According to an understanding reached at the summit of European heads of government on 26 October 2011, the Greek government, within the next few weeks will attempt to persuade private creditors holding about €200 billion in its bonds to ‘voluntarily’ take a 50 per cent reduction of the face value of their bonds. In a hypothetical scenario where all of the Greek bonds were held by a handful of big creditors, they could likely be persuaded to take the haircut. The argument would be that the failure to grant Greece relief would worsen its financial condition and eventually result in political chaos and default. Under those conditions, creditors would be lucky to get anything close to 50 per cent. Arguments to that effect were made, often effectively, to persuade the holders of syndicated...

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