All EU members should default on the portion of its national debt that is above the 60% debt to GDP ratio while, at the same time, states should inject capital into their banks to support intermediation while wiping out swaths of investment banking sector.
“The EU member states should resolve that all sovereign debt above a certain level will not be paid back,” writes Sahra Wagenknecht, deputy floor leader for the Left Party in the Bundestag.
Her plan also sees many banks and insurance companies going bankrupt so as a result, she says, states should also guarantee up to 1 million euros per person in savings and life insurance.
Since a sovereign defaults precludes those states from market borrowing, she also says that the ECB should directly fund these states but up to a point – capped at 4% of GDP annually.
“At the moment, the ECB is pouring money into the banks in the hope that they will invest a small percentage of it in sovereign bonds. It would be much more efficient to give this small percentage directly to the states,” she says.