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The Management of Greek Sovereign Risk

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  • OLDANI, CHIARA

Abstract

In 2010 the excessive public spending produced the first sovereign bond market crisis in Europe: Greece. The Hellenic crisis is the product of years of recession, of the sluggish economic environment and poor productivity – but above all it is the product of the mismanagement of the public finance, of unsatisfactory reporting, risk management and accounting practices. Information about Greece is scarce and fragmented, but the inability by European authorities to understand the incredible mismanagement strongly disappoints the taxpayer. The relevant exposure of European banks in the bond market toward the default risk of Greece supports the need for hedging tools, such as Credit Default Swaps. However, there is evidence that the CDS market on Greek sovereign bonds is segmented, and contracts are mis-priced. The lack of comprehensive data on CDS and other OTC contracts impedes any further investigation. European authorities should consider revising CDSs trading rules and requirements, until the risks produced are properly limited

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36195.

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Date of creation: Dec 2011
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Publication status: Published in The UIP Journal of Financial Risk Management 4.VIII(2011): pp. 25-36
Handle: RePEc:pra:mprapa:36195

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Keywords: Greek crisis; Credit Default Swap; sovereign risk management;

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  1. Oldani, Chiara & Savona, Paolo, 2005. "Derivatives, Fiscal Policy and Financial Stability," MPRA Paper 36199, University Library of Munich, Germany.
  2. Jan Ericsson & Kris Jacobs & Rodolfo A. Oviedo, 2004. "The Determinants of Credit Default Swap Premia," CIRANO Working Papers 2004s-55, CIRANO.
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