by Warren Mosler
The proposal is simple: The ECB should turn the bonds it buys into Mosler bonds, which provide the feature requiring the government of issue to legally state that, in the case of non payment, the bearer on demand can use those bonds for payment of taxes to the government of issue.
With the ECB holding Mosler bonds the default option will shift from the issuer to the ECB,as in the case of non payment, andthe ECB would have the option to make it’s holdings available for sale to tax payers of that nation. This would allow taxpayers to offset their taxes. Therefore, conversion to Mosler bonds will ensure that the ECB’s holdings of national government debt are ‘money good’ without regard to external credit ratings, and give the ECB control over the default process.This process makes sense because (from the EU’s point of view) I see several substantial reasons Greece should not be allowed to default, which center around why it’s in the best interest of Germany for Greece not to default. Sustaining Greece with ECB purchases of Greek debt costs German tax payers nothing.
- The ECB buys Greek bonds at a discount, indicating holders of those bonds have, on average, taken a loss.
- The EU in general did not consider the purchase of Greek bonds as bad behavior that is rightly punished with a default.
- In fact, it was EU regulation and guidelines that resulted in the initial purchases of Greek bonds by its banking system.
- It sustains the transfer of control of fiscal policy to the ECB.
- It’s deflationary which helps support the value of the currency.
- It provides for an ongoing income stream from Greece to the ECB.
About the Author
Warren Mosler is co-founder and Distinguished Research Associate of The Center for Full Employment And Price Stability at the University of Missouri in Kansas City. CFEPS has supported economic research projects and graduate students at UMKC, the London School of Economics, the New School in NYC, Harvard University, and the University of Newcastle, Australia. He is Associate Fellow, University of Newcastle, Australia.
Warren is the founder and principal AVM, L.P., a broker/dealer that provides advanced financial services to large institutional accounts. He is also founder and principal of Illinois Income Investors (III), specializing in fixed income investment strategies for 29 years. He is presently located in the U.S. Virgin Islands where he heads Valance Co, Inc., the corporation that owns the shares of III Offshore Advisors and III Advisors, the companies that manage AVM and III.
Warren has a degree in economics from the University of Connecticut. He has 38 years of experience in a variety of fixed income markets, including derivatives. He writes at his blog http://moslereconomics.com/ and widely in the press and blogosphere. Warren is considered to be the founder of Modern Monetary Theory (MMT). You can read a longer bio here.