This quandary might sound familiar, perhaps because it was at the heart of what many derivatives desks were up to in the run-up to the financial crisis. Bundle enough junky assets together, perform some algebraic magic and, hey presto, you’ve got a triple-A rating. Or at least, that’s what politicians are hoping.
The structure outlined above is just one idea of what this process could look like, but whatever the details, the aim is the same: Brussels wants to underwrite Greek debt with German cash – all without letting the voters know.
Whether and how they achieve this depends on the competing interests of member states, EU institutions, the ECB and markets’ willingness to play along.
For any of it to work, however, Europe will need ratings agencies to play ball. But that looks tricky given how much criticism the agencies received (from politicians, no less) for their role in the 2008 crisis. The irony could hardly be greater.