Greek Bank bread and Buiter

Willem Buiter and co at Citi [no link, since it's a proprietory research note] propose to transfer regulation and ownership of Greek banks out of the Greek state, and into a common entity owned and controlled by the remaining Eurozone countries.  This being a way to 'break the vicious circle between banks and sovereigns' a phrase trotted out with either aplomb or irony in EZ commentary depending on the circumstances.

Remaining Eurozone countries become sole equity holders in the new banks as a reward for recapitalising them, and, since they then control them, can prevent them becoming unnecessarily exposed to Greek government bonds in the future, and, since they take future risk, be compensated for that by taking the rents too, and having control over operations.

Although this is an intrusion in normal economic sovereignty, the idea is to free Greece from other interference.

That's all well and good provided that the Troika are prepared to let the Greeks run their economy as they choose, and therefore let the chances of the legacy debt being paid off depend entirely on Greek politics.

One way out of that might be to tie re-entry as an equal partner into this impromptu banking union to 'good behaviour' generally, either on fiscal or microeconomic policy.  Adherence to pre-agreed policy targets, could be rewarded with shares or influence, or adjustments to risk-weights on Greek bonds in the new Greek Bank controlling entity.  This would also allow a path towards normalising Greece as a politically and financially equal partner in the union again, should that be what they want.