Debt rolloverThis kind of debt restructuring would see Greece extend the repayment of several bonds by issuing new debt with longer maturities. It is likely to be seen by the markets as a "selective default".

However, according to European leaders’ draft agreement yesterday afternoon, “the financial sector has indicated its willingness” to support Greece on a voluntary basis through a menu of options that includes bond exchange, buyback and rollover.

Selective default

A selective default is a temporary, managed default and it is now set to be part of the Greek solution. This is despite long-term vehement opposition by ECB president Jean-Claude Trichet on the grounds that it would prompt contagion.

Indeed, markets plunged yesterday morning after Luxembourg’s Jean-Claude Juncker, the president of the Eurogroup of finance ministers, said a selective default for Greece “could not be excluded”.

To secure the ECB’s approval for a selective default, it is likely that European leaders will have to agree to provide some kind of collateral.

Bond buybacks

A bond buyback is one of the measures that would ease Greece’s debt burden. The EFSF could be used to provide loans to Greece to buy back its bonds at a discount, or the EFSF itself could intervene in the secondary market to buy up Greek bonds. EFSF rules would have be rewritten to allow it to do the latter, but this is what yesterday’s draft European agreement suggests will happen in “exceptional circumstances”.

Bailout bank tax

The European Commission proposed a new €50 billion tax on euro zone banks to help fund a Greek rescue. The bank tax was attractive because it could not be classed as any kind of default and so avoided contagion risks. However, the Germans were reportedly lukewarm on the idea and it now looks set to be dropped.

Eurobonds

A Eurobond scheme involving common euro zone guarantees for overall euro zone debt would effectively force Germany to underwrite the debt of peripheral nations, while the periphery would have to accept greater German influence over their economic policies.

Germany was not keen on the idea. However, assigning greater powers of intervention to the EFSF could be a stepping stone towards Eurobonds.

Verbal discipline

There is “an absolute need to improve verbal discipline”, Trichet said last weekend. The 17 governments in the euro zone must speak “with one voice”, he said, in order to avoid panicking the markets.

However, as the euro zone crisis is as much a political mess as it is a financial one – arguably, more so – verbal indiscipline seems all but guaranteed.