. 89)':4;<<'+;*%;+6$'
65;"+* |s t|c suo ot a|| tu8 coot|acts boug|t {o| so|d). !|c g|oss t|gu|c docs oot ta|c |oto accouot t|c tact t|at oa||ct
ua|t|c|uaots cao {aod do) s|ou|taocous|u buu aod sc|| u|otcct|oo oo t|c saoc |ctc|cocc cot|tu. 89)'+)*'+;*%;+6$'=6$")<'a|c
ca|cu|atcd W|t| |ctc|cocc to |od|v|dua| oa||ct ua|t|c|uaots, aod a|c cqua| to t|c suo ot oct u|otcct|oo boug|t {o| so|d) bu oct
buuc|s {o| oct sc||c|s). /s suc|, t|cu |cu|cscot t|c oax|ouo uoss|b|c oct tuods t|aostc|s bctWcco oct sc||c|s aod oct buuc|s. 8cc
oo|c dcta||s |o /uucod|x 1. !|c tab|c s|oWs t|adcs |cg|stc|cd W|t| u!tt, t|c|c cou|d bc ot|c| t|adcs as Wc||.
8ou|cc. u!tt

!|c oo|c d|tt|cu|t qucst|oo |s out||g|t cootag|oo to ot|c| sovc|c|go bo||oWc|s aod t||cats to
t|oaoc|a| stab|||tu ot t|c cu|o a|ca t|oaoc|a| sustco. !||s |s u||oa|||u bccausc a |cst|uctu||og Wou|d
s|goa| a c|aogc |o t|c uo||cu staocc ot t|c ott|c|a| cooouo|tu. lt 0|cccc dctau|tcd, oa||cts cou|d
uao|c, dcou|og tuod|og to| ot|c| Wca|c| couot||cs aod uus||og t|co |oto dctau|t, too. /o attcout to

8|ucgc| 2011 16
uu|| ott a 'coocc|tcd dctau|t' bu scvc|a| uc||u|c|a| couot||cs at oocc cou|d |cad to a |cocWcd
bao||og c||s|s |o co|c cu|ozooc couot||cs suc| as 0c|oaou aod l|aocc s|occ t|c|| bao|s a|c
cxuoscd bu t|c|| |oaos to t|c govc|oocots {o| to bao|s bac|cd bu t|c|| govc|oocots) |o t|csc
uc||u|c|a| cu|ozooc sovc|c|go ocobc| statcs.

!||s |s |odccd a oa|o| coocc|o aod Wa||aots a t|o|oug| aoa|us|s, to| W||c| t|c L888 Wou|d bc t|c
oost su|tab|c |ost|tut|oo {wo|tt, 2011).

w|||c l caooot asscss t|c ||s| ot cootag|oo, |t |s |ost|uct|og to cooua|c t|c 8cutcobc| 2008
bao||uutcu ot Lc|oao 8|ot|c|s, a oa|o| u8 |ovcstocot bao|, to a uoss|b|c |cst|uctu||og ot 0|cccc,
bccausc Lc|oao's casc |as ottco bcco c|tcd as |||ust|at|og t|c uotcot|a| cooscqucoccs ot a 0|cc|
sovc|c|go dctau|t. !|c bao||uutcu ot Lc|oao 8|ot|c|s |cd to a su||c |o uc|cc|vcd couotc|ua|tu ||s|
aod a subscqucot t|cczc ot t|c |otc|bao| |cod|og oa||cts. 8ut t|c d|ttc|coccs bctWcco t|c cascs
ot Lc|oao aod 0|cccc a|c st||||og. !ab|c 4 cooua|cs t|c tWo cascs a|oog va||ous d|ocos|oos. lo
s|o|t, Lc|oao 8|ot|c|s Was a ||g||u |otc|cooocctcd sustco|ca||u |ouo|taot t|oaoc|a| |ost|tut|oo
{8lll) aod |ts bao||uutcu coc|gcd |at|c| suddco|u |o a vc|u uocc|ta|o cov||ooocot. 0|cccc |s oot a
8lll, cxuosu|cs to 0|cccc a|c |casooab|u Wc|| |ooWo, |cst|uctu||og ot 0|cc| dcbt |s W|dc|u
cxucctcd, aod t|c g|oba| t|oaoc|a| a|c||tcctu|c ca|||cs |css ||s| ooW.

Table 4: Systemic implications of the bankruptcy of Lehman Brothers and the looming
restructuring of Greek public debt
'
>)956+'?4;*9)4<' 14))&)''
@2A'
)BC;<"4)'
w|co Lc|oao 8|ot|c|s ta||cd, t|c|c Was vast uocc|ta|otu
coocc|o|og tu8 cxuosu|cs to Lc|oao. lo|t|a| cst|oatcs suggcstcd
t|at g|oss c|a|os cou|d |cac| $ 400 b||||oo {uuquc||ou, 0aut||c|
aod 0cx, 2000), but t|gu|cs uub||s|cd ooc ooot| attc| t|c cvcot
s|oWcd $ 72 b||||oo ot g|oss oot|ooa| outstaod|og oo Lc|oao, aod
a $ b||||oo oct cxuosu|c {Lt8, 2000). 0vc|a||, oo|u $ L.2 b||||oo
c|aogcd |aods to||oW|og t|c auct|oo aod sctt|cocot.
!|aosua|cocu oo tu8 cxuosu|cs
|as |oc|cascd s|occ t|co aod
cxuosu|c to 0|cccc |s
|casooab|u Wc|| |ooWo. lu|t|c|
|o|t|at|vcs cou|d |oc|casc
oa||ct aWa|cocss.
@;"+*)4C64*7'
*;'@2A'
*46()<'
Lc|oao Was a s|go|t|caot couotc|ua|tu to tu8 t|adcs, |c |ovcsto|s
|ad boug|t |osu|aocc t|oo Lc|oao
uot a couotc|ua|tu
D<<")4'';E'
<9;4*F*)45'
()#*'
Lc|oao Was a s|go|t|caot |ssuc| ot s|o|t-tc|o dcbt aod |ts uauc|
Was coos|dc|cd att|act|vc bu tuods |ovcst|og |o ooocu oa||cts. lo
t|c attc|oat| ot t|c Lc|oao bao||uutcu |ovcsto|s s|uoocd
coooc|c|a| uauc| aod ot|c| to|os ot s|o|t-tc|o dcbt, u|oout|og
lcd act|oo to subst|tutc u||vatc |ovcsto|s W|t| uu|c|ascs ot s|o|t-
tc|o u||vatc dcbt.
8|occ /u||| 2010 oo|u oa|g|oa|
|ssuaoccs ot s|o|t-tc|o dcbt
?4;G)4F
()6$)4'
Lc|oao Was a|so ao |ouo|taot b|o|c|-dca|c| ot sccu||t|cs. /s a
cooscqucocc ot t|c bao||uutcu u|occdu|c, |ovcsto|s t|at |ad
u|accd |ovcstocot asscts W|t| Lc|oao's b|o|c|-dca|c| uo|ts to
sc|vc as co||atc|a| |ost acccss to t|csc asscts {at |cast to| t|c
uot a b|o|c|-dca|c|'

8|ucgc| 2011 17
du|at|oo ot t|c u|occdu|c). !||s u|ooutcd t|c ||qu|dat|oo ot ot|c|
asscts.
?"<%+)<<'
5;()$'
too|og a tcW ooot|s attc| t|c dco|sc ot 8ca| 8tc|os, Lc|oao's
ta||u|c Was |cga|dcd as a s|goa| t|at t|c bus|ocss oodc| ot
|ovcstocot bao|s Was vu|oc|ab|c.
0|cccc Was oot a u|ototuuc ot
cu|o-a|ca t|sca| oaoagcocot
?6%$F;"*' !|c |ctusa| bu t|c u8 govc|oocot to ba||-out Lc|oao |ad t|c
b|oadc| cooscqucocc ot s|goa|||og t|at bao||uutcu ot a Wc||-
|ooWo t|oaoc|a| u|auc| Was a uoss|b|||tu. !||s |csu|tcd |o ao
ac|oss-t|c-boa|d |c-u||c|og ot ||s|.
0|cccc Was g|vco ott|c|a| |c|u
aod |cst|uctu||og W||| cooc
W|co t|c ta||u|c ot t|c
u|og|aooc bccoocs obv|ous.
!|c 0|cc| |cst|uctu||og docs
oot |ouact ott|c|a| |c|u to ot|c|
couot||cs {l|c|aod aod
lo|tuga|). \ct |t Wou|d s|goa|
t|at sovc|c|go |cst|uctu||og |s a
uoss|b|||tu |o t|c cu|o a|ca.
A"(()++)<<'' !|c bao||uutcu ot Lc|oao Was |a|gc|u uocxucctcd. /s l|gu|c 2
|od|catcs, t|c tu8 su|cad oo Lc|oao Was a|ouod 1L0 bas|s uo|ots
|o /u||| 2008 aod about 800 bas|s uo|ots |o t|c suooc| ot 2008.
0o|u t||cc daus u||o| to |ts bao||uutcu, t|c tu8 su|cad |oc|cascd
to about 00 bas|s uo|ots.
0|cc| tu8 su|cads |avc |ovc|cd
a|ouod 800 bas|s uo|ots t|oo
/u||| 2010 to ca||u 2011 aod
|avc ||sco to 100 bas|s uo|ots
s|occ t|co {l|gu|c 8).
A*6#%$%*7';E'
*9)':$;#6$'
E%+6+&%6$'
<7<*)5'6+('
:$;#6$'
)&;+;5%&'
;"*$;;G'
/t t|c t|oc ot Lc|oao's bao||uutcu t|c|c Was ao cxt|coc
uocc|ta|otu coocc|o|og t|c g|oba| t|oaoc|a| sustco aod ccoooo|c
out|oo|.
w|||c Wc caooot c|a|o t|at t|c
t|oaoc|a| c||s|s |s ovc|, t|c
uocc|ta|otu su||ouod|og t|c
g|oba| t|oaoc|a| sustco |as
dcc||ocd aod ccoooo|c g|oWt|
|as |csuocd |o oost couot||cs.
8ou|ccs. loto|oat|oo oo Lc|oao 8|ot|c|s Was ta|co oost|u t|oo lcodc|, l|ao|c| aod 0uotc|bc|g {2008), W|t| sooc add|t|oos t|oo
uuquc||ou, 0aut||c| aod 0cx {2000) aod Lt8 {2000). !|c asscssocot ot t|c 0|cc| s|tuat|oo |s o|oc.


8|ucgc| 2011 18
Figure 2: Lehman Brothers: selected indicators
'

8ou|cc. lcodc|, l|ao|c| aod 0uotc|bc|g {2008).

!|c|cto|c, t|c casc 0|cccc |s tuodaocota||u d|ttc|cot t|oo t|c dctau|t ot Lc|oao 8|ot|c|s, but
W|t|out acccss to dcta||cd data ooc caooot asscss t|c uoss|b|c cootag|ous cttccts ot a 0|cc|
|cst|uctu||og, bc |t u|c-cout|vc o| uost-dctau|t.

lo t||s |cga|d l|c|aod aod lo|tuga| a|c oot |ca||u |ssucs, s|occ bot| couot||cs a|c a||cadu out ot t|c
oa||ct. oc|t|c| t|c|| govc|oocots, oo| t|c|| bao|s bo||oW t|oo oa||ct sou|ccs. / uoss|b|c
tu|bu|cocc |o t|c|| sccooda|u govc|oocot bood oa||ct cou|d oo|u |u|t t|c |o|dc|s ot t|c|| dcbt.

!|c dct|o|og couot||cs a|c 8ua|o, lta|u aod 8c|g|uo, W||c| a|c sooct|ocs |od|catcd as bc|og at ||s|
|o t|c cvcot ot a 0|cc| |cst|uctu||og. !||s Wo||u |as to bc ta|co sc||ous|u. 8ut t|csc couot||cs
cou|d Wc|| d|ttc|cot|atc t|cosc|vcs t|oo t|c t||cc u|og|aooc couot||cs at a t|oc W|co t|c
u|obab|||tu ot a 0|cc| |cst|uctu||og |as |oc|cascd to vc|u ||g| |cvc| {l|gu|c 8), |a|gc|u bccausc
t|csc couot||cs |avc |odccd ouc| bcttc| tuodaocota|s.


8|ucgc| 2011 19
Figure 3: Credit default swap (CDS) spread on 5-year government bonds,
2 Jan 2008 6 June 2011, in basis points'
'
0
200
400
600
800
1000
1200
1400
1600
1800
J
a
n
-
0
8
A
p
r
-
0
8
J
u
l
-
0
8
O
c
t
-
0
8
J
a
n
-
0
9
A
p
r
-
0
9
J
u
l
-
0
9
O
c
t
-
0
9
J
a
n
-
1
0
A
p
r
-
1
0
J
u
l
-
1
0
O
c
t
-
1
0
J
a
n
-
1
1
A
p
r
-
1
1
Greece
Ireland
Portugal
Spain
Italy
Belgium
Germany
'
8ou|cc. uatast|cao

Lu|oucao uo||cuoa|c|s cou|d do a |ot to |cducc t|c cootag|oo ||s| bu d|suc|||og t|c tog ot doubt
su||ouod|og t|c|| bao|s bu t|oa||s|og t|c st|css tcsts |o|t|atcd bu t|c L8/, uub||s||og
coou|c|cos|vc |csu|ts aod |ccau|ta||z|og t|c bao|s t|at occd |t {ua|vas, l|sao|-lc||u aod 8au||,
2011).

4.3. Timing: wait for or rush to Plan B?

w|||c l|ao 8 |s |ocv|tab|c |o ou asscssocot, |ts t|o|og cao bc c|osco W|t||o cc|ta|o ||o|ts. !|c
oa|o a|guocots to| Wa|t|og a|c.

a u|ouc| u|og|aooc to| suuuo|t|og 0|cc| bao|s cao bc uut |o u|acc,
ad|ustocot |o ot|c| cu|o-a|ca couot||cs cao advaocc, |cssco|og t|c ||s| ot cootag|oo,
bao|s |o ot|c| couot||cs cao bcttc| u|cua|c,
t|c uotcot|a| to| u||vat|sat|oo |o 0|cccc cao bc bcttc| asscsscd aod t|c|cbu t|c |a||cut cao
bc bcttc| ca||b|atcd,
|t Wou|d g|vc t|oc to| t|o|oug| studu|og ot t|c sustco|c |ou||cat|oos ot a 0|cc|
|cst|uctu||og.

!|c a|guocots to| a sW|tt |cst|uctu||og.


8|ucgc| 2011 20
a dc|au W||| |oc|casc t|c ott|c|a| s|a|c |o 0|cc| dcbt aod u||vatc c|cd|to|s W|t| oatu||og
dcbt W||| bc ua|d |o tu|| |o t|c ocaot|oc, |cad|og to ||g|c| |a||cuts oo t|c |coa|o|og
u||vatc|u |c|d ua|t, o| cvco |a||cut oo ott|c|a| |cod|og W|t| t|c uotcot|a| ot a dccu uo||t|ca|
c||s|s {8cct|oo 4.1),
a dc|au ||s|s a d|so|dc||u outcooc s|ou|d t|c soc|a| aod uo||t|ca| s|tuat|oo dctc||o|atc |o
0|cccc,
|cst|uctu||og cou|d cod t|c uocc|ta|otu t|at cu||cot|u |s |aouc||og u||vatc |ovcstocot aod
coosuout|oo |o 0|cccc,
a |cst|uctu||og, scco as a ta|| bu|dco s|a||og W|t| to|c|go c|cd|to|s, oau |oc|casc t|c
oWoc|s||u ot t|c cu||cot t|sca| aod st|uctu|a| ad|ustocot u|og|aooc aod |cocc cao |cad
to bcttc| |ou|cocotat|oo aod |css |cs|staocc t|oo 0|cc| soc|a| aod uo||t|ca| ua|toc|s,
|t |cst|uctu||og |s Wc|| u|cua|cd aod u|ouc| ocasu|cs a|c |ou|cocotcd |o advaoccd to
coota|o cootag|ous cttcct, 0|cccc oau ga|o oa||ct acccss sooct|oc attc| t|c
|cst|uctu||og. !||s cou|d |avc a stab|||s|og |ouact oo t|c govc|oocot bood oa||cts ot
ot|c| cu|o-a|ca couot||cs as Wc||,
a dc|au W||| u|o|oog t|c cu|o-a|ca sovc|c|go dcbt c||s|s, W||c| cou|d daoagc t|c u|cst|gc ot
t|c Lu.

!|c dcc|s|oo oo t|o|og s|ou|d Wc|g|t t|csc u|os aod coos. 8|occ t|c stab|||tu ot t|c 0|cc| bao||og
sustco |s c|uc|a|, |t Wou|d bc Wo|t| Wa|t|og a tcW qua|tc|s uot|| u|ouc| ocasu|cs a|c uut |o u|acc.

4.4. Exit from the euro area?

Lvco t|oug| |cga||u |ouoss|b|c aod |t Wou|d b|oW uu t|c Lu|oucao |otcg|at|oo u|occss s|occ wwll,
sooc a|guc to| ao cx|t t|oo t|c cu|o a|ca |o t|c cvcot ot l|ao 8. l d|sag|cc W|t| t||s suggcst|oo aod
c|a|o t|at l|ao 8 s|ou|d |avc oo |ou||cat|oo to| cx|t t|oo t|c cu|o a|ca. / oo|c substaot|a|
a|guocot |o tavou| ot ao cx|t |s t|c g|oWt| co|aoc|og |ouact ot t|c |||c|u dcu|cc|at|oo ot t|c ocW
0|cc| d|ac|oa. uoto|tuoatc|u, Wc a|so |ac| a t|o|oug| aoa|us|s ot t|c u|os aod coos ot t||s |ssuc.
Lct oc b||ct|u ocot|oo a tcW tacto|s t|at cou|d bc coos|dc|cd.

0|cccc |s |c|at|vc|u c|oscd ccoooou, cvco W|co coos|dc||og tou||so, aod t|c s|a|c ot t|c
oaoutactu||og sccto| {t|c sccto| t|at tuu|ca||u u|oduccs oost ot t|c cxuo|t goods) |s t|c |oWcst
aooog t|c cu|o-a|ca couot||cs. !|c asscssocot ot t|c u||cc-Wagc coouct|t|vcocss u|ob|co ot
0|cccc |s a coot|ovc|s|a| |ssuc. d|ttc|cot stud|cs a|||vc at d|ttc|cot cooc|us|oos. Lvco t|oug| ao
|ou|ovcocot |o u||cc-Wagc coouct|t|vcocss cou|d |c|u aou couot|u, 0|cccc |as ao coo|oous
uotcot|a| to |ou|ovc t|c ooo-u||cc d|ocos|oos ot |ts coouct|t|vcocss {8|au 2011). lo| cxaou|c, |o
2010 0|cccc |ao|cd oo|u 100 out ot 18L couot||cs |o t|c Lasc ot uo|og 8us|ocss |od|cato| ot t|c
wo||d 8ao|. /|so, g|oWt| |o t|c s|o|t tc|o cou|d bc |c|ucd W|t| a u|ouc| |cst|uctu||og t|at cods
uocc|ta|otu aod W|t| a qu|c| oob|||sat|oo ot |d|c st|uctu|a| tuods {Ha|z|ootto, 2011).

8|ucgc| 2011 21

/o cx|t t|oo t|c cu|o a|ca Wou|d b||og t|c oot|c| ot a|| t|oaoc|a| c||scs as dcsc||bcd bu
L|c|cog|cco {2007a aod 2007b), s|occ a|| t|oaoc|a| asscts Wou|d |cavc t|c couot|u abscot cau|ta|
coot|o|s. /o cx|t Wou|d |codc| oost ot t|c u||vatc sccto| W|t| dcbt bao||uut. 8|occ t|c cu||cot
||ab|||t|cs ot co|uo|at|oos aod |ousc|o|ds a|c dcooo|oatcd |o cu|os, t|cu Wou|d bccooc
|oc|cas|og|u cxucos|vc to uau ott |o t|c dcu|cc|at|og ocW 0|cc| d|ac|oa t|at Wc|c |||c|u |os|og
va|uc aga|ost t|c cu|o. / s|a|u dcu|cc|at|oo ot t|c cxc|aogc |atc cou|d uus| ouc| ot t|c couot|u's
u||vatc sccto| |oto bao||uutcu aod |cad to cxtcos|vc ||t|gat|oo aga|ost bad dcbto|s |o t|c couot|u.
/ to|ccd cxc|aogc t|oo cu|o dcooo|oatcd dcbt to ocW 0|cc| d|ac|oa Wou|d |avc s|o||a| cttcct.
!|at Wou|d st|css 0|cc| bao|s ouc| oo|c t|ao t|c |cst|uctu||og ot t|c sovc|c|go dcbt. 8uc| a
s|tuat|oo Wou|d coost|a|o aou bao| |cod|og to| oaou uca|s.

/o cx|t t|oo t|c cu|o a|ca Wou|d |avc ot|c| advc|sc cttccts as Wc||. !|c |oW c|cd|b|||tu ot t|c ocW|u
staod-a|ooc 0|cc| ccot|a| bao| Wou|d |||c|u |cad to ouc| ||g|c| |ca| |otc|cst |atcs as Wc|| as to a
uc||od ot ||g| |ot|at|oo. /|| ot t|csc Wou|d bc d|ags oo ccoooo|c g|oWt|.

toocc|o|og |cta|| |otc|cst |atcs, !ab|c L |od|catcs t|at u||vatc sccto| |o 0|cccc, l|c|aod aod lo|tuga|
st||| co|ou |casooab|u |oW |otc|cst |atcs, W||c| a|c Wc|| bc|oW t|c govc|oocot bood u|c|ds ot t|c||
sovc|c|gos. !||s |s oost |||c|u a cu|o-a|ca cttcct, s|occ t|c u||vatc sccto| |o ooo-cu|o a|ca
couot||cs uau |atcs abovc t|c|| sovc|c|gos as t|c sovc|c|go |s tuu|ca||u coos|dc|cd t|c bcoc|oa||.
8ut |o t|c cu|o a|ca aoot|c| sovc|c|go cao a|so sc|vc as t|c bcoc|oa||. !|c|cto|c, W|t| ao cx|t
t|oo t|c cu|o a|ca t|c 0|cc| u||vatc sccto| Wou|d tacc ouc| ||g|c| |otc|cst |atcs {|o |ca| tc|os as
Wc||) W|t| ocgat|vc |ou||cat|oos to| g|oWt| aod Wc|ta|c.


8|ucgc| 2011 22
Table 5: Selected interest rates in euro-area and non-euro area countries, April 2011
'
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1)456+7' L.4 8.1 4.1 .2 1.8 8.8
14))&)' L.L L. 4.8 10.2 10. 18.0
D4)$6+(' L.L 8.2 8.L .4 0.0 0.8
D*6$7' 4.0 2.7 8.0 7. 8.0 4.8
!;4*":6$' .7 L.0 8.4 0.8 10.2 0.2
AC6%+' 4.8 8.2 8.2 7.L 8.8 L.8
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K)C"#$%&' 4. o.a. 4. 18.0 1.7 4.1
H"+:647' 8.0 o.a. 10.4 28.4 o.a. 7.1
!;$6+(' 0.2 o.a. 7.2 1L.0 L.0 .1
K;56+%6' 11.0 o.a. 0.0 11.8 o.a. 7.8
AO)()+' 4.2 o.a. 4.L o.a. 2.8 8.8
IP' o.a. o.a. 4. 7.L 1.2 8.8
8ou|cc. Lt8 cxccut t|c 2-uca| govc|oocot bood u|c|d, W||c| |s t|oo uatast|cao.
uotcs. to|uo|atc aod |ousc|o|d |oaos a|c Wc|g|tcd avc|agcs ot d|ttc|cot oatu||t|cs to| cu|o-a|ca couot||cs as ca|cu|atcd bu t|cLt8,
but uoWc|g|tcd avc|agcs ot |css t|ao 1, bctWcco 1 aod L, aod oo|c t|ao L-uca| |oaos to| t|c ooo-cu|o a|ca couot||cs. lo| ooo-cu|o
a|ca couot||cs oo|u doocst|c cu||cocu |oaos a|c coos|dc|cd. to|uo|atc |oaos. Loaos ot|c| t|ao |cvo|v|og |oaos aod ovc|d|atts,
coovco|cocc aod cxtcodcd c|cd|t ca|d dcbt, ucW bus|ocss. uous|og |oaos.Lcod|og to| |ousc uu|c|asc cxc|ud|og |cvo|v|og |oaos aod
ovc|d|atts, coovco|cocc aod cxtcodcd c|cd|t ca|d dcbt, ucW bus|ocss. toosuout|oo |oaos.Loaos to| coosuout|oo cxc|ud|og
|cvo|v|og |oaos aod ovc|d|atts, coovco|cocc aod cxtcodcd c|cd|t ca|d dcbt, ucW bus|ocss.

4.5. Impact on ECB

/ 0|cc| dcbt |cst|uctu||og Wou|d d||cct|u |ouact t|c Lt8 t||oug|.

oWo 0|cc| bood |o|d|ogs, W||c| Wc|c acqu||cd t|oug| t|c 8ccu||t|cs Ha||ct l|og|aooc
{8Hl), aod
t|c 0|cc| boods t|at bao|s u|accd as co||atc|a| to| Lt8 ||qu|d|tu.

Lac| ot u|ouc| t|aosua|cocu ot 8Hl oa|cs |t d|tt|cu|t to asscss t|c |ouact ot ao cvcotua| 0|cc|
dcbt |cst|uctu||og oo t|c Lt8's ba|aocc s|cct. Ha||ct cst|oatcs suggcst t|at t|c Lt8 boug|t

8|ucgc| 2011 23
0|cc| govc|oocot boods to| auu|ox|oatc|u L 40 b||||oo at oa||ct u||ccs, W||c| cou|d bc L L0
b||||oo at tacc va|uc. l do oot Waot to succu|atc about t|c occdcd |a||cut |o t|c cvcot ot a
|cst|uctu||og, but to| |||ust|at|oo l cao coos|dc| a L0 uc|ccot |cduct|oo |o t|c oct u|cscot va|uc ot
dcbt, W||c| |s a tuu|ca| cst|oatc ot sooc aoa|usts. !||s Wou|d |cad to ao auu|ox|oatc|u L 1L b||||oo
|oss to| t|c Lt8, W||c| s|ou|d bc bo|oc bu ocobc| statcs acco|d|og to t|c|| cau|ta| s|a|c |o Lt8.
\ct |o uast |cst|uctu||ogs scvc|a| couot||cs cxc|udcd cc|ta|o |ovcsto| g|ouus t|oo |osscs. !|c Lt8
|o|d|ogs ot 0|cc| dcbt oau a|so bc cxc|udcd.

!|c Lt8's uos|t|oo ot cxc|ud|og dctau|tcd boods t|oo c||g|b|c co||atc|a|s |s |ust|t|cd. uoWcvc|, t|c
Lu|osustco s|ou|d u|cua|c to| ao cvcotua| 0|cc| dcbt |cst|uctu||og aod ot|c| Waus to suuuo|t
0|cc| bao|s W|t| ||qu|d|tu s|ou|d bc cxu|o|cd {scct|oo 4.2.1) aod oadc |ostaot|u ava||ab|c |o t|c
cvcot ot a suddco d|so|dc||u dctau|t.

l|oa||u, a dcbt |cst|uctu||og {o| t|c |ac| ot |t) s|ou|d oot |ouact t|c cooduct ot ooocta|u uo||cu.


5. SUMMARY

!|c|c |s a g|oW|og |ccogo|t|oo t|at t|c 0|cc| govc|oocot W||| oot bc ab|c to bo||oW t|oo t|c oa||ct
aout|oc sooo, aod t|c|c |s ao |otcosc dcbatc about uoss|b|c |csuooscs. !|c so ca||cd 'l|ao /',
coot|oucd ott|c|a| |cod|og W|t| uc||aus a vo|uota|u u||vatc sccto| |ovo|vcocot, |s uo|||c|u to Wo||
aod |as va||ous ||s|s, |oc|ud|og t|c |oa|d|og ot a|| 0|cc| dcbt bu ott|c|a| c|cd|to|s aod t|c uotcot|a|
ot a uo||t|ca| c||s|s. \o|uota|u u||vatc-sccto| |ovo|vcocot |s uo|||c|u to Wo|| aod a sutt|c|cot|u |a|gc
dcbt |cduct|oo |s oot u|c-cout|vc|u ocgot|ab|c. 'l|ao 8', W||c| s|ou|d cota|| a s|go|t|caot dcbt
|cduct|oo, |s t|c|cto|c occcssa|u. 8ut |t |s a|so ||s|u. |t |as t|c uotcot|a| to c|catc s|go|t|caot
advc|sc cttccts W|t||o 0|cccc aod bcuood |ts bo|dc|s. 8ut s|occ |t |s occcssa|u, Lu|oucao
uo||cuoa|c|s s|ou|d u|cua|c to| a 0|cc| dcbt |cst|uctu||og, bccausc ao uou|aoocd dctau|t Wou|d
|avc oo|c sc||ous |ouacts.

ucbt |cst|uctu||og |o 0|cccc |s oot ao a|tc|oat|vc to t|sca| ad|ustocot, st|uctu|a| |cto|os aod
u|ouc| |cto|o o| u||vat|sat|oo ot statc-oWocd cotc|u||scs, but a u|c|cqu|s|tc to| a succcsstu| t|sca|
cooso||dat|oo. ucbt |cst|uctu||og docs oot |avc ao |ou||cat|oo to| cx|t t|oo t|c cu|o a|ca.

!|c|c a|c va||ous c|aooc|s t||oug| W||c| a sovc|c|go dcbt |cst|uctu||og cao uodc|o|oc ccoooo|c
uc|to|oaocc aod t|c|c a|c sc||ous doocst|c costs. \ct |cst|uctu||og |o coc|g|og couot||cs du||og
t|c uast 1L uca|s |as bcco to||oWcd bu a qu|c| |cbouod |o outuut, W|t| 0ul |oc|cas|og bu 17
uc|ccot oo avc|agc |o t||cc uca|s attc| |cst|uctu||og. uoWcvc|, t|c|c a|c obv|ous d|ttc|coccs
bctWcco 0|cccc aod t|csc coc|g|og couot||cs, suggcst|og t|at suc| a qu|c| tu|oa|ouod |o
ccoooo|c uc|to|oaocc s|ou|d oot bc cxucctcd |o 0|cccc attc| a |cst|uctu||og. 0|cccc |as ouc|

8|ucgc| 2011 24
||g|c| |cvc| ot dcbt aod a s|zcab|c bao||og sccto|, t|c couot|u |s ua|t ot ao |otcg|atcd ooocta|u
uo|oo, |t docs oot |avc a staod-a|ooc ccot|a| bao| o| cu||cocu, aod Lu |cgu|at|oos cxc|udc cc|ta|o
ocasu|cs t|at Wc|c |ou|cocotcd du||og coc|g|og couot|u dcbt |cst|uctu||og cu|sodcs.

lo u|cua||og to| t|c dcbt |cst|uctu||og, scvc|a| ocasu|cs s|ou|d bc |ou|cocotcd to st|cogt|co t|c
0|cc| bao||og sustco, but a|so t|c bao||og sustcos |o ot|c| cu|o-a|ca couot||cs. lo| 0|cc| bao|s,
ocW cau|ta|, acccss to ||qu|d|tu aod coot|dcocc to avo|d bao| |uos a|c t|c c|uc|a| |ssucs, |o W||c|
to|c|go bao| oWoc|s||u Wou|d bc a s|go|t|caot u|us. lo||cuoa|c|s s|ou|d cxu|o|c out|oos to|
b||og|og s|go|t|caot to|c|go bao| oWoc|s||u to t|c 0|cc| bao||og sustco. lt add|t|ooa| bao| cau|ta|
t|oo u||vatc sou|ccs caooot bc sccu|cd, |t Wou|d bc st||| bcttc| to usc cc|ta|o Lu tuods t|ao |ct t|c
0|cc| bao||og sustco co||ausc. / Wc||-dcs|gocd dcbt cxc|aogc aod t|c |c||aocc oo t|c Lxccut|ooa|
L|qu|d|tu /ss|staocc cou|d a|so |c|u 0|cc| bao|s bu suuuo|t|og t|co W|t| ||qu|d|tu. toocc|o|og t|c
bao||og sustco ot ot|c| cu|o-a|ca couot||cs, u|ouc| st|css-tcst|og aod |ccau|ta||z|og ot bao|s t|at
occd |t s|ou|d |avc a vc|u ||g| u||o||tu to coota|o cootag|ous cttccts.

lt |s vc|u d|tt|cu|t to asscss t|c uoss|b|c cootag|ous cttccts ot ao cvcotua| 0|cc| |cst|uctu||og. !|c
casc ot 0|cccc W||| bc c|ca||u d|ttc|cot t|oo t|c bao||uutcu ot Lc|oao 8|ot|c|s, bccausc 0|cccc |s
oot a sustco|ca||u |ouo|taot t|oaoc|a| |ost|tut|oo, cxuosu|cs to 0|cccc a|c |casooab|u Wc|| |ooWo,
|cst|uctu||og ot 0|cc| dcbt |s W|dc|u cxucctcd, aod t|c g|oba| t|oaoc|a| a|c||tcctu|c ca|||cs |css ||s|
ooW. 8ut t|c uoss|b|c coot|guous cttccts s|ou|d oot bc uodc|cst|oatcd aod t|c|c |s a casc to| a
ca|ctu| studu bu t|c L888.

!|c c|uc|a| |ssuc |s t|o|og. !|c|c a|c bot| coos aod u|os to| Wa|t|og to| a W|||c aod to| a sW|tt
|cst|uctu||og. wa|t|og Wou|d tu|t|c| |oc|casc t|c ott|c|a| t|oaoc|og s|a|c |o 0|cc| dcbt, u|o|oog
uocc|ta|otu, ||s| a d|so|dc||u outcooc, aod daoagc to t|c u|cst|gc ot t|c Lu, but Wou|d a|so g|vc
t|oc to u|cua|c, to uodc|staod t|c ||s|s, aod to a||oW cu|o-a|ca couot||cs to accc|c|atc aod
advaocc W|t| t|c|| ad|ustocots. / sW|tt |cst|uctu||og, oo t|c ot|c| |aod, cou|d cod t|c uocc|ta|otu,
oau |oc|casc t|c oWoc|s||u ot t|c cu||cot t|sca| aod st|uctu|a| ad|ustocot u|og|aooc aod oau
|cad to ca|||c| oa||ct acccss, t|c|cbu |c|u|og ccoooo|c |ccovc|u. 8|occ t|c uocc|ta|otu about t|c
uoss|b|c |ouact ot a 0|cc| |cst|uctu||og |s vc|u ||g| aod 0|cc| bao|s a|c oot uct u|cua|cd to
W|t|staod t|c |osscs, t|c|c |s caut|ous casc to| Wa|t|og. /|so, |t Wou|d bc vc|u |ouo|taot t|at
uo||cuoa|c|s t|oo va||ous Lu |ost|tut|oos aod couot||cs cooc to ao ag|ccocot oo t|c oost
adcquatc so|ut|oo, W||c| W||| a|so ta|c t|oc.

Last but oot |cast, t|c Lu s|ou|d oob|||sc |d|c 8t|uctu|a| luods to tostc| ccoooo|c g|oWt| |o 0|cccc
aod |o ot|c| couot||cs st|ugg||og W|t| t|sca| aod st|uctu|a| ad|ustocot {Ha|z|ootto, 2011).


8|ucgc| 2011 25
6. REFERENCES

8al|o - lcdc|a| l|oaoc|a| 8uuc|v|so|u /ut|o||tu {2010), '8al|o u|o||b|ts oa|cd s|o|t-sc|||og
t|aosact|oos aod oa|cd tu8 |o govc|oocot boods ot cu|o zooc', u|css |c|casc ava||ab|c at.
|ttu.//WWW.bat|o.dc/c|o1L2/oo721140/8|a|cduocs/H|ttc||uogco/Lu/2010/uo100L18cds|c
c|vc||auta||gcoc|ovc|tucguogcoco.|to|
8a|c|aus tau|ta| {2011), '0|cccc. !|c {|oog) couotdoWo to |cst|uctu||og', 11 Hau 2011
8|c|c|, Ha||o l. {2011), '/|gcot|oa. t||s|s aod 8ccovc|u', uauc| u|cscotcd at t|c cootc|cocc
Lcoooo|c t||s|s aod 0ovc|oaocc, l08L - !|c louodat|oo to| Lcoooo|c 8 lodust||a| 8csca|c|,
/t|cos, 1 Hau 2011, |ttu.//WWW.|obc.g|/|odcx.asua|d878ocWs|d000
8|au, Ldua|d {2011), '0|cccc. l|oo Lcoooo|c u|sastc| to Lcoooo|c H||ac|c' uauc| u|cscotcd at
t|c cootc|cocc Lcoooo|c t||s|s aod 0ovc|oaocc, l08L - !|c louodat|oo to| Lcoooo|c 8 lodust||a|
8csca|c|, /t|cos, 1 Hau 2011, |ttu.//WWW.|obc.g|/|odcx.asua|d878ocWs|d000
8u|tc|, w|||c|o u., )uc|gco H|c|c|s aod Lb|a||o 8a|ba|| {2011), 'LL/. /o Louc|o| W|t|out t|ot|cs',
t|t| lovcstocot 8csca|c| aod /oa|us|s, lcb|ua|u 2011, ava||ab|c at.
|ttu.//WWW.obc|.o|g/Wbu|tc|/c|a.udt
ua|vas, so|t {2011), 'ucbt uctau|t bu Lu 0ovc|oocots', 12 /u||| 2011, Lu|oucao /tta||s, !|c
)ou|oa| ot t|c Lu|oucao lost|tutc, ava||ab|c at. |ttu.//WWW.b|ucgc|.o|g/uub||cat|oos/uub||cat|oo-
dcta||/uub||cat|oo/L22-dcbt-dctau|t-bu-cu-govc|oocots/
ua|vas, so|t, t|||stou|c 0oua|do, )cao l|sao|-lc||u aod /od|c 8au|| {2011), '/ coou|c|cos|vc
auu|oac| to cu|o-a|ca c||s|s. bac|g|ouod ca|cu|at|oos', 8|ucgc| wo|||og lauc|, Hau 2011, ava||ab|c
at. |ttu.//WWW.b|ucgc|.o|g/uub||cat|oos/uub||cat|oo-dcta||/uub||cat|oo/400-a-coou|c|cos|vc-
auu|oac|-to-cu|o-a|ca-c||s|s-bac|g|ouod-ca|cu|at|oos/
ua|vas, so|t, )cao l|sao|-lc||u aod /od|c 8au|| {2011), '/ coou|c|cos|vc auu|oac| to t|c cu|o-
a|ca dcbt c||s|s', 8|ucgc| lo||cu 8||ct, lcb|ua|u 2011, ava||ab|c at.
|ttu.//WWW.b|ucgc|.o|g/uub||cat|oos/uub||cat|oo-dcta||/uub||cat|oo/401-a-coou|c|cos|vc-
auu|oac|-to-t|c-cu|o-a|ca-dcbt-c||s|s/
uuquc||ou, /ooc, u|co|as 0aut||c| aod Hat||cu 0cx {2000), 't|cd|t dctau|t sWaus aod t|oaoc|a|
stab|||tu. ||s|s aod |cgu|ato|u |ssucs', 8aoquc dc l|aocc, l|oaoc|a| 8tab|||tu 8cv|cW, oo. 18, u. 7L-
88.
Lt8 {2000), 't|cd|t uctau|t 8Waus aod couotc|ua|tu ||s|', Lt8, /ugust 2000.
L|c|cog|cco, 8a||u {2007a), '!|c 8|ca|uu ot t|c Lu|o /|ca', u8L8 wo|||og lauc| 18808
L|c|cog|cco, 8a||u {2007b), 'Lu|ozooc b|ca|uu Wou|d t||ggc| t|c oot|c| ot a|| t|oaoc|a| c||scs',
\oxLu, 17 uovcobc| 2007

8|ucgc| 2011 26
lcodc|, logo, /||co l|ao|c| aod )acob 0uotc|bc|g {2008), '!||cc oa||ct |ou||cat|oos ot t|c Lc|oao
bao||uutcu', 8l8 0ua|tc||u 8cv|cW, ucccobc|, uu 7.
l88 8co|o| 8uuc|v|so|s 0|ouu {2000), '0bsc|vat|oos oo Haoagcocot ot 8cccot t|cd|t uctau|t 8Wau
t|cd|t Lvcots', Ha|c|.
0c|os, 8. 0astoo, 8atoa 8a|au aod 0u|do 8aod|c||s {2004) '8ovc|c|go 8o||oW|og bu ucvc|ou|og
touot||cs. w|at uctc|o|ocs Ha||ct /cccss', lHl wo|||og lauc| 04/221
lHl {2002), '8ovc|c|go ucbt 8cst|uctu||og aod t|c uoocst|c Lcoooou. Lxuc||cocc |o lou| 8cccot
tascs', lo||cu ucvc|ouocot aod 8cv|cW ucua|tocot, 21 lcb|ua|u 2002,
|ttu.//WWW.|ot.o|g/cxtc|oa|/ou/ud|/sd|o/2002/022102.udt
l||s| lodcucodcot {2011), 'wc a|c oot t||st to usc coc|gcocu ||qu|d|tu ass|staocc to d|g out
|codc|s', 10 lcb|ua|u 2011, |ttu.//WWW.|odcucodcot.|c/bus|ocss/|||s|/Wc-a|c-oot-t||st-to-usc-
coc|gcocu-||qu|d|tu-ass|staocc-to-d|g-out-|codc|s-2L88874.|to|
l8u/ {2008), l8u/ 2008 t|cd|t uc||vat|vc uct|o|t|oos.
l8u/ {2008), 'l8u/ to uub||s| u|otoco| to| Lcuado|' ava||ab|c at.
|ttu.//WWW.|sda.o|g/u|css/u|css121708.|to|
kcoa|, /. 8. aod Hu|aooad la|ooq /|bu, {2004) '0ua|tc||sat|oo ot aooua| 0ul ot la||stao',
8tat|st|ca| lauc| 8c||cs uo. 0L, la||stao lost|tutc ot ucvc|ouocot Lcoooo|cs, ls|aoabad.
|ttu.//WWW.u|dc.o|g.u|/udt/0ua|tc||sat|oo20ot20/ooua|200ul.udt
Ha|z|ootto, 8cocd|cta {2011), '/ Lu|oucao luod to| Lcoooo|c 8cv|va| |o t||s|s touot||cs', 8|ucgc|
lo||cu toot||but|oo, lcb|ua|u 2011, ava||ab|c at. |ttu.//WWW.b|ucgc|.o|g/uub||cat|oos/uub||cat|oo-
dcta||/uub||cat|oo/L04-a-cu|oucao-tuod-to|-ccoooo|c-|cv|va|-|o-c||s|s-couot||cs/
Haouc|, uavc {2010), 'w||c| touot||cs uavc Host 8cccot|u uctau|tcd oo !|c|| 8ovc|c|go ucbt
0b||gat|oos' 12 lcb|ua|u 2010, |ttu.//WWW.davcoaouc|.coo/2010/02/12/t|c-|ast-18-oa|o|-
sovc|c|go-bood-dctau|ts
ladoa-8c||ouua, !oooaso {2008), '8coa||s oo tcot|a| 8ao| aod l|oaoc|a| 8tab|||tu', 8uccc| at
)a|a|ta, Lt8 8uccc|cs 8 lotc|v|cWs, 7 )u|u 2008, ava||ab|c at.
|ttu.//WWW.ccb.|ot/u|css/|cu/datc/2008/|to|/su080707.co.|to|
lao|zza, ugo, lcdc||co 8tu|zcocggc| aod )c|oo|o cttc|ocuc| {2000), '!|c Lcoooo|cs aod LaW ot
8ovc|c|go ucbt aod uctau|t', )ou|oa| ot Lcoooo|c L|tc|atu|c vo|. 47{8) uu. L1-08, 8cutcobc|
l|sao|-lc||u, )cao {2011), '!|ao| uou H|. 8oub|o|, but cao l scc t|c ocou aga|o', 2 )uoc 2011,
ava||ab|c at. |ttu.//WWW.b|ucgc|.o|g/uub||cat|oos/uub||cat|oo-dcta||/uub||cat|oo/LL8-t|ao|-uou-o|-
|oub|o|-but-cao-|-scc-t|c-ocou-aga|o/
8|c|oood, t|||st|oc aod uao|c| /. u|as {2000), 'uu|at|oo ot tau|ta| Ha||ct Lxc|us|oo. 8tu||zcd lacts
aod uctc|o|o|og lacto|s', o|oco,

8|ucgc| 2011 27
|ttu.//uc|sooa|.aodc|soo.uc|a.cdu/c|||st|oc.||c|oood/Ha||ctacccss07008|c|ooodu|as.udt
8oub|o|, uou||c| {2011a), 'Huc| ado about |c|at|vc|u ||tt|c. tootag|oo 8|s|s to|o ao 0|dc||u 0|cc|
ucbt 8cst|uctu||og a|c Hodcst, toota|ocd aod Haoagcab|c', 24 Hau 2011, 8oub|o| 0|oba|
Lcoooo|cs
8oub|o|, uou||c| {2011b), 'l|oo |cu|ot|||og to \|cooa lo|t|at|vc 2.0. t|c oooscosc ot uu|c|u
'vo|uota|u' ba||-|os ot 0|cccc's sovc|c|go c|cd|to|s', 8 )uoc 2011, 8oub|o| 0|oba| Lcoooo|cs
8tu|zcocggc|, lcdc||co aod )c|oo|o cttc|ocuc| {200), 'ucbt uctau|ts aod Lcssoos t|oo a
uccadc ot t||scs', Hl! l|css 200
wo|t, Ha|t|o {2011), 'loto|c|ab|c c|o|ccs to| t|c cu|ozooc', 81 Hau 2011, l|oaoc|a| !|ocs,
|ttu.//WWW.tt.coo/|ot|/cos/s/0/1a182La-8bb7-11c0-a72L-00144tcab40a.|to|
wo|tt, 0uot|ao 8. {2011), 'L888 s|ou|d act oo sovc|c|go ||s|', L Hau 2011, ava||ab|c at.
|ttu.//WWW.b|ucgc|.o|g/uub||cat|oos/uub||cat|oo-dcta||/uub||cat|oo/L28-cs|b-s|ou|d-act-oo-
sovc|c|go-||s|/ '

8|ucgc| 2011 28
7. APPENDIX 1: CREDIT DEFAULT SWAPS (CDS) AND CREDIT EVENTS
10


t|cd|t dctau|t sWaus {tu8) |avc |ccc|vcd coos|dc|ab|c attcot|oo s|occ t|c bcg|oo|og ot t|c
t|oaoc|a| c||s|s, oot |cast bccausc ot t|c ua|t t|cu u|aucd |o aou||tu|og oa||ct |cact|oos to||oW|og
t|c ta||u|c ot Lc|oao 8|ot|c|s |o 8cutcobc| 2008. t|cd|t uctau|t 8Waus |avc a|so |cucatcd|u bcco
uut uodc| t|c suot||g|t |o t|c cootcxt ot t|c cu|o-a|ca c||s|s. |o t|c ca||u daus t|cu Wc|c b|aocd to|
tuc|||og cxccss vo|at|||tu aod H$)3!%@45K4,(L0#C$05#!E4*4#-0)"0#C$0IC)*$0"4,!,94!*05-5#$2 {8al|o,
2010), |cad|og to a bao oo oa|cd sc|||og ot tu8 W||ttco oo cu|o-a|ca sovc|c|gos bu t|c 0c|oao
t|oaoc|a| |cgu|ato|. Ho|c |cccot|u, t|cu |avc |c-cotc|cd d|scuss|oos as ooc ot t|c c|aooc|s t||oug|
W||c| t|c cooscqucoccs ot a sovc|c|go dctau|t o| |cst|uctu||og ot a sovc|c|go's dcbt cou|d bc
aou||t|cd.

7.1. Definition of credit default swaps

t|cd|t uctau|t 8Waus a|c t|c oost cooooo to|o ot c|cd|t dc||vat|vcs. !|cu a||oW |ovcsto|s to
t|aostc| t|c ||s| ot dctau|t to t|c cot|tu sc|||og u|otcct|oo, o| to ga|o cxuos|t|oo to c|cd|t ||s| W|t|out
cotc||og |oto a |oao ag|ccocot o| uu|c|as|og a bood. !|c u|otcct|oo buuc| uaus a qua|tc||u
u|co|uo {t|c su|cad) to t|c sc||c| ot u|otcct|oo uot|| a c|cd|t cvcot occu|s o| uot|| t|c coot|act
cods. Ha||ct ua|t|c|uaots |oc|udc bao|s, |cdgc tuods, assct oaoagc| aod |osu|c|s, t|c |attc|
|av|og |a|gc| oct sc||c| uos|t|oos at |odust|u |cvc|.

/|t|oug| |cgu|ato|s aod |odust|u o|gao|zat|oo |avc oa|c s|go|t|caot stcus |o staoda|d|s|og c|cd|t
dc||vat|vcs aod oov|og t|adcs to ccot|a| couotc|ua|t|cs, t|c vast oa|o||tu ot tu8 t|adcs st||| ta|c
u|acc 0vc|-t|c-touotc|. tooscqucot|u, t|aosua|cocu |s |oW aod couotc|ua|tu ||s| |coa|os ||g|.
uoWcvc|, s|occ t|c bcg|oo|og ot t|c c||s|s, stat|st|cs oo t|c oct aod g|oss aoouots ot outstaod|og
s|og|c-oaoc tu8 coot|acts |avc bcco uub||s|cd cvc|u Wcc| bu t|c ucuos|to|u !|adc aod t|ca||og
to|uo|at|oo {u!tt), a||oW|og c|osc| ooo|to||og ot agg|cgatc cxuosu|cs.

7.2. Settlement

lt a c|cd|t cvcot {scc t|c ocxt scct|oo) t|at |s dct|ocd |o t|c tc|os ot t|c coot|act occu|s, t|c
u|otcct|oo sc||c| |s |cqu||cd to cooucosatc t|c u|otcct|oo buuc|. lo u|act|cc t|c|c a|c tWo bas|c
sctt|cocot u|occdu|cs to| tu8 coot|acts. lo a 3C-549!* sctt|cocot, t|c u|otcct|oo buuc| dc||vc|s t|c
dctau|tcd ob||gat|oo to t|c u|otcct|oo sc||c| aod |ccc|vcs cooucosat|oo to| t|c tu|| oot|ooa| va|uc ot
t|c ob||gat|oo {ocao|og, |o t|c casc ot oa|cd c|cd|t dctau|t sWaus, t|at t|c buuc| ot u|otcct|oo t||st
occds to acqu||c t|c bood oo t|c oa||ct, W||c| cao bc t|oub|csooc |t oaou ua|t|c|uaots a|c
attcout|og to do t|c saoc t||og). lo a 9!5C sctt|cocot, t|c u|otcct|oo buuc| |ccc|vcs t|c

10
!||s auucod|x |as bcco u|cua|cd bu t|||stou|c 0oua|do.

8|ucgc| 2011 29
d|ttc|cocc bctWcco t|c oot|ooa| va|uc ot t|c dctau|tcd ob||gat|oo aod |ts u||cc oo t|c oa||ct o| as
dctc|o|ocd bu ao auct|oo u|occss. lo t|c cas| sctt|cocot, t|c tuod t|aostc| t|oo t|c u|otcct|oo
sc||c| to t|c u|otcct|oo buuc| uuoo t|c occu||cocc ot a c|cd|t cvcot |s |o tact |oWc| t|ao t|c |osu|cd
aoouot, aod u|t|oatc|u dcucods oo t|c |ccovc|u |atc aod t|c aoouot ot co||atc|a| a||cadu uostcd
to gua|aotcc aga|ost couotc|ua|tu ||s|.

!|c 2000 8uuu|cocot aod 8cst|uctu||og 8uuu|cocot {W||c| a|so auu|u to |cgacu t|adcs to| t|osc
t|at |avc cotc|cd |oto t|c 8|g 8aog aod 8oa|| 8aog u|otoco|s) |cqu||c oa||ct ua|t|c|uaots to
sctt|c tu8 t|aosact|oos t||oug| oa||ct auct|oos {to dctc|o|oc a s|og|c oa||ct-W|dc |ctc|cocc
u||cc to| t|c |oua||cd asscts). /|t|oug| t|csc auct|oos do oot a||oW to| ou|t||atc|a| octt|og, t|cu
a||oW o|dc||u aod |au|d sctt|cocots v|a staoda|d|zcd u|occdu|cs aod a ccot|a| a|c||tcctu|c t|at
oa||ct ua|t|c|uaots |avc acqu||cd s|go|t|caot cxuc||cocc W|t| |o t|c uast uca|s {l88 8co|o|
8uuc|v|so|s 0|ouu, 2000), t|us o|t|gat|og sooc ot t|c ||s|s t|at stco t|oo |a|gc g|oss sustco-
W|dc cxuosu|cs aod t|c coou|cx|tu ot t|c Wcb ot b||atc|a| uos|t|oos. uoWcvc|, t|c |oc|cas|og usc ot
co||atc|a||sat|oo as a ocaos to ||o|t t|c couotc|ua|tu ||s| bo|oc bu buuc|s |o tu8 coot|acts ocaos
t|at oa|g|o ca||s cou|d bc uotcot|a||u dcstab|||s|og |t su|cads Wc|c to W|dco ab|uut|u.

7.3. Credit events

tu8 cooucosat|oos a|c t||ggc|cd uuoo t|c occu||cocc ot u|c-dctc|o|ocd 9%$@4#0$'$,#5, t|c
staoda|d dct|o|t|oos ot W||c| a|c |a|d out |o t|c 2008 l8u/ t|cd|t uc||vat|vc uct|o|t|oos. lo t|c casc
ot cu|o-a|ca sovc|c|gos, t||cc tuucs ot c|cd|t cvcots auu|u, la||u|c to lau, 8cuud|at|oo/Ho|ato||uo,
aod 8cst|uctu||og.

- la||u|c to lau. a ta||u|c to uau c|cd|t cvcot occu|s W|co t|c |ctc|cocc cot|tu ta||s to
oa|c uauocots oo ooc ot |ts ob||gat|oos bcto|c t|c cxu||u ot g|acc uc||ods W||ttco
|oto t|c ob||gat|oo.

- 8cuud|at|oo/Ho|ato||uo. a |cuud|at|oo/oo|ato||uo c|cd|t cvcot occu|s W|co t|c
|ctc|cocc cot|tu c|t|c| d|satt||os, d|sc|a|os, |cuud|atcs, |c|ccts, o| c|a||cogcs t|c
va||d|tu ot ao ob||gat|oo coocu||cot|u W|t| t|c occu||cocc ot a la||u|c to lau cvcot.

- 8cst|uctu||og. |cst|uctu||og c|cd|t cvcots a|c b|oadc| |o scouc t|ao t|c abovc tWo,
aod t|us |cqu||c oo|c c||tc||a to bc oct. / |cst|uctu||og cvcot cao occu| |o t|c
to||oW|og cascs.

lt t|c |otc|cst |atc o| couuoo aoouot |s c|aogcd t|oo t|c coot|actua||u
ag|ccd tc|os,
lt t|c u||oc|ua| aoouot |s c|aogcd t|oo t|c coot|actua||u ag|ccd tc|os,

8|ucgc| 2011 30
lt t|c uauocot ot aou ob||gat|oo, u||oc|ua|, |otc|cst o| u|co|uo, |s uostuoocd
o| dctc||cd W|t| |ctc|cocc to t|c coot|actua||u ag|ccd tc|os,
lt t|c |ao||og ot ao ob||gat|oo |s c|aogcd, caus|og |s to bc subo|d|oatcd to
aoot|c|,
lt t|c cu||cocu o| coouos|t|oo ot uauocots {u||oc|ua| ot |otc|cst) |s c|aogcd
to a cu||cocu t|at |s oot a Mlc|o|ttcd tu||cocu.

0t|c| c||tc||a oust bc oct to| a |cst|uctu||og c|cd|t cvcot to bc dcc|a|cd, oaoc|u, t|c
abovc cvcots oust |csu|t d||cct|u o| |od||cct|u t|oo dctc||o|at|oo |o t|c |ctc|cocc
cot|tu's c|cd|tWo|t||ocss o| t|oaoc|a| cood|t|oos aod oust occu| |o a to|o t|at b|ods
a|| |o|dc|s.

l|cv|ous|u, t|c occu||cocc ot a c|cd|t cvcot Was dctc|o|ocd bu ooc ot t|c couotc|ua|t|cs bu t|c
dc||vc|u ot a c|cd|t cvcot oot|cc dcsc||b|og t|c cvcot |o dcta||, |cav|og ouco t|c uoss|b|||tu ot
d|suutcs. !|c 2000 suuu|cocot to t|c 2008 l8u/ t|cd|t uc||vat|vc uct|o|t|oos |ostcad cstab||s|cd
|cg|ooa| N$#$%24,!#4),0F)224##$$5G tas|cd W|t| oa||og oa||ct-W|dc b|od|og dcc|s|oos oo t|c
occu||cocc ot c|cd|t cvcots {Lt8, 2000). !|c uctc|o|oat|oo tooo|ttccs a|c coou||scd ot 1L
vot|og ocobc|s aod 8 ooo-vot|og ocobc|s.
11
/o 80 uc|ccot oa|o||tu |s |cqu||cd to| dcc|s|oo, |t t||s
suuc|oa|o||tu |s oot obta|ocd, t|c dcc|s|oo |s ta|co bu oa|o||tu votc uo|css ao cxtc|oa| |cv|cW
uaoc| ouuoscs |t {uoao|oous|u o| bu a 2/8 oa|o||tu, t|c uaoc| coou||s|og 8 ocobc|s). /s
||g|||g|tcd bu t|c Lt8 {2000), t|c uctc|o|oat|oo tooo|ttccs 423%)'$0#C$09$%#!4,#-0)"03%)9$55$50
")**)I4,(0!09%$@4#0$'$,#0!,@0%$2)'$0#C$0)3$%!#4),!*0E+%@$,.

uoto|tuoatc|u, as ta| as tu8 t||ggc|s a|c coocc|ocd, t|c|c a|c oo ||sto||ca| cxuc||coccs t|at cao
sc|vc as gu|dcs. bccausc a|| |cst|uctu||ogs a|c d|ttc|cot, to| a sta|t, but a|so bccausc oo sovc|c|go
|cst|uctu||og cvcots |avc occu||cd uodc| t|c cu||cot l8u/ dct|o|t|oos aod W|t| t|c uctc|o|oat|oo
tooo|ttccs |o u|acc. !|c sctt|cocot u|otoco| to||oW|og t|c dctau|t ot Lcuado| |o 2008 Was t|c t||st
u|otoco| uub||s|cd bu l8u/ |o |ctc|cocc to a sovc|c|go c|cd|t cvcot {l8u/, 2008). lt s|ou|d bc ootcd
t|at aou to|o ot uu|c|u vo|uota|u cxc|aogcs Wou|d oost |||c|u oot t||ggc| tu8, as t|cu Wou|d cota||
subst|tut|og ooc ob||gat|oo to| aoot|c| aod t|osc uoW||||og to ua|t|c|uatc cou|d s|ou|u |cta|o t|c||
o|d boods.


11
/s ot Hau 2011, t|c 1L vot|og ocobc|s to| Lu|ouc a|c. 8ao| ot /oc||ca / Hc||||| Luoc|, 8a|c|aus, 8ul la||bas, t|cd|t 8u|ssc,
ucutsc|c 8ao|, 0o|doao 8ac|s, )l Ho|gao, Ho|gao 8tao|cu, 8oc|ctc 0coc|a|c, u88, 8|ac|8oc|, 8|ucHouota|o tau|ta|, t|tadc|
lovcstocot 0|ouu, u.L. 8|aW 0|ouu aod 8abobao| lotc|oat|ooa|.


8|ucgc| 2011 31
7.4. Available statistics on exposures

!|c t|gu|cs uub||s|cd bu u!tt s|oW t|c g|oss oot|ooa| aod oct aoouots ot s|og|c-oaoc tu8 W||ttco
oo cot|t|cs. !|c g|oss aoouot |s t|c suo ot tu8 coot|acts boug|t {o| so|d). uoWcvc|, t||s t|gu|c
docs oot ta|c |oto accouot t|c tact t|at oa||ct ua|t|c|uaots cao {aod do) s|ou|taocous|u buu aod
sc|| u|otcct|oo oo t|c saoc |ctc|cocc cot|tu, to| t|ad|og uu|uoscs, but a|so bccausc c|os|og a tu8
uos|t|oo ottco |ovo|vcs ta||og oo ao ottsctt|og uos|t|oo |at|c| t|ao t|aostc|||og t|c coot|act to
aoot|c| couotc|ua|tu. OC$0,$#0,)#4),!*0'!*+$5 uub||s|cd ca|cu|atcd W|t| |ctc|cocc to |od|v|dua|
oa||ct ua|t|c|uaots, aod a|c cqua| to t|c suo ot oct u|otcct|oo boug|t {o| so|d) bu oct buuc|s {o|
oct sc||c|s). /s suc|, t|cu |cu|cscot t|c oax|ouo uoss|b|c oct tuods t|aostc|s bctWcco oct sc||c|s
aod oct buuc|s. lo u|act|cc, aoouots t|aostc||cd W||| bc |oWc|. !|c cas| sctt|cocot u|occdu|c
|ovo|vcs t|aostc|||og oo|u t|c d|ttc|cocc bctWcco t|c oot|ooa| va|uc ot ao |osu|cd bood, to|
|ostaocc, aod |ts oa||ct u||cc/t|c |ccovc|u |atc.

8tat|st|cs oo t|c oct uos|t|oos ot |od|v|dua| couotc|ua|t|cs a|c oot ava||ab|c. !||s ||odc|s t|c
cva|uat|oo ot sustco|c ||s|.


8|ucgc| 2011 32
8. APPENDIX 2: RECENT SOVEREIGN DEBT DEFAULTS AND RESTRUCTURINGS: FURTHER
INFORMATION

uavc Haouc|'s Wcbs|tc {|ttu.//WWW.davcoaouc|.coo/2010/02/12/t|c-|ast-18-oa|o|-sovc|c|go-
bood-dctau|ts/) ||st 18 |cccot sovc|c|go dctau|ts.

\coczuc|a, )u|u 1008 - dctau|tcd oo $270 o||||oo Wo|t| ot doocst|c cu||cocu boods

8uss|a, /ugust 1008 - a oass|vc $72.7 b||||oo dctau|t {t||st o|sscd uauocots oo |oca| !|casu|u
ob||gat|oos aod |atc| cxtcodcd to |oc|udc to|c|go cu||cocu ob||gat|oos), 8uss|a's dcbts Wc|c
cvcotua||u |cst|uctu|cd |o |atc| uca|s.

u||a|oc, 8cutcobc| 1008 - $1.27 b||||oo do||a| dctau|t

la||stao, )u|u 1000 - dctau|tcd |o )u|u ot 1000 but qu|c||u |cso|vcd t|c s|tuat|oo

Lcuado|, /ugust 1000 - o|sscd a uauocot, |cad|og ao cvcotua| |cst|uctu||og ot ovc| 00 uc|ccot ot
t|c|| boods. uctau|t aoouot Was a|ouod $. b||||oo

u||a|oc, )aoua|u 2000 - dctau|tcd aga|o {$1.0 b||||oo) ot to|c|go cu||cocu dcooo|oatcd boods,
t|c s|tuat|oo Was |cct|t|cd bu cxc|aog|og t|c|| cu||cot ob||gat|oos to| boods W|t| a |oogc| tc|o aod
|oWc| couuoo.

lc|u, 8cutcobc| 2000 - dctau|tcd oo $4.87 b||||oo ot dcbt but |cct|t|cd t|c s|tuat|oo W|t||o 80 daus

/|gcot|oa, uovcobc| 2001 - a oass|vc $82.2 b||||oo do||a| dctau|t

Ho|dova, )uoc 2002 - dctau|tcd oo $14L o||||oo Wo|t| ot dcbt, oo|u to |cct|tu t|c s|tuat|oo a s|o|t
W|||c |atc|, oocc to dctau|t oocc aga|o

u|uguau, Hau 2008 - dctau|tcd oo $L.7 b||||oo do||a|s Wo|t| ot dcbt, t|c couot|u cvcotua||u
coou|ctcd a |cst|uctu||og ot t|c|| dcbt ob||gat|oos W|t| t|c|| bood|o|dc|s

uoo|o|cao 8cuub||c, /u||| 200L - uctau|tcd oo $1.2 b||||oo do||a|s Wo|t| ot dcbt, cvcotua||u
coou|ctcd a dcbt |cst|uctu||og t|at codcd uu cxtcod|og t|c oatu||tu ot t|c|| dcbt ob||gat|oos bu
t|vc uca|s

8c||zc, ucccobc| 200 - uctau|tcd oo $242 o||||oo do||a|s Wo|t| ot dcbt


8|ucgc| 2011 33
Lcuado|, ucccobc| 2008 - uctau|tcd oo $8.2 b||||oo do||a|s Wo|t| ot dcbt ob||gat|oos attc| ca|||og
scvc|a| ot t|c|| u|cv|ous dcbt ottc||ogs `|||cga| aod |||cg|t|oatc`, |c t|c dctau|t |s to| `oo|a|` |casoos,
oot t|c |ac| ot |csou|ccs to sc|v|cc t|c dcbt.

l cou|d oot t|od qua|tc||u 0ul data to| 8c||zc, but addcd lodoocs|a, a couot|u t|at |o )uoc 1008
cooc|udcd ao ag|ccocot to| |cst|uctu||og |otc|bao| dcbt bu t|c cod ot Ha|c| 1000, aod |o
8cutcobc| 1008 ao ag|ccocot oo |csc|cdu||og aod |ct|oaoc|og lodoocs|a's b||atc|a| cxtc|oa| dcbt
to ott|c|a| c|cd|to|s {$ 4.1 b||||oos covc||og u||oc|ua| uauocots oo ott|c|a| dcbt aod cxuo|t c|cd|t to|
t|c uc||od /ugust 1008 to Ha|c| 2000).

Figure A.1: Quarterly real effective exchange rate developments before and after twelve public debt
defaults or restructurings during the past 15 years (quarter of restructuring = 100)
200
180
160
140
120
100
80
60
40
200
180
160
140
120
100
80
60
40
T
-
8
T
-
4 T
T
+
4
T
+
8
T
+
1
2
Argentina, Q4 2001
Dominican Republic, Q2 2005
Ecuador, Q3 1999
Ecuador, Q4 2008
Indonesia, Q2 1998
Moldova, Q2 2002
Average of the 12 cases
180
160
140
120
100
80
60
180
160
140
120
100
80
60
T
-
8
T
-
4 T
T
+
4
T
+
8
T
+
1
2
Pakistan, Q3 1999
Peru, Q3 2000
Russia, Q3 1998
Ukraine, Q1 2000
Uruguay, Q2 2003
Venezuela, Q3 1998
Average of the 12 cases
280 280

uotc. t|c |ca| cttcct|vc cxc|aogc |atc |s ca|cu|atcd bu us aga|ost 148 couot||cs ot t|c Wo||d us|og coosuoc| u||ccs |odcxcs. / ta|| |o
t|c |odcx |od|catcs |ca| dcu|cc|at|oo. 8ou|cc. 8|ucgc|.


8|ucgc| 2011 34

Table A.1: Time to market access after defaults/debt restructurings in the 1980s and 1990s
'
2)E6"$*' K)<"5C*%;+';E'Q64G)*'R&&)<<' @;"+*47' MS';E'7)64<'"+*%$'4)<"5C*%;+'
1080 1080 lc|u 0
1081, 84 1004 tosta 8|ca 18
1081 1004 uoodu|as 18
1081 1088 )aoa|ca 2
1081 1088 Hadagasca| 7
1081 1082 lo|aod 1
1081 108L 8ooao|a 14
1082 108 /|gcot|oa 4
1082 1087 Lcuado| L
1082 108L Hcx|co 8
1082 1080 u|gc||a 7
1082 1082 !u||cu 0
1088 1088 8|az|| 0
1088 1000 t|||c 7
1088 1002 totc d'lvo||c 0
1088 108L Ho|occo 2
1088 1088 u|gc| 0
1088 1008 lc|u 0
1088 1088 l||||uu|ocs L
1088 1002 u|uguau 0
1088 1087 \coczuc|a 12
1084 1088 Lguut 4
108L 1088 8out| /t||ca 8
108 1088 0aboo 2
108 1088 Ho|occo 2
108 1000 8ooao|a 4
1087 1000 0|aoa 8
1087 1088 l|aq 1
1088 1002 !||o|dad aod !obago 4
1080 1080 /|gcot|oa 0
1080 1008 )o|dao 4
1080 1080 8out| /t||ca 0
R=)46:)'.TU-<'
Q)(%6+'.TU-<'
VWX'
VW-'
1001 1001 /|gc||a 0
1001 1002 Lt||ou|a 1
1001 1002 8uss|ao lcdc|at|oo 1
1002 1002 l||||uu|ocs 0
1008 1008 8out| /t||ca 0
100L 100L \coczuc|a 0
1008 1008 lodoocs|a 0
1008 1008 u||a|oc 0
1008 2000 8uss|ao lcdc|at|oo 1*
1000 2000 Lcuado| 1
R=)46:)'.TT-<'
Q)(%6+'.TT-<'
-WY'
-W-'
8ou|cc. 0c|os, 8aod|c||s aod 8a|au {2004).
uotcs. !|c tab|c ||sts cu|sodcs ot dcbt dctau|t bctWcco 1080 aod 1000, covc||og oo|u couot||cs t|at |ad acccss to t|c cau|ta|
oa||ct du||og t|c uca| ot dctau|t o| du||og t|c tWo u|cccd|og uca|s aod t|at |cga|ocd oa||ct acccss uot|| 2000. /cccss |s dct|ocd
as |ssuaocc ot uub||c o| uub||c|u gua|aotccd bood o| suod|catcd|oao. \ca| ot dctau|t |s dct|ocd as uca| |o W||c| t|c sovc|c|go
dctau|tcd oo to|c|go-cu||cocu bood o| bao| dcbt acco|d|og to 8taoda|d 8 loo|'s.*coot|oucd to accss |o 1008