OK, we saw that the financial crisis in Cyprus it being handled as badly as possible.
But is there a way to “fix it”?
The reason the banks in Cyprus are ‘underwater’ is that they hold a lot of Greek Dept that they had to write down under EU rules; since Greece doesn’t have enough Euros. Greece is stuck since they can’t just print more Euros. Italy and Spain? Same thing… So…
Some collection of them band together. Greece issues the “New Drachma” (set to the same value as the Euro to start) AND announces that all prior Greek Bonds are now denominated in that currency. Since they can ‘print money’ they can buy back any bond, even the ones in Cyprus. (Yes, it breaks a load of EU rules, laws, etc. As New Greece would be sovereign it would not be bound by them…) Now Cyprus, and any other of the PIIGS who want, join the “Drachma Zone”. Cyprus now has bonds they can mark at 100% of face. No longer “insolvent”, problem solved.
Greece doesn’t immediately have inflation, so they start paying all the ‘usual and customary” payroll and bills. Pensions et al get paid too. Sure, it will eventually inflate. So? Takes a few years. Lots of other countries pissed? When are they not?
Essentially, the problems in Cyprus are just leverage off of Greece. So fix Greece via money printing. Russian depositors will be OK with it, since they don’t get ‘clipped’ and when inflation is happening, interest rates rise apace.
Anyone ELSE holding Greek bonds (not in the North 1/2 of the continent, I’d wager) can also choose to join the Drachma Area and get full face, or stay outside and accept a downgrade on the Greek Euro Bonds.
The “thing that bothers me”, is that I think this just might work…