The Greek gov’t, through their National Bank (Federal Reserve) should begin printing 0% interest, 1 year maturity, Bearer Bonds, in small 5, 10, 20, 50, 100, 200, 500 Euro denominations. It can thus create/ print (out of thin air — fiat bonds!) about 20% of its annual budget for a 31 July 2011 maturity issue.
Such Greek “Drachma Bonds” would be immediately convertible at 100% for payment of taxes — any person or business could use or deposit such bonds to discharge taxes or other gov’t fees, including post office and all gov’t owned businesses.
With payment of taxes possible in bonds, it is likely that a small increase in tax compliance will be noted, as businesses choose to pay full tax costs rather than evade the costs and be stuck with the not-quite so valuable bonds.
The Greek gov’t should use these bonds to pay for all its obligations: salaries, pensions and payments to gov’t contractors, 50% in Euros, 50% in new D-bonds (G-bonds?). For direct deposits, the banks would have to set up new parallel bank accounts to receive these amounts (bank cost, minor computer program). Gov’t officials would also be paid 50% in bonds.
The point is for the Greeks to bail out the Greek gov’t, not the Germans.
All Greek banks would need to have sufficient bearer bonds available for use and withdrawal, and Nudge-like, be serving its gov’t employee customers with bonds first in all withdrawals, to get the bonds into circulation.
The gov’t should also support an official exchange rate of 50% until 50 working days before due, and then increase the exchange rate 1% per day until the due date. A higher unofficial rate (perhaps 80%?) should be explicitly allowed.
Greeks borrowing money from Greeks, with bearer bonds, is fully within their Euro-zone requirements. And it means they won’t have to borrow from the “credit markets”; but the Greek recipients might not be so enthusiastic.
It would be a great lesson about what is money, as compared to Greek Federal Reserve Bonds (notes). Perhaps also giving Gresham’s law a push (bad money drives out good). Remember, they’re not printing Euros, they’re printing bonds. (Greek bonds).
Naturally, if this first batch is successful, the Greek gov’t can try another 20% of its budget, perhaps for Christmas. Then another, perhaps a 2 year issue, perhaps 40% of its budget, next July. (Or March or 50 days before due date of first series?)
Clearly, once D-bonds are in circulation, and the Greek gov’t is pacifying its population’s demand for more money with more bonds, it will be easy for Greece to leave the Eurozone. Perhaps when the gov’t starts requiring that some 50% of taxes be paid in Euros?
Creating this path for a Greek exit of the Eurozone, plus the printing of money & obvious inflation with it, might even allow the reformers in gov’t to take the responsible, smaller gov’t path.