It wasn’t the best of times, it quickly became the worst of times. This classic Dickens’ line sets the scene, mutatis mutandis, for a modern tale of two cities that turned to derivatives in time of need. As the old century rolls into the new, political inertia pushes both Athens and Detroit to source more debt and hedge, for better or for worse, with sophisticated derivatives. But when the market turns against them, they find their fate far worse than when they began. Act one of this story opens in Athens in 2001. The Greek government is caught between a rock and a hard place. On the one hand, they have US Dollar and Japanese Yen debt worth around $10 bn euros. On the other hand, Greece has just entered the Eurozone and is required by the Maastricht Treaty to…

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EUROZONE DISSOLUTION Editor’s note: This is part one of a three-part series on a hypothetical breakup of the Eurozone, and the corresponding currency and derivative contract issues that could follow. A long time ago, in a monetary union far, far away… The alliance had been a dream for many years, and when the euro was introduced on January 1, 1999, bells rang out and people danced in the streets, speaking many languages, but promising to spend, save, and invest in one common currency. Eleven sovereign states had met the convergence criteria and adopted the euro that day, agreeing to fiscal and monetary constraints intended to keep the union strong. Soon, six more nations would follow suit and adopt the new currency, expanding the Eurozone and economic benefits contained therein. But then, a crisis arose. No one expected a global credit…

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