As people contemplate a Greek exit from the Euro, some are saying: too logistically complicated, ATMs have to be replaced, etc.
What about a dual-currency system? Many places in the U.S. did this during the Great Depression; Cuba did this during the special period. Instead of changing the ATMs, the Greek government could say: everyone who wants to hold Euros can still hold Euros; everyone who wants to accept Euros can still accept Euros. But the Greek government is going to start issuing "new drachmas"; instead of cutting government salaries and positions and pensions and public spending, it's going to pay a portion of these bills in "new drachmas"; the government will accept "new drachmas" for payment of taxes and other government services; businesses will be strongly encouraged, including through government leverage, (ie suppliers and contractors) to accept a portion of "new drachmas" as payment. This would allow the government to increase public spending and inflate. > July 17, 2011 1:06 pm > > Eurozone exit could restore Greek competitiveness > > By Joshua Chaffin in Brussels > > It was not easy for Greece to gain admission to one of Europe’s most > exclusive clubs when it joined the eurozone a decade ago. But leaving it – > for Athens, or any other member – may prove far more difficult. > > European policymakers insist that a Greek departure from the eurozone is not > even under consideration because the economic and political consequences > would be so severe. > > More > > > On this story > > Greek PM says time for Europe to wake up > Summit raises hopes of Greece deal > Greek bail-out holds ‘impossible knot’ > Lex S&P and eurozone > Q&A Greek rollover and rating agencies > > However, some analysts and investors see Greece’s exit – even if only > temporary – as the only way for the country to reduce its costs and boost > the growth needed to service its huge debts. > > Mohamed El-Erian, chief executive of Pimco and a former IMF official, wrote > in the FT last week that some countries might have to take “a sabbatical > from the eurozone – but not the European Union – in order to regain the > policy flexibility needed to restore competitiveness”. > > “Short of the eurozone agreeing a fully-fledged transfer union, it is hard > to see how Greece can remain in the eurozone,” says Simon Tilford, chief > economist at the Centre for European Reform think-tank. “Leaving would be > fraught with risk but at least it would hold out the possibility of economic > growth and escape from the current debt trap.” > “It is hard to see how Greece can remain in the eurozone” > > - Simon Tilford, Centre for European Reform > > But to abandon the euro a government would have to confront a welter of > difficult issues – from printing and distributing new bank notes to > reconciling the status of existing contracts – from a simple apartment lease > to major industrial imports – that were signed in one currency and would be > settled in another. > > “Every ATM in the country has to be changed, all cash handlers have to be > trained. It concerns every supermarket on every corner,” said a European > banker who worked on the introduction of the euro. > > A move to restore the drachma would almost certainly trigger a run on > domestic banks as people rushed to empty their accounts before > euro-denominated savings were converted into less valuable coin. > > A weaker currency would, in turn, make the country’s euro-denominated debts > that much more expensive to maintain. > > Greece would also have to restore an interest-rate setting capacity to its > central bank and determine an exchange rate policy – fixed, floating or some > other arrangement. > > The central bank might have to impose capital controls as depositors rushed > for the exits, although this would contravene the rules preserving the EU’s > single market, making it more difficult for the country to remain in the > bloc. Greece might also have to violate the Schengen treaty’s border-free > travel rules in order to prevent citizens from leaving the country with > suitcases full of cash. > > The turmoil inside Greece would not stop there, according to Andre Sapir, > the director of Bruegel, the Brussels-based think-tank. While Greece would > be shut out of financial markets and unable to borrow new funds, so too, > might other struggling eurozone members as investors tried to guess whether > they were preparing to follow Athens to the door. > > “It would create a huge amount of uncertainty,” Mr Sapir said. “Those > countries would immediately be frozen out.” > > Then there is the legal question of navigating the EU’s treaties which do > not contemplate the possibility of a country leaving the single currency > club. > > Still, if Greece – or any other eurozone member – decided to go it alone, > the first step might be to hire a clever Brussels divorce lawyer. > > Although the Lisbon treaty, which came into force in 2009, says nothing > about a country leaving the eurozone, it does include a sort of “catch-all > clause” that allows the European Commission, the EU’s executive arm, to make > proposals to deal with extraordinary events. > > But such a proposal requires unanimous approval from other member states, as > well as the consent of an independent-minded European parliament. “It’s a > tall order that would take time. You couldn’t take it as an overnight > decision,” said one EU legal expert. > > A clearer path would be to leave the bloc altogether. Doing so would require > only a qualified majority vote by fellow member states. > > Achieving even that could be a drawn out process. The parties would first > have to haggle over the terms, including, for example, the untangling of > millions of euros in agricultural subsidies and other EU payments. > > Daniel Gros, an economist at the Centre for European Policy Studies, argues > that a country would not willingly leave the eurozone, but might be driven > out if the European Central Bank were no longer able to fund its national > banks. > > “A country will never be expelled from the EU because of a decision by EU > leaders. It will be the push of a button in Frankfurt,” Mr Gros said. “At > that point, you can just try to clean up the mess – and it would be a big > one.” > > The broader truth is that any country determined to leave the club would not > be held up by legalities. “It’s not like the US – we cannot send in a > European army,” Mr Gros said. “Even if something is against the treaty, you > cannot force a country to stay inside.” > -- Robert Naiman Policy Director Just Foreign Policy www.justforeignpolicy.org [email protected] _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
