This paper proposes a two-step, market-based approach to debt reduction: Step 1. The European Financial Stability Facility (EFSF) would offer holders of debt of the countries with an EFSF programme (probably Greece, Ireland and Portugal = GIP) an exchange into EFSF paper at the market price...

The determinants of public debt dynamics - real interest rates, the real exchange rate, output growth and the primary fiscal balance - are typically more volatile in emerging market economies than in industrialised countries. Capital markets also typically demand higher interest rates from...