How is this supposed to solve anything if there are nations that are perennial net importers and the EUR balances are not there when the time comes to repurchase the bonds from the ECB?
The European Central Bank could help reduce the euro zone's debt overhang by acquiring all euro zone bonds maturing between 2016 and 2020 as well as the associated interest payments, the chief economist of Syriza, Greece's ruling party, said.
John Milios told a debt seminar in the influential Bruegel think-tank in Brussels that each euro zone country would then buy back its debt from the ECB once their value fell to below 20 percent of that country's gross domestic product.So you do a reserve add now and then a reserve drain later; but what if the reserves are not there when it comes time to later drain them? As they have been used over the years to purchase imports and now in the possession of another nation...
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The article is very brief so it's hard to understand it completely. But I think all he is talking about is a massive pan-European debt monetization and forgiveness plan. The ECB would somehow acquire both all outstanding Eurozone government debts and the obligations to pay those debts.
Even German debts!
Current bond-holders would get a giant cash payoff as they sell their debt to the ECB. The ECB then "pays itself" until the debts are either discharged or the obligations returned to the originating governments. Super-duper-massive-collossal QE on steroids.
The governments re-assume the obligation to pay once the value of the outstanding debt for their countries falls to 20% of the countries GDP or below. Presumably at that point any one of them could easily pay their obligations out of current tax revenues. At that level of debt to GDP, debt service is probably only a few percentage points of total outlays and less than 1% of GDP.
Total Eurozone debt is about 94% of Eurozone GDP. So this sounds like a massively inflationary scheme to me, since it involves a cash injection equal to nearly the entire GDP.
Greece is saying: Hey Europe. Don't just forgive our debts. Why not just print $12 trillion euros, pay off all of our creditors at once, and wipe the slates clean across the board.
BTW, Greek debt is about 175% of GDP and Germany's is closer to 75% of GDP.
But maybe I'm not getting it.
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