Greece's Yanis Varoufakis is just another dirty Marxist. He is also a "scholar" of a sort who has co-authored a "critical" introduction to game theory and was an economist at Valve Corporation, a PC game company.
By now, he has understood that there won't be a new haircut, at least not under this name, so he proposes a new plan he calls "smart debt engineering". It's only "smart" to the extent to which the lender is completely stupid, however.
He proposes the Greek government bonds that are held by the European Central Bank to be replaced by two new types of bonds: growth-link bonds and perpetual bonds.
It's not hard to see that the value of both bonds is nearly zero so the "swap" is almost exactly equivalent to the cancellation of the debt. Varoufuckis' sleight-of-hand is just another cheap fraudulent maneuver similar to the tricks by which Greece has convinced some other European politicians that it had satisfied the conditions needed to join the eurozone.
As the name indicates, his "perpetual bonds" are either bonds without any maturity date – i.e. bonds that never have to be repaid – or bonds with (almost?) no interest or both. Whatever the details are, it is pretty clear that their value is nearly zero. If they don't have to be repaid, they will never be repaid, so their value is zero. Moreover, if they may be permanent but the interest is zero or much lower than the market interest rates for Greek debt, it means that the new debt would be getting negligible in comparison with the actual debt very quickly.
If you want a compensation for the bonds that is honest and perpetually linked to Greece, there is a solution. This honest version of the "perpetual Greek bonds" is known as "cash from Peloponnese". Just sell the peninsula, or something of the same kind, and use the cash to buyback the bonds. Anything that is qualitatively different is a cheap form of scam that belongs to Nigeria, not to civilized 21st century Europe.
The perpetual bond may also mean a bond that only pays interest, forever, but the principal is never repaid. Well, the adequate interest would have to be at least 20% of the principal for the swap to be "fair" and at least in the near future, Greece would be even more unable to pay the interest than it has been so far. Even the liquidity for this interest-only bond would soon be inaccessible, default...
And the growth-linked bonds? I had to laugh out loud. Surely you're joking, comrade Varoufuckis.
I suppose that they're bonds that are only being repaid, or bonds that only generate interest, if the borrower is doing fine, namely if the GDP growth exceeds some predetermined level. This is crazy. It's very easy for the borrower not to pay: just keep the GDP low enough. The borrower is literally motivated to keep his economy in bad shape. Some Czech commenters at idnes.cz made many jokes – it's like to borrow money and to buy lottery tickets for the loan so that the bank will get some of the money (only) if one of the tickets happens to be winning. ;-)
Even if this motivation didn't exist, there will simply be no GDP growth in Greece for quite some time. First of all, Greece will have to get to sustainable finances soon or later. This will require the GDP to drop by a factor of 2-5 relatively to the current GDP which is (still) spuriously inflated because the new debt or donations from other countries is effectively counted as GDP, perhaps with some amplification (because it keeps many people serving each other afloat although they are uncompetitive and have to go out of business when the external subsidies disappear). Only dramatically lowered salaries etc., and therefore also the local prices and GDP, can help to restore the balance.
But even if and when the GDP stabilizes at some realistic value, like 30% of the current Greek GDP, it's unlikely that there will be substantial episodes of the GDP growth in that country if it is likely that parties like Syriza will remain in power. And it does seem very likely that they will. If more sensible politicians overtake the government, it will always be a short-lived exception (Samaras' recent two years was really the first example of that).
So we may assume that all the communist populist anti-growth policies will be at place, and it's therefore very reasonable to expect a negative growth for many years or decades to come. Bonds that are only repaid if Greece is doing fine will be worthless for a very, very long time.
The policies that Syriza wants to establish are really lethal hits against any viability of their economy. Aside from the terror against the domestic financial lenders, nonsensical minimum salaries, free electricity for the poor, 13th or 14th salaries, rehiring of millions of useless government bureaucrats, bonuses for their ability to click with the mouse and for their being at work in time, and subsidies for ouzo, they have also shown what they want to do with the tax collection.
Of course that they want to tax the rich and successful!
Sorry, Syriza, but that won't work because you and 40 years worth of your left-wing predecessors have de facto exterminated all rich and successful Greek people. There are none left – surely not enough to serve any significant part of your budget or your debt. Only Greeks who are losers and parasites have survived the 40 years of the treatment by populist, "progressive" policies. So if you want to collect some money, you will simply have to focus on the losers because nobody else lives in Greece. It's that simple.
To say "OK" to these "creative" plans by Varoufuckis would be as unforgivable a mistake of the officials in other European countries as the mistakes that had led to Greece's membership in the eurozone. So please say "nein" and say it very, very loudly. Thank you very much. If you don't want to continue with Samaras' policies – and you really need to do them more properly than he did in recent years – then it's default, it's unacceptable to use any other word for that, and it's as full-fledged dirty default as you can get, with all the expected consequences.
Germany can't afford to "forgive" debt in this way. The Greeks have screwed their own life and can't be treated as little children. An example of the genuine challenges that Germany must be ready for, it may soon face a €4 trillion lawsuit (slightly above 100% of the German GDP) by a Russian nationalist party for the Second World War reparations. West Germany has never paid reparations to the USSR so this lawsuit is claimed to be legally promising. The justification for this claim is surely much sounder than Greeks' justification for their debt to be forgiven.