Don’t blame Moody’s for a messy euro crisis

In the short run, the only way to bring the private sector into a voluntary scheme is a debt swap, to be organised by the European financial stability facility. That is currently not possible because the EFSF is not allowed to purchase bonds in secondary markets.

If the rules on the EFSF were relaxed, it could offer to buy up Greek debt at a discount, say 20 per cent, in exchange for its own AAA-rated bonds. The sellers would have to register a loss, but at least they end up with good securities. There would be no reason for the rating agencies to act.

In the long run, the only solution is a eurozone bond, which you can think of as an extended secondary-market purchase programme by the EFSF. This is why the short-term and long-term solutions are identical. Of course, it will not be called a eurozone bond. The Germans had a wonderful euphemism to describe the debt they raised to pay for unification: Sondervermögen, or “special wealth”. The EU will come up with a similarly misleading name. let us not kid ourselves however: a eurozone bond it will be.
FT