Friday, May 7, 2010

How to reduce the debt of Greece

Today, the German Bundestag will clear the way for the financial aid for Greece. What should be done with the money?

I will suggest an open market purchase of Greek government bonds. If Greece will use the money to buy their own bonds at distressed levels of 60-70%, this leads to an immediate reduction of the debt. A repurchase of a 1bln Euro debt will cost only 600-700 million! Every company or private debtor would do this, if he has the money, is not insolvent and has market priced debt.

A side effect of this would be, that immediately after announcing this repurchase program, the bid side will disappear and a short squeeze will be triggered. If "evil" speculators are the reason for the debt crisis, they will pay for that. Sounds easy, is easy ... but won't be done.

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