I think that there are also technical problems coupled with GDP-linked bonds, such as what should be the threshold for growth rates to be used for such bonds? Should forecasts be used? Also the GDP growth rates are very often subject to revisions. If the ECB is willing to accept in its books BIP-linked bonds or bonds with indefinite term as proposed by the Greek government is questionable.

Well, there is a lot of techniqual issues that could be solved. The main problem might be that those bonds are not tradeable at the secondary market, since they are similar to equity and not debt, and in case of default, they are second ranked.

Daniela Grozea-Helmenstein and Hubert Gabrisch made excellent points. From my limited perspective, it seems that one of the issues to finding a solution to the challenges in Greece is finding (or creating) financial instruments that allow Greece to borrow while strengthening the incentive for Greece to improve its fiscal (and economic) situation; moreover, realistic expectations are crucial along with the lender(s) ability to understand and manage risk.  The situation in Greece is so complex that I am not certain a single financial instrument exists (yet) that does all this at a market clearing rate of interest.  There is so much more that can be said that I am eager to read other answers.

Greece has a "history" with respect to it's data - even that submitted to the OECD, the EC etc.  There would need to be independent evaluation - by whom? Not the ratings agencies.  Would there be a market and would that market be liquid?. But there are precedents - Costa Rica, Bulgarian and Bosnia have issued such thing - as did Argentina post 2002 (although does this last case inspire confidence?)

just a bit more info

there was an element of a GDP-linked bond in the Greek PSI of 2012. anyone interested can look at the attached.

I strongly reccomend to read "Prospects and Policies for the Greek Economy", by Papadimitriou, Nikiforos and Zezza (Levy Economic Institute, February 2014)

Authors discuss various scenarios for restoring growth and increasing employment in the Greek economy, evaluating alternative policy options through a specially constructed macroeconometric model for Greece (LIMG). After reviewing recent events in 2013, which confirm previous projections for an increase in the unemployment rate, they examine the likely impact of four policy options: (1) external help through Marshall Plan–type capital transfers from the European Union (EU) to the Greek government; (2) temporary suspension of interest payments on public debt and use of these resources to increase demand and employment; (3) introduction of a parallel financial system based on new government bonds, or “Geuros”; and (4) adoption of an employer-of-last-resort (ELR) program financed through this parallel financial system. Authors argue that the effectiveness of the different plans crucially depends on the price elasticity of the

Greek trade sector. Since the analysis shows that such elasticity is low, our ELR policy option seems to provide the best strategy for a recovery, having immediate effects on Greek living standards while containing the effects on foreign debt.

http://www.levyinstitute.org/pubs/sa_2_14.pdf

Dear all,

on this topic, I signal the following article by Stiglitz:

http://www.project-syndicate.org/commentary/greece-eurozone-austerity-reform-by-joseph-e--stiglitz-2015-02?utm_source=MadMimi&utm_medium=email&utm_content=Joseph+E_+Stiglitz%3A+%22A+Greek+Morality+Tale%22&utm_campaign=20150208_m124324272_Joseph+E_+Stiglitz%3A+%22A+Greek+Morality+Tale%22&utm_term=A+Greek+Morality+Tale

Best,

Filippo Maria Pericoli

Filippo Maria Pericoli's link above to the (brief) Stiglitz article is excellent.  Although it does not address the specific concerns many of us raised (above), it is the most cogent argument I have read for GDP-linked bonds related to the situation in Greece..   

The quality of the material in the links above provide incredible insight.  I wish I had read them before commenting on Filippo Maria Pericoli' s link. I still would have raved about the Stiglitz link; I would have added the following about other links that each go into depth in a different and helpful direction.

Bernard H Casey link to the 2012 Morgan Stanley report goes into the technical details about GDP-linked bonds and Greece.  The assumptions were the most interesting part to me.

The link in Stefano Lucarelli's answer (above) to the economic conditions analysis in Greece by the Levy Institute presents one of the most comprehensive illustrations of economic conditions in Greece that I have seen.

Unfortunately everybody is trying to cure a symptom rather than the disease.......

@Constantinos - You just hit the spot !!! Thanks !