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How much debt ’till it becomes a problem?

To most casual observers, it might seem as if the main reason why Greek bonds have recently tumbled in price is that investors have suddenly, and belatedly, woken up to the dire state of Greece’s fiscal problems. But that tells only part of the tale: another factor that has also been hurting the Greek bond price is a subtle, albeit geeky, discussion that is quietly underway at the European Central Bank in relation to its collateral policy.

Greek debt saga has exposed not one, but two such fault lines: namely the tangible level of government debt, and the exit strategy debate. Or to put it another way, while Greece’s problems might have been partly masked for much of the last year, the day of reckoning is approaching fast.