This is what I call radical change of model

The current crisis of the countries of the periphery of the euro area application at the time of the budget reforms, but especially reforms for competitiveness and growth. To give time and chances of success in these countries (Greece, Portugal, Spain, Italy, Ireland, or one-third of the GDP in the euro area), I propose an exchange of their public debt in blue senior debt, junior debt red, without payment of interest during the period of reforms (10 years), under condition of major reforms.

The current crisis in the euro area is first and foremost a crisis of competitiveness of peripheral countries, such as prices, wages and costs have increased much more than their productivity. The "périphs" are now too expensive! The markets know that they will have to reduce their prices by about 25 and are reluctant to refinance their debt until the adjustment is not made. Without credible commitment of the périphs today to massively reform their competitiveness, market more fund them. This will force them to leave the euro zone and to default on their private and public debt. How to avoid this

First, the reform of the périphs will ask for five to ten years. It is illusory to believe that this adjustment can be done in three years as the IMF for the Greece. It's well here to revolutionize their economic model. How to buy time for reform My idea here is to combine major reforms of supply, competitiveness and budgets, with a restructuring and a longer voluntary of the public debt of the périphs. These countries, if they were implementing their reforms, could not pay their debt during the phase of major reforms. How to do this in a credible manner and without bad incentives (moral hazard)

There would be a political contract over 10 years between the périphs and the whole of the euro area. The périphs commit over five to ten years to adjust their competitiveness ("devaluation internal"), to reform fundamentally their growth model and their social model (to the Scandinavian or the anglo-saxon), to massively reform their budgetary policy (budget rule in their Constitution, credible path to sustainable surpluses). To do this, they should start these reforms all over the place as soon as 2010-2011, even if their effects only appear in several years. This is what I call radical change of model. In addition, the périphs would commit themselves to separate their new emissions of public debt in senior debt (the first 60 of GDP) - which I call blue debt - and junior debt (the rest) - which I call red debt.

In return, the countries of the Union (Germany and France especially) would guarantee jointly and severally so blue, senior, the périphs debt. To allow time for reform and to reduce the magnitude of the fiscal effort, the périphs propose current holders of public debt the voluntary exchange of their current debt debt blue and Red debt zero coupon of ten to fifteen years. In non-technical terms, the current public debt of the périphs (mostly short) would be exchanged, on the one hand, of the senior blue long debt, guaranteed by the Germany and the rest of the euro area, and, on the other hand, in junior red long debt. But these debts, blue and red, lengthened, pay no interest for ten to fifteen years (interest is capitalized). The debt Exchange not being eligible for the non-voluntary restructuring (the default being possible after IMF program), it is likely that investors starting to exchange this offer. It is the contribution of investors to reform: if they go to the Exchange, they give time to reform the financing and they will find themselves with a very secure debt (blue) and a little safe debt (red), which will be honoured only if the reforms work. Red debt becomes a contingent debt reform! This mechanism would reduce the debt of 3 périphs to 6 points of GDP for ten years and would enable them to buy time for their reforms. To avoid any moral hazard, the European Union should have a right of veto on the budget of these country balances as long as this blue debt zero coupon will be not reimbursed, and a right to look at structural reforms in these countries: if they were inadequate, a beneficiary country would be forced to repay its debt in an accelerated manner. This mechanism is voluntary, virtuous and good incentives. Finally, engaging investors private financing and the risk of reforms; It is much better than the plans of rigour of today - blind and without hope.