Tom McDonnell: Willem Buiter says the key remaining question is whether it will be the banks who default, the Sovereign or both – and there is nothing the EU/IMF can do about it.
Citigroup Global Markets, in an analysis of the ongoing debt crisis, is arguing that the senior, unsecured debt of the banks and/or the sovereign will ultimately need to be restructured. They also argue there is little the EU/ECB/IMF can do to credibly threaten the Irish sovereign should the latter wish to restructure its senior unsecured bank debt unilaterally. However, severe contagion would likely result for the banks in other countries. Lowering the interest rate to something more manageable, say in the region of 3%, is suggested as the only plausible mechanism available to the EU/IMF to dissuade a unilateral restructuring.