Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest
Abstract
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 preemptive
or post-default restructuring with significant face value reduction in privately-held debt. Both options have risks, but it is necessary to move to Plan B sooner or later. The impact on Greece could be mitigated 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
