In the past week, everyone has been producing plans to save Greece from an uncontrolled default and the Eurozone from financial implosion. First were the Eurozone ministers who, despite endless meetings, were unable to come up with more than a palliative giving Greece a few more weeks or months of solvency. Then there was the ultra-complex French plan for a ‘voluntary’ rollover of Greek debt by the private banks, but this was torpedoed by S&P. Most recently, we have had an excellent letter to various EU papers including the Financial Times and signed (amongst others) by Giuliano Amato and Guy Verhofstadt.
The Amato/Verhofstadt proposal—first put forward last year in slightly different form by Jean-Claude Juncker and Giulio Tremonti—is quite straightforward: convert part of the debt to eurobonds (so called-E-bonds) which would be globally traded and jointly guaranteed. These new E-bonds could be emitted by the European Financial Stability Fund, or even co-financed by the European Investment Bank (EIB). But unlike the original Juncker/Tremonti proposal, a country’s choice about whether to emit one own eurobonds or switch to the new E-bonds would be purely voluntary. Moreover, unlike the E-bonds, the converted debt would not be traded and thus would avoid the hazardous scrutiny of the rating agencies. Crucially, ‘member states whose share of national debt was converted to EU bonds could service it at lower and sustainable rates from their national tax revenues, without fiscal transfers from others’.
The great advantage of the scheme is that it allows the rest of the world to buy this new and virtually riskless asset—riskless (and thus low cost) because the EU itself holds no debt, and because it would be backed by the EU rather than individual member states. Besides, as the authors say, new bonds are not the same as deficit finance and certainly don’t involve printing money—they allow Europe to mobilise the savings surpluses in Asia and the Middle East. E-bonds would attract money to Europe, money needed to finance recovery. There’s only one hitch. Germany may not buy into the idea—just as in 1993 it rejected Jacques Delors’s White Paper on EU-wide infrastructure investment on the grounds that it was ‘unaffordable’.
But with Greece unable ever to fund its existing debt burden unless interest payments fall sharply and Portugal’s debt now downgraded to junk status, Germany may have little choice. If the peripheral eurozone countries go bust, the European financial edifice will come crashing down. The global economy is still weakening. The consequences for Europe—indeed for the world—of Europe’s failure to act decisively and responsibly grow more worrying by the day.
 See http://www.socialeurope.eu/2011/07/how-to-rescue-the-eurozone-a-four-point-plan/
 See Wolfgang Muenchau: http://on.ft.com/oHpTFJ
 For the letter, see http://on.ft.com/rbSuL
 See Martin Wolf; http://on.ft.com/nkmwgH; also see Jeffrey Sachs: http://on.ft.com/nMngun