Revive the Drachma, Keep the Euro – Why the hell not?

May 15, 2012

Some past suggestions for Greeks to bear in mind….

From the New Economics Foundation: A dual-currency solution to the Greek debt crisis

The single currency is strangling the Greek economy, but there is no reason why it can’t introduce another…Austerity is not the answer to Greece’s problems. Like blood-letting, it will only lead to the weakening of the patient – the Greek people. The objective must be to revive the national economy so it can stand on its own feet and win back the confidence of other countries. The economic problem in the present recession, as always, is how to re-arrange the interaction between humans and their natural resources so that technology can be put to work in order to create a society that is prosperous and fair.

…The next step is to recognise that Greece has to re-introduce its own national currency, not as a single currency, but in parallel with the Euro. Like water, money is the magic liquid that enables humans to create prosperity out of natural resources. Without water, fertile soil and the plants that grow in it can only dry up and die. Without money, humans sit idle and watch their economy wither and die. Equally, too much money or too much water will cause devastation instead of prosperity. Greece is suffering from a lack of money because the only source, the single currency, has dried up. But there is no law that states that there has to be only one currency.

[Read more]

Newsnight covered the Greek crisis last night, suggesting just such a scheme.

Greek economist Costas Lapavitsas puts it like this:

“the return to the drachma should be sudden, accompanied by a short bank holiday and immediate imposition of capital controls. For a period the new drachma would circulate in parallel with the euro and possibly other state fiat money.

Banks would find themselves in the firing line as assets and liabilities would have to be converted. To protect depositors, but also to control credit in order to prevent a wave of company bankruptcies and support employment, banks should be immediately nationalised. The Bank of Greece should rapidly build mechanisms to generate liquidity independently of the European Central Bank.

…As far as possible, the exchange rate should be managed; there should also be administrative controls to ensure that vital goods reached key enterprises as well as the weakest during the first critical months.

After the initial shock, the fall in the exchange rate would prove positive for the economy. Greece remains a middle income country with a substantial productive sector that could recapture the domestic market once imports became more expensive. There is plenty of productive potential in Greece, evidenced by the technological component of its exports, which remains higher than that of Turkey, a lauded export success story.”

Lapavitsas is broadly echoed by Larry Elliott, who thinks that Argentina is a positive role model for courageous Greeks.


One Response to “Revive the Drachma, Keep the Euro – Why the hell not?”

  1. Don Urquhart Says:

    It’s worth noting that many countries operate a multi-currency system. If you go to Russia you can pay in US dollars, in Turkey the Euro is most acceptable. A Greek default is really only a big problem for the German banks with their €25 billion Greek sovereign debt exposure.

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