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  • Writer's pictureWilliam Webster

Prepare for a long weekend

There are solutions for sovereign borrowers with excessive debt.

  1. More borrowing

  2. Repayment

  3. Paying back with money worth less (inflation)

  4. Default Option (1) is difficult when lenders run out of patience. Politicians now know that voters don't do austerity so option (2) doesn't seem likely either.  Inflation? Unlikely if you don't control the central bank. So option (4) is a favourite. Political preference is for order. But will that happen? Maybe not and it's leading some commentators to speculate that a return to the Euro legacy currencies is an alternative. Daft? Unthinkable? Catastrophy? Probably not. Why should it be worse than the current uncertainty that is paralysing markets? As an old colleague is fond of reminding me "what comes around goes around". Four things you may care to consider:

  5. Don't get caught borrowing in "hard" Euro areas to finance loans to "soft" debtors.

  6. Read contract small print  - what could you be redenominated into?

  7. Plan for EU currency trading.

  8. Prepare for a long weekend.

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