Dual currency for Greece?

This morning's announcement that Greece shall receive another bailout, complete with a restructuring of some portion of its public sector debt, does not seem all that inspiring. Certainly, it will stave off an immediate collapse and contagion throughout the other weak European states, but it does not really solve Greece's longer-term problems. One can argue, of course, that over time, austerity and adjustment will improve the Greek State's solvency. That it could also, over time, result in some improvement in Greece's competitiveness. But it seems to me that this process will be a long and painful one and fraught with peril: peril that it will fail to produce those results.

I have long thought that Greece should have approached the EU with the following proposal: Lend us sufficient Euros so that we can import necessities for the coming 6 months or so and we will do the following:

1) Pass a law restructuring all wages, taxes, debts and essentially all contracts with Greek citizens and companies into a New Drachma (ND), initially issued at par to the Euro but then devalued some 30% and then floated.

2) Government default on external debt. Restructuring of debt owed to domestic entities into ND.

3) Move to a quasi-dual currency system: Allow Euros or ND allowable as deposits in the banking system, but domestic transactions only in ND. Peru had something like this during its remarkable recovery from the debt crisis: allowing people to have their savings in dollars created a more stable financial system and anchored even the sol.

This would completely change Greece's competitive profile and after a period of adjustment a more normal growth path could emerge. Endless austerity to squeeze out the same result over a decade's time will not work. And I suspect Greece will have to restructure/default again in any case. The current plan has debt coming down to 120% of GDP which still has it twice the level of the Maastricht Criteria.