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Ron D'Vari, Chief Executive Officer & Co-Founder, NEWOAK

Greece and the Sovereign Debt Crisis
Wednesday, June 01 2011 | 10:37 AM
Ron D'Vari
Chief Executive Officer & Co-Founder, NEWOAK

European Union finance officials are discovering the benefits of financial engineering in considering Collateralized Bailout ("CBO") as an alternative to sovereign debt restructuring. As the European Union finance chiefs explore various options to deal with the worsening Greece sovereign debt crisis, some EU countries suggest making any additional aid collateralized with national assets.

At this point officials deny any particular options. Given public opinion in Germany and Finland has been against further outright aid to Greece, any option to mitigate the impact of a Greece default would be attractive to the officials. Asset sales by governments to avoid default or raise needed cash have a long history, with an example being that a significant portion of the geographic area of the United States, such as Louisiana, was acquired through sale of land by other governments for cash. Yet a sovereign bond collateralized by a specific land or a national monument would be new. Structured finance traders may joke about a due diligence trip on a new "Apollo CBO" if it was a sovereign bond of Greece collateralized by Mykonos Island, though Greek nationals may not find that quite as funny. Given the financial conditions, we may also see collateralized or structured debt solutions considered in other public finance cases such as US municipal markets.
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