Greece's debts can only be cut to a sustainable level if eurozone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount.Several months ago, George Soros showed there are ways out of these dilemmas, but these ways depend on the Germans stepping up. There is no sign the Germans even understand the problem, much less are prepared to step up:
The document outlined that other measures (such as cutting the interest rates on Greece's loans or buying debt from private investors) would not have enough impact on the country's debt pile.
It said that either member states accept "capital losses or budgetary implications", or push back the target date for Greece's debts to fall to 120% of GDP by two years, to 2022.
Eurozone countries are not, yet, prepared to accept the first option, while the second option is unacceptable to the IMF. Thus deadlock.
In my judgment the best course of action is to persuade Germany to choose between becoming a more benevolent hegemon, or leading nation, or leaving the euro. In other words, Germany must lead or leave.
Since all the accumulated debt is denominated in euros it makes all the difference who remains in charge of the euro. If Germany left, the euro would depreciate. The debt burden would remain the same in nominal terms but diminish in real terms. The debtor countries would regain their competitiveness because their exports would become cheaper and their imports more expensive. The value of their real estate would also appreciate in nominal terms, i.e., it would be worth more in depreciated euros.
The creditor countries, by contrast, would incur losses on their investments in the euro area and also on their accumulated claims within the euro clearing system.
...The eventual outcome would fulfill John Maynard Keynes’s dream of an international currency system in which both creditors and debtors share responsibility for maintaining stability.
...Whether Germany decides to lead or leave, either alternative would be better than to persist on the current course. The difficulty is in convincing Germany that its current policies are leading to a prolonged depression, political and social conflicts, and an eventual breakup not only of the euro but also of the European Union. How to persuade Germany to choose between either accepting the responsibilities and liabilities that a benevolent hegemon should be willing to incur or leaving the euro in the hands of debtor countries that would be much better off on their own?