Fixing Europe's Impossible Algebra

In simple arithmetic terms, European leaders have been struggling to patch up a €4 trillion gap (€1 trillion of potential bank re-capitalisations plus €3 trillion of stressed sovereign debt) by stretching a €250 billion patch (the EFSF’s remaining funds). In algebraic terms, they are bamboozled by the task of solving a system of two equations in three unknowns. Whatever alchemy they employ this coming Wednesday, unless they add either the missing numbers or the missing equation, they will fail to produce a solution without violating the rules of primary school mathematics.

Our leaders’ task is made harder by two axioms insisted upon by surplus countries, fearful of the idea of ‘importing’ higher inflation and higher interest rates from the deficit countries:

  • Axiom 1 is that no part of the missing €4 trillion will be printed by the ECB.
  • Axiom 2 is that it will not come from some form of fiscal union involving a eurobond jointly and severally guaranteed by member-states.

On the basis of these two axioms, Europe is being called upon to solve two equations in three unknowns. One equation determines the existing stressed debt (primarily that of Italy and Spain) while the other determines the potential losses of the banking sector. Turning to the three unknowns we have:

  • X = the Greek haircut percentage
  • Y = the sum committed to helping Italy, Spain et al
  • Z = the total capital to be pumped into the banking sector.

Unsurprisingly, this ‘system’ of equations cannot be solved unless we arbitrarily fix one of the variables. Germany tried to fix the Greek haircut, X, at around 60%. Alas, the ECB and France screamed blue murder (counter-proposing that a large Y is fixed instead), while the Americans and the IMF (mindful of how Europe’s banks are threatening to unleash another 2008 upon the global financial sector) insisted on a larger Z. In short, fixing one of the three variables led to a political impasse.

Having failed their algebra test, our leaders turned to ways of stretching the arithmetic. The brightest idea around was to turn the EFSF into an agency which insures buyers of new bonds (presumably issued by Italy and Spain) against pre-specified losses (e.g. 20%; so that 20c of insurance can ‘liberate’ investors fearing a 20% haircut in Italian debt to buy a €1 Italian bond happily).

The first problem with this trick is that it does not stretch the EFSF’s funds sufficiently (leaving two thirds of the debt mountain intact). Secondly, since a large part of the EFSF’s funds are guaranteed by Italy and Spain, this insurance scheme would be asking the ‘accident’s victim’ to self-insure ex post. (A little like Dexia when it was lending its shareholders the money to buy… Dexia shares!)

Is there a solution? Yes, there is. Just introduce an additional equation. E.g. add a debt conversion scheme, under the auspices of the ECB. The ECB prints no money (thus respecting Axiom 1) but, instead, borrows from the international markets, issuing 20yr bonds in its own name (respectful of Axiom 2). It uses the borrowed money to service the Maastricht-compliant part of the eurozone’s existing debt and, at once, creates the mechanism by which the member-states themselves service this new debt (within the next twenty years). Meanwhile, the EFSF, freed from its bailout function, is assigned the sole duty of re-capitalising the banks. If need be, it can be beefed up at will since, just like America’s TARP, German taxpayers can rest assured that the EFSF will pay all its bills, with interest, once the banks’ equity (that will be given in exchange of EFSF capital injections) is sold back to the private sector (after the banks recover).

The solution exists. But not until we give up alchemy in favour of algebra.


  • Yanis, I wonder – does this solution fall within the ECB’s current remit/constitution? This is quite a step beyond their non-standard monetary operations…

    • Sure it does. The ECB is the guardian of the currency. The crisis is threatening to destroy it. What the ECB charter bans in creating credit for EU members. It does not ban creating debit accounts for them. And it certainly does not stop the ECB from borrowing in its own name in the international markets (admittedly because the authors of its charter had not thought of that possibility!).

  • Hello Yanni,

    one thing I cannot understand from your proposal in this article is how the ECB will borrow money in its own name since it seems to me (I am no expert so please correct my misunderstandings) that the ECB’s main problem is that there is not a solid state to back this bank up. ECB is just a bank corresponding to the “relaxed” union of some countries. Does this make ECB a reliable central bank that can borrow money with a low interest for all states in the union?

    I apologize if I am asking sth you have already answered many times.

    • Would you lend to the ECB? I would. More readily than I would to the Bank of Japan. Or to the Bank of England for that matter. Especially if the ECB does what it takes to ensure that it forces the hand on member states to pay their dues back to the ECB before they repay any other creditor…

  • Sure, by statute it can act as fiscal agent & open accounts for member central banks, as long as not overdrawn. With this debt conversion scheme, it seems to me that investors are offered a zero risk investment, the ECB acts as guarantor, and the member-states may or may not service the new debt adequately or reliably: repayment may become very difficult to enforce => more moral hazard and kicking cans down a (20yr) road?

    Maybe I’ve missed something, but if I’ve understood this correctly, then even if the technical steps can be part of the ECB’s arsenal, the scheme itself is outside of its remit, I think – unless it is instructed to implement such steps (and not off its own bat, as it was able to do with the bond purchases).

    I am a great fan of your work, so counter-intuitively would be delighted if I’ve got it wrong – either in the analysis or the conclusion!

    • You are right. It is not in the ECB’s remit to offer this debt-conversion service. But nor is it to buy billions of stressed member-state bonds. The proposed-debt conversion is not against its charter, it does not violate the no bail-out clause and it gives the ECB a chance to escape the lost battle of bond purchases. If it needs a new remit, the EU Council can provide it. Come to think of it, all other alternatives are far more drastic and far less effective.

  • How does the ECB pay the interest (and eventually principle) on its newly-issued bonds without violating Axiom 1?

    • By having member-states pay it as it accrues into a debit account tailor made for each. The key here is that the interest rate will be one secured by the ECB, not by the member-state.

  • Yani:

    This sounds great. What’s holding Merkel et al from putting into action?

    And what is more buffling is that both the Chinese and Russians have declared ready to buy a good chunk of these new 20-yr bonds. Which, of course some might see as a violation of EU sovereignty (never mind such does not exist yet).

  • Pheew…. It is 4:30 AM here and I feel challenged. 🙂

    Effectively you want to introduce something like this here?

    An ETF instrument, a 20 y Treasury bond index, is that right? So the underlying index would include all EU Treasuries.

    If my understanding is correct and assuming the markets would jump on that, we would buy time much needed to fix other underlying and long neglected structural problems in the banking sector, right?

    • It could very well take that form. Then again it could a a simple, bread and butter ECB-bond… And yes, it would simply end this particular spread-crisis, giving us precious time to have a real debate on the next chapter of economic union.

    • What I like about it is

      1. The ECB already has gone way pass their mandate by means of purchasing, hence

      2. This step would not be out of the question in that respect and would give us the required ‘circuit breaker’ as you call it, closing this bottom less pit, and allowing time to think about new concepts of growth in the European and global future of economy.

      How likely is that to happen? Given the history of dithering and utterly insane and destructive policies implemented by the fatalistic ‘Incrementalists’ to date, I am not holding my breath. 🙁

      I would support the idea that banks like Deutsche Bank for example, holding an assets portfolio of 2,5 trillion, should not exist at all, hence break such entities up and isolate their casino from the productive economy.

  • What if ECB guarantees EFSF issued bonds; Isn’t that the same thing as your proposal?

    • If the EFSF is simply used as a proxy for the ECB, it comes close, as long as the ECB enforces repayment of these bonds on behalf of the member-states. But then why not just have the ECB issue the bonds itself? That way the EFSF can have one, clear mandate: to supervise and recapitalise the banks.

  • …”Whatever alchemy they employ this coming Wednesday, unless they add either the missing numbers or the missing equation, they will fail to produce a solution without violating the rules of primary school mathematics”…

    hm! …2 axioms, 2 equations in 3 unknowns, arbitrary fixing of one of the variables, the introduction of an additional equation… all this, hardly sounds like “primary school” material. I am no expert myself, far from it as you know, but I think what is being proposed here is for the EC to have its own proper bank. My question is: For Europe to be sincerely united, a political, cultural and economic entity, a sincere Community will they not have at one point the obligation to create a European common Bank that is not only dictating economic policies but also actively participating in them? To me this is common sense. However, a Bank has to have as much expertise as the rest of us have for brushing our teeth in the evening. And the expertise here is called “analogy in order to make the numbers really Work, arbitrarily or not- and this further goes on, whether we speak about financing the Language[s] and the relevant industries, or the Art[s] and the relevant industries… Just getting the numbers right seems no solution to me. What we do with these [right] numbers, seems to be the bone of contention here… The “arbitrary” connection to the negation of your equation… Until this is clear, what we [Europeans] will do with Europe once the [right] numbers are in place, I have a common sense feeling, we will never get the numbers right… arbitrarily or not.

  • This situation looks like it might be better described using quantum physics instead of classic math. Heisenberg’s “uncertainty principle” for example implies that it is impossible to simultaneously measure the present position while also determining the future motion of an electron (in our case the European Union). In other words if we try to fully determine our present situation it is impossible to claculate where we are going and vice versa! (It could be a nice joke or not…)

  • It’s the first time I use the blog. Obviously my previous comment about the typo (awaiting moderation) does not need to be posted.
    Keep up the good work.

  • What about the part of the debt which is beyond Maastricht compliance? Wouldn’t the holders of that debt be again in a position to blackmail the rest of the structure?

    • Now, now Klaus. This is too pessimistic a take on fellow Europeans. I do not believe that anyone is blackmailing anyone. We are simply all equally at a loss to know how to make ends meet. With the debt conversion we are suggesting, the bond markets will ease up significantly making it much, much more likely that the remaining debt can be serviced by the member states. And if some of that is to be mutually written off with bad bank losses, so be it.

    • I was not meant to be pessimistic, just realistic because not all Greek debts is owned by banks. Take a Swiss Family Office which owns, say, 1 million EUR Greek bonds (1 million; not 1 billion) and they say: ” We want payment on maturity in cash. If not, we will declare default and trigger cross default”. That is why I didn’t think “blue” and “red” Eurobonds would work because, at the end of the day, the governments would have to stand behind the “red” bonds as well, whether they intended to or not.

      Another question: who will finance the budget deficit and, above all, the current account deficit going forward? Those will be quite substantial needs of Fresh Money.

    • Two replies: First, had our proposal been implemented, all countries except perhaps Greece would be able to service their red debt. Even Greece would be able to service the debts to the Swiss family that you mention. Whatever haircut is necessary could be reserved for the sinful Greek and French banks – who knew full well what they were getting into when lending to Greece. Secondly, the answer to “who will finance the future deficits” after the debt crisis is resolved (by means of a plan like ours) is simpe: The private sector, which has been refinancing deficits left-right-and-centre for centuries. Remember: States are not like privateers. They NEVER repay their debts. All that matters is that they remain capable of refinancing them. Germany included.

    • On the current account deficit I take a somewhat different view because it is so huge in Greece and because imports play such an important role as regards the standard of living. I mean, we are talking about a cool 20 billion EUR per year (and more). If financing for that is not part of any deal with the country, it is not going to be offered in near-sufficient amounts.

      With the Euro and without any trade- or capital controls (EU-freedoms), the Greek banks MUST effect an importer’s foreign transfer order for imports. So far, the Greek banks have been able to refinance themselves via the ECB. That has got to dry out one day if for no other reason than the fact that Greek banks must sooner or later run out of collateral paper. And what then?

  • Yanis,
    You make it sound so simple. Why do Europe’s policy makers have to meet and meet and meet when solutions are so readily available?

    • I have explained this ages ago in a blog entry entitled “Why is Europe dithering?” Put it in the search box and take a look.

    • Yanis,
      Thanks! Read the article. I am amazed and shocked that they continue to dither even though it’s past the eleventh hour. I’m Buridan’s Ass is on the point of perishing.

  • With France retreating unconditionally, it has become evident that the EZ (and the EU) is completely dominated by Germany. Do you have any plans for promoting your solution to key players in Germany that could be persuaded that it is in Germany’s interests too, even more so since the two axioms you describe are not violated? I am sure there must be many thinking Germans such as Mr. Georg R. Baumann, that have not moved abroad 🙂

  • Hello Yanis;
    I think you have made a typo in the article.
    You have written
    “In simple arithmetic terms, European leaders have been struggling to patch up a €4 trillion gap (€1 trillion of potential bank re-capitalisations plus €3 billion of stressed sovereign debt) by stretching a €250 billion patch.…”

    I think it should be
    “”In simple arithmetic terms, European leaders have been struggling to patch up a €4 trillion gap (€1 trillion of potential bank re-capitalisations plus €3 TRILLION of stressed sovereign debt)

  • Dear yannis, do they really want to make science and not beating around the bush trying every mabo jabo economic prescription they found? Is euro ready to die due to incompetence? or maybe Germany, France and all the rich wealth Europeans have already decided that they don’t need it any more?

  • Yani,

    Your analysis and articulation of the problems we face are hugely insightful and brilliantly lucid. However, your proposed solution pales in comparison, placing overwhelming power over European citizens in the hands of an unelected, unaccountable central bank. Quite what you have in mind when you state the following is too awful to contemplate – “especially if the ECB does what it takes to ensure that it forces the hand on member states to pay their dues back to the ECB”.

    Given your intellect, I don’t doubt you must have another possible solution that is less subservient to central banking, and is truly a non-conventional solution to match your non-conventional analysis. Care to share?

  • One of the ironies of this conversation is that the majority of people are actually under the false impression that Germany aims to help Greece(at least this is how the Germans put it).

    The sad truth and harsh reality is that Germany’s goal is to bankrupt Greece, on the remote hope (this this out folks ) that a Greek bankruptcy might end up costing Germany a little less ( when in fact all experts say the exact opposite; that it would end up costing Germany a lot more).

    • Dear Dean
      With a budget and current account balance deficit and such a mountain of government debt, Greece is effectively bankrupt already (I am surprised you haven’t noticed). Denying this reality and trying to find a way out or at least delaying the event of officially declaring bankruptcy is what the last hectic months have been all about. I doubt that “Germany” has the goal to bankrupt Greece. Who do you think would love that – the government that has already given Greece emergency loans that it may not receive back? The banks who would miss out on their assets invested in Greece? The average German citizen? None of these have an actual interest in seeing Greece bankrupt. But it the debt burden is too high (which clearly seems to be the case here) and there is no magic solution (such as reducing the deficit spectacularly quickly by – I don’t know what – bundling assets that the government may have access to / using the Gold reserves / a one-time tax for the wealth above a certain threshold with, say, 15%) ths country is bankrupt.
      It is not a pretty truth, but still a fact.
      So the question is what is best for the parties involved (Greece and its creditors). Possibly, a default / haircut of, say, 60% is the only way out. Or do you have a great idea how to fix it other than other European countries effectively giving away the money to Greece?

    • Now the haircut of 50% seems to have been agreed. With that, some continued assistance from the rest of the EU, and decisive yet intelligent measures to bring the budget deficit down quickly (what about taxing the rich?) Greece may have a realistic chance. I believe that the Greek government possibly did itself a favour if it found a way to reduce the debt burden even further. What about using the Greek gold reserves (which are supposed to be worth about 35 billion EUR)? Also, in a national emergency like this, why not charge a one-time “solidarity tax” to the wealthy? If you taxed the wealth above, say, EUR 200’000 with e.g. 15%, that would help. This could be structured as “forced mortgages”: if the tax subject claims to be unable to pay at once, the law would oblige him / her to take a mortgage on the property that’s got to be paid off over e.g. 20 years. Also, it may be possible to speed up privatisation of assets that the government has access to (land, etc).
      If all this was done, Greece could finally stop being a burden for the rest of Europe and start looking after itself.
      There are enough more potential disasters looming (Italy, Portugal, Spain) so if the Greek crisis could be considered closed, that would be great!

    • Prof.Varoufakis ive been reading your comments on for the last three months and have come to the conclusion that what you write should be gospel.You have predicted everything to the tee.Even this proposal that you propose however in my heart i believe will not come to frutation for one sole reason.The Germans dont want it to.Eevryone writes that the PIIGS should be thrown out of the eurozone but the way the germans are acting it may be them leaving in the near future.

  • How long will it take for Italy, Spain & Co to ask for an ECB guarantee of 80% instead of 60%. Why not 100% or 200%? If this door is opened once, it will be a hard task to close it again.

    In my point of view, this will lead to a situation, in which the ECB will guarantee for everything – or, according to your proposal, the ECB will not guarantee national bonds but issue own bonds and pass the money to the national governments (I dont see a difference between both options).

  • Modest Proposal here; German and/or French Plan there; etc., etc. Wherever one looks today, the focus of brainpower is on solutions to the debt problem (not only of Greece’s debt). Put differently, all brainpower is applied to financial engineering.

    I have seen no brainpower being applied to a Business Plan for Greece. Certainly no brainpower of politicians, governments, Central Bankers or EU-elites. Yes, there have been a few private initiatives (like the McKinsey Report) but they have been successfully ignored.

    In today’s world one can raise billions from private investors just on the basis of a good Business Plan. If a corporation gets into financial trouble and needs help from banks, the first thing the banks will ask for is a Business Plan which promises a viable future for the corporation.

    I have read the entire draft of the latest Troika Report. I saw many interesting things in it but what I didn’t see was a Business Plan for Greece. Essentially, what I saw was a restructuring plan for a country’s budget: how to reduce expenditures and raise revenues. Well, in the grand scheme of things that’s the job for bean-counters; the job for leaders is to make a plan.

    What would be a Business Plan for Greece? Well, everybody is invited to come up with proposals. The Ekathimerini published a letter which an 11-year old allegedly sent to the Prime Minister. He proposed that the government should build a factory that converts solar energy, wind power and waterpower to electrical energy, and with that Greece could pay all her debts and live happily ever hereafter. Well, may nice, maybe cute, but: it is a Plan! Start with that and come up with better plans!

    My own idea of a Business Plan for Greece would be a plan which shows how the Greek economy can employ the maximum number of Greeks in a productive manner (optimization of human capital) and how it can utilize the country’s economic potential or competitive advantages to the fullest extent; this over a period of a couple of decades.

    In the normal world, first comes the plan and the financing comes afterwards. If the plan is convincing, there will be no financing problem. Alas, what we are witnessing today is that everyone is debating the financing without really knowing what the plan is. This is like saying “I don’t know where I am driving but the faster I go, the sooner I will get there”.

    Economic plans can work and may not work; one never knows ahead of time. The European Recovery Plan after WWII (ERP or Marshall Plan) was a plan which worked and recovered a totally destroyed Central Europe. West Germany’s plan for unification with East Germany did not work. If you look at the former communist East European economies, most of them had economic plans and several of those plans worked very well. And if Greeks read the “Doing Business 2012” report of the World Bank/IFC (a report which analyses regulations which enhance business activity and those which constrain it), they can read that the plan which their favorite neighbors to the North put together some years ago is working well: FYROM jumped from position 34 to 24, and is now ahead of countries like Taiwan, Switzerland, Belgium, France, Austria, etc. Greece remained almost unchanged at position 100, behind countries like Guatemala, Vietnam, Yemen, etc.

    Coming to think of it, perhaps a plan to create regulations which enhance business activity and reduce those which constrain it would already be a pretty good Business Plan for Greece!

    One subsidiary objective of a plan is always to make it impossible for lenders to say “no”. Comments have been made that, say, Germany follows the hidden agenda of driving Greece into default. Well, maybe yes, maybe no. None of us can say that for sure. But one thing seems certain: if the Greek government came up with a long-term Business Plan which is so convincing that no thinking person could object, then I would like to see that European country which stands up and says: “No, we don’t support this plan. We prefer to drive Greece into default”.

    If a country does not have such a plan, it has nothing to bring to the negotiating table when the issue is to restructure its debt. If it has such a plan, it can drive the negotiations. The restructuring of its debt ceases to be an “objective per se” and it becomes a “means towards an objective”.

    Regarding that restructuring, we are seeing the most interesting things going on. Third parties (EU, ECB, etc.) have made themselves the owners of a problem which concerned, 3 years ago, only Greece and her creditors. The two principal parties involved (Greece and her creditors) have sort of delegated ownership of their bilateral problem to the third party. I think one probably would have to do a lot of research in the annals of financial history to see where this has happened before to such an extreme extent. Third parties will take decisions which will principally affect Greece and her creditors. Personally, I think a lot of lawyers will earn a lot of money in the next years taking some of the possible consequences of such a procedure apart.

    The normal way would be for Greece to make a restructuring proposal to her creditors. The driving question must be: how much interest can Greece be reasonably expected to pay annually? (For 2011, the Troika projects an interest expense of about 15% of total budget expenses). Since Germany seems to have become the role model for everything good these days, Greece should look to the role model. Germany spends about 12% of her budget expenses on interest. Why should Greece not take that number and commit to spending 12% of her total budget expenses on interest during the next 20 years or so. If budget expenses go down, the nominal interest expense goes down. Vice versa if budget expenses go up.

    So, the Greek government should commission its financial engineers to work different scenarios where no principal is being repaid for the next 20 years and where interest expenses don’t exceed the 12% limit. The principal axiom must be: the amount of debt which cannot be serviced with interest in these scenarios has to be rescheduled out even further and interest must be capitalized on that amount. One such scenario could be: 50% of the debt for 30-40 years with interest being capitalized. The other 50% with principal payments after 20 years but interest payments from the start within the 12% cap (if it makes creditors happy, one could even provide for some token principal payments before the end of the 20 years).

    At this point, the government has 2 things to bring to the negotiating table: (a) a Business Plan to which no thinking person can object and (b) a rescheduling proposal which sounds reasonable. What will be the reaction of the creditors?

    Well, at first they are likely to laugh about “Greek dreams”. This is the point where the Greek government requests the EU to take measures to stop the creditors from laughing, i. e. to make them go along with this proposal. Whatever “incentives” the creditors require to go along with this proposal voluntarily is then a matter of negotiation between the EU and those creditors.

    There are, of course, zillions of things that are not thought through in the above but let me list a few which come to my mind immediately and suggest some answers from the Greek standpoint.

    This will be an event of default! – Maybe yes, maybe no. If yes, we will negotiate measures to cure the default.

    A default will trigger all sorts of things (e. g. CDS’)! – Maybe yes, maybe no. If yes, that is really a problem outside Greece. We have enough problems in Greece, so understand, please, that we cannot worry about problems outside Greece as well.

    The banks won’t be able to handle the write-down’s of Greek bonds! – Probably not. That is an issue to be handled between the banks and their governments. The Greek government will handle this issue with Greek banks.

    The Euro will fall apart! – Maybe yes, maybe no. If yes, certainly not because of Greece because we have a long-term Business Plan which will make Greece a value-generating and competitive economy over the next 20 years.

    Greece can never repay all of the debt which is now being rescheduled! – Maybe yes, maybe no. But if our long-term Business Plan is successful, we can certainly pay back more later than it would appear today.

    This is not in the interest of the financial stability of the Eurozone. Greece has to act according to that interest! – No. Greece will suffer pains one way or another for quite some time. The implementation of our Business Plan will not be milk & honey. So we don’t have all that much to lose while you have everything to lose. If you support our proposals, we both have the chance to come out less harmed 20 years from now.

    The answer to most economic problems is growth. I have been involved in many debt restructurings over the years. Without belittling the technical challenges of a restructuring, the far greater challenge is to work out plans for growth. If the borrower grows economically, his debt becomes more manageable over time!

    • Dear Klaus, of course Greece (and the other member states) have plans. It is the General State Budget (for the next year) that not only it is an economic plan for the next year but also it has the power of a voted Law.
      The problem these fail is simple:
      -Euromoney without political union is nonsense
      -Euromaney without having established what will be done with surplus and deficit is also nonsense (as Prof. Varoufakis explained). Just think for a moment of applying such nonsense and the remedies that EU leaders propose , in one country ‘ s districts.
      -Euromoney without ECB being able to adjust it or issue new (Maasticht) is nonsense as well.
      -ECB (ie Germany) that is interested only in euro stabilization and not in labor handling as well is a far greater nonsense
      -European Union and full Globalization (with practically free external borders (no customs) for goods and capital) are two mutually exclusive (therefore nonsense) options, but EU members accepted it without seeing the bait.
      -Greece led by eurozealotes was forced to almost abandon its economic primary sector (where it was a major quality player in some areas of the sector) which is nonsense.
      Now how can a business plan be successful under these nonsenses that is based on ?
      George Kakarelidis
      [email protected]

  • I have looked up your original Modest Proposal and reviewed the discussion about it since. I have also read your June 6 letter to the Prime Minister (which I thought was excellent).

    I have really not come across any feedback which pointed to a significant flaw in your thinking. So here is my question:

    There must be some reason why leaders inside and outside Greece don’t follow up on your proposal in one way or another. What reasons do they cite?

    And if politicians don’t follow-up, what do your French/German colleagues from the economic sciences say about it? Have you had feedback from the economic pope of Germany, Hans-Werner Sinn, who knows everything about everything? Or from the German “Weisenrat” whose members have time to appear in talk-shows every other week? Or others?

    Or will you tell me that all of them feel so smart that they don’t need advice from 3rd parties? Then I would paraphrase Warren Buffett in my answer to them: “If you are so smart, why are you then in such a mess?”

    • Dear Klaus, I tried sometime ago to answer the question of why the powers that be are antithetical to a proposal like ours here: The most common retort to our proposal is that we are asking the ECB to do something that no central bank has ever done before; which is, of course true. The real reason, of course, is the aversion of surplus countries to any degree of common debt. Moral hazard is the excuse for not wanting it. Our proposal’s rejection by them proves this, since the proposed scheme does away with the moral harzard problem. No, the real reason is that the surplus countries, Germany in particular, insist on maintaining their exit option; the option of bailing out of the euro. Our proposal would take it away, in lieu of the common pool of debt that the ECB would be creating in ordeer to help eurozone member states convert their loans (via the issue of ECB bonds).

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