How to solve the sovereign debt crisis
2011-12-18 | Filed Under Thinking laterally |
It’s time for some radical thinking now that it’s quite clear that the world is in a perilous place.
The domino effect of the European debt crisis will first cascade across Europe, and this in turn will affect other countries outside the eurozone.
Affected countries can no longer service their debt as their credit rating falls and their economies falter. Yet the world cannot afford some of the major economies to stagnate, let alone fail, but nor cannot the global system afford to cancel the debt.
What we need to do is press the reset button and kick start all economies across the world. And maybe we can, with some radical thinking and a modicum of courage.
Why not consolidate all sovereign debt (including Africa and the developing world) and net this out? Consolidate all this debt in a global ‘bank’ that issues credit notes to all creditors.
Each country would then pay this debt off to the global bank at a specified rate (say 1% over the next 100 years, or 2% over the next 50 years). They would also pay an interest rate of 1% of the initial sum for the lifetime of the debt repayment (in other words, as the debt decreases, the relative interest rate increases – so when they have paid back ½ their debt, they are paying the equivalent of 2% and so on).
This debt itself then has both a yield and a repayment schedule – and becomes a tradable commodity. Creditors would be able to trade their debt, rather than seeing parts of their portfolio becoming toxic.
We are removing part of the debt burden from economies, allowing them to invest for growth. We are giving total predictability to the impact on their financial planning>
Perhaps most importantly, we are lessening the impact on future generations on whose backs we have been building the prosperity we have been enjoying until now.
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