A Modern Monetary Theory Approach to Solving Greek Solvency

by Warren Mosler

Huffington Post
July 11, 2011

The following is an outline that I proposed for a new Greek government bond issue to provide all required medium term euro funding for Greece on very attractive terms. It is now making the rounds in Europe as an alternative to the French Plan that is currently under serious consideration.

The new bond issue includes an addition to the default provisions that eliminates the risk of loss to investors. The language added to the default provisions states that while in default, and only in the case of default, these transferable securities can be used directly, by the bearer on demand, at face value plus accrued interest, for payment of any debts, including taxes, owed to the Greek government.

By eliminating the risk of loss, Greece will be able to independently fund all required financial obligations in the market place for the foreseeable future. The immediate benefits are both reduced interest costs that substantially contribute to deficit reduction, and the elimination of the need for the funding assistance from the European Union and the IMF.

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