A GrAgreement has been semi-signed. Originally, the Eurozone/Germany has offered two debt relief plans for Greece.
Under Plan A, Greece votes on a number of structural reforms and puts E50blln of assets in a privatization fund in return for more bailout money and possible debt relief. Assets are sold off to recapitalize the banks.
Under Plan B, they get a time-out from the Euro and debt relief. Plan B is unpopular with the majority of voters in Greece as they want to stay in the Euro but may actually be better economically depending on the terms. (Will the EC, ECB and IMF actively help to create the new currency and give humanitarian aid? What are the terms of the debt relief?)
But both plans have significant risk: Plan A involves more austerity, declining GDP, Greek Groundhog Day and probably eventual Grexit; Plan B causes the banks to collapse unless the Troika comes up with some active help.
A better plan is variation on Plan B, if you will a Plan G: Germany should leave the Euro. Deutschit will not cause a bank run in Germany as the mark will be strong and no depositors are at risk from a haircut. The Euro will devalue helping not only Greece but Portugal, Spain, Italy, Ireland and Finland. The New Eurozone can bail out Greece and give debt relief. Germany will not have to participate in any of this and this avoids one of the main political problems domestically. There is an economic downside for Germany: the mark will appreciate so exports will be more expensive. But imports will be cheaper so there is less inflationary pressure. Plus Grexit would cause some appreciation of the Euro anyway so even Plan B has that implication.
The main problem with Plan G is it appears to signal the end of the Eurozone. This is a blow to Merkel’s record as Chancellor. But Deutschit makes the rest of the Eurozone stronger as they can deal with the the overvaluation of their common currency. Plan A, Plan B and European economic performance post-2008 already demonstrate that monetary union without political and fiscal union does not work. In fact, Deutschit signals that Germany will take a somewhat costly action to help fellow EC members. It is more likely to stabilize the Eurozone than the other options. It is success for Europe if Deutschit occurs not a failure. Once the New Eurozone has stabilized, Germany can rejoin. Of course, it will have to meet fiscal targets to be accepted by the New Eurozone including Greece. If Germany can’t return because they carry too much debt, that would both be eironikos and cause for epichairekakia (schadenfreude).