A YEAR after Greece was bailed out by its euro-area partners and
the IMF, even more help is being considered, given the
impossibility of the Greek government raising money from the
bond markets in 2012 as originally envisaged. Despite objections
from the European Central Bank to any form of debt writedown,
German politicians have been airing this idea as they face
opposition from taxpayers at home to opening their wallets
again. The terms used—“restructuring” or “reprofiling”—are fancy
words for saying the money will not be paid back in full or on
time.  But what would they mean for credit default swaps (CDSs)?
Under a CDS, one party seeks to protect itself against the
default of a bond issuer by paying an annual sum—the equivalent
of an insurance premium—to someone else who wants to take on the
risk. Just as house insurance will cost more for those living
next to a fireworks factory, a CDS becomes more expensive when
the finances of the bond issuer deteriorate (see chart).  As
with any insurance contract, ho