One of the world’s leading experts on debt restructurings has proposed extending the maturities of Cypriot sovereign bonds and giving uninsured depositors in its banks certificates of deposit (CDs) as a solution to the Mediterranean island’s crisis.
In a paper titled “Walking Back from Cyprus,” Lee Buchheit of New York law firm Cleary Gottlieb Steen & Hamilton and his frequent collaborator Mitu Gulati of Duke Law School say European governments “trespassed on consecrated ground” with their plan to impose a levy on insured depositors in Cyprus.
They sketch out an alternative which would protect savers with deposits under 100,000 euros and grant those above that level 5-10-year interest-bearing bank CDs corresponding to the amount of their savings in excess of the insured threshold.
In addition, the maturities of all sovereign bonds would be extended by a fixed number of years, for example five. “By our reckoning, this would reduce the total amount of the required official sector bailout funding during a three-year program period by about 6.6 billion euros,” the paper says. [Reuters]