Eureka, there is a plan hovering around Europe that can overcome the syndrome of defeat and avoid the Greek default and the risk of contagion. In recent weeks, the German company Roland Berger Strategy Consultants, based in Frankfurt, has developed the "Eureka" project (Hellenic Recovery Fund), which in the idea of the proponents could offer an advantageous solution for both Greece and the Europe. The project has not been disclosed in detail, but a general description has circulated in some international media, according to which Eureka would be taken seriously in discussions at the highest European level.
The project starts from the observation that the Greek solvency crisis – in conjunction with the speculative attacks on various other Eurozone countries – has created deep tensions for fiscal and monetary policies in Europe. In this difficult situation, the drafters argue, the Eurozone can safeguard its integrity only by re-establishing solidity (with saving capacity in peripheral countries) accompanied by choices of solidarity (willingness to shoulder a joint burden) and by forms of creativity (including functioning of the financial markets and playing according to their rules).
The plan would be articulated in various steps. The first would consist in assembling Greek assets worth more than 100 billion euros into a central Fund. These assets would be immediately sold “fixed” and at par to the EU institutions. Therefore, the Greek government would use the proceeds to buy back its own bonds currently in the hands of the ECB and the Slavic States Fund (EFSF). This would bring the Greek debt-to-GDP ratio down from almost 150 to below 100% while eliminating the Greek risk exposure for the ECB and taxpayers. In parallel, the EU would invest approximately 1/6 of the value of the Central Fund to restructure the acquired assets and maximize their privatization value. The implementation of such a restructuring program would result in a very significant stimulus (probably between 5 and 10% of GDP) to the Greek economy, returning it from the current contraction to a phase of expansion and generating substantial tax revenues for the bloodless coffers of Athens. This could almost halve the interest burden faced by the Greek government, involving improved ratings and narrowing spreads. In turn, the increased tax revenues and reduced interest burden would allow the Greek state to embark on a path of gradual annual repayments so as to bring its debt-to-GDP ratio below 50% within fifteen years.
In short, if this plan were approved, in the opinion of the creators, the Greek default crisis would be resolved. In addition, the collapse in CDS spreads would inflict serious losses on speculators who would be debilitated and discouraged from attacking other peripheral European countries. Furthermore, the implementation of privatizations at affordable prices would ensure their effective completion and, once implemented, reduce corruption and support investment and growth. Finally, the implementation of the plan would result in huge capital gains for Greek banks, which would return to solvency, would reduce the ECB's collateral risk almost to zero and would restore the credit supply by overcoming the current phase of credit crunch.
While not knowing all the details of the proposed operation, the plan seems truly ingenious and it is precisely for this reason that it is called "I discovered" (from the Greek ?????a), the famous exclamation that Archimedes would have made when, according to tradition, he discovered one of his most famous physical principles (that one could calculate the volume of an irregularly shaped body by measuring the volume of water that was displaced when the body was immersed). It really seems to be an ingenious financial and economic policy innovation that could really put the markets back on track and save the euro. We'll see if the clerks that count will find the courage to subscribe or will prefer to persevere in the prevarications which, at this point, only remind us of a comic character whose name can only be mentioned by polite people but not say what he does, i.e. Tafazzi.
