It is now quite clear that PIGS cannot learn to fly.
EU leaders showed yesterday that when you do not have ideas you'd better have a plan, a rescue plan in this case. Some said the meeting achieved little more than a political statement, leaving details to be worked out later by EU finance ministers.
Greece appears, like some financial organizations in the financial crisis, too interconnected to fail although it is very little in the euro zone. Moral hazard and systemic risk are again issues at stake. Yet European leaders show no ideas or willingness to cope with them.
Somebody continues to suggest that the IMF should intervene "to provide a properly tranched conditionality-based support package to stave off a refinancing crisis".
I am not convinced that a EU country should go to IMF for help or IMF is really better equipped to deal with a euro zone problem.
I think there is a nice way to get out of this crisis and give a strong signal to markets, particularly speculators. A EU financial transaction tax which would raise a large sum of money painlessly, and would help to limit the sort of speculative attacks against the euro-zone.
Moreover funds collected under a financial transaction tax (a kind of VAT at EU level with a Pigouvian character) could also, via a EU fund, cover the issuance of EU bonds.
The devil is in the details of the above scheme. Euro bond can't solve all problems, like national interest spreads and premia but common, joint and/or coordinated issuance and uses (including recapitalization of banks, European budget, common guarantee funds, EU projects, rescue loans and packages, IMF resources, etc.) could also create an efficient and effective bill or bond euro zone market. Different arrangements could then be studied concerning the issuing institution (single issuer) or coordinated agencies and its guarantees. A bond clearing house, i.e., a vehicle for sharing information to improve fiscal coordination could also be set up under EU umbrella. Some of the technicalities and arrangements would be the same as for the introduction of the Euro as a common currency.
Securitisation of national government bonds should not be construed as a problem.
On the other hand I have noted that we are continuing to build houses of cards and Ponzi schemes as banks are saved by governments which issue new sovereign debt to be sold to banks which are now called again to buy PIGS's sovereign bonds.
Then EU Member States should set up a rescue plan to save a country which sold governments bonds to their banks (70% of Greece sovereign debt is hold by foreign institutions, mainly EU banks) which can earn on the difference between ECB funding and Greek bonds interest rates. On top of that some EU banks, also Greek ones, are reported trading, at the same time, Credit Default Swaps on sovereign bonds which might not held (no insurable interest).
Can we stop this vicious circle and cross-border Ponzi scheme once and for all?