Even at this last minute, there is still time for Greece to rescue the Eurozone, by walking away from the acrimonious ‘Troika’ led negotiations and taking action independently, both to reform the Greece, to save its economy and rescue the Eurozone from its structural and political failings.
The Eurozone has been plagued by several debilitating factors, firstly the persistent over-valuation of the Euro in relation to the economies of the majority of its member countries, leading to a widespread loss of competitiveness. Secondly, as a recently created currency as disproportionate amount of public debt is in the form of short term bonds. Thirdly, the uncertain political response by politicians in the EU’s major economies has undermined market confidence, especially by insisting on ‘haircuts’, downgrading the value of Greece’s debt and by implication, that of other Eurozone countries.
The ‘Troika’ seem to think that Greece needs €150bn to rescue their situation, which may be correct as a global long term sum, however old bonds mature in a succession of much smaller sums. The first of these falls due in mid-March.
The mechanism to resuce the Euro could have been set in place last year, if the ECB had been enabled to create ‘Eurobonds’ and would have had a far lower cost than anything now being proposed by nipping problems in the bud. There is nothing more foolish than condemning important workers to unemployment simply because they work in the public sector. It is equally true that any organisation, whether public, or private should be run efficiently and the reforms to achieve that mut be taken seriously.
As an independent country with its own central bank, the Greeks are quite able to issue a massive tranch, say €200bn of long term bonds, say 100 years, at modest interest rates, say 2%. The market need not be flooded as the bonds could be issued in stages. These could be offered on a 1:1 basis to existing bond holders and would no doubt trade at a massive discount to their face value, something equivalent to the repayment ‘haircuts’ currently on offer to bondholders. Yields would then vary with time as the bonds move towards maturity. The ECB and other European banks and countries should step in a buy a proportion of that new debt at par and accept that this is their contribution to a Eurozone rescue, not simply a Greek bailout. That cash could be used to keep public services going, service interest payments on debt and repay recalcitrant bond-holders who hold out for full repayment from the Greek government. If the EC didn’t play ball, then they and others would have to accept the consequences as they would effect other parts of the Eurozone economies.
Greece would then be offering paper rather than cash as old bonds mature and have interest payments of €4bn a year.
No doubt that would hit the value of the Euro, devaluing the currency
to a degree that would bring benefits to other marginal economies, Portugal, Spain, Italy, Ireland etc., and to all the private individuals in Hungary and the Baltic countries who have taken on Euro-denominated debt for housing and business finance.
Germany’s politicians would then have to get used to the idea that the massive benefits it derives from membership of the EU means that its economy can no longer be treated as a locally autonomous powerhouse, but merely a region of prosperity within a larger economy, just as Bavaria is defined within the Federal Republic. They would also have to get used to the idea that the weaker economies in a partnership of nations have equal rights and influence to those who consider themselves to be more powerfull.
Better that than marginalising a generation of young Europeans and penalising the old folk.