This would be an interesting development; a parallel currency. Going back to the 'good old days' of a subordinate drachma system running along side the denarii system. Could work. Back to the future here? We'll see.
Schaeuble said to raise possibility of Greek parallel currency. http://t.co/reZvdaq9eF pic.twitter.com/9Zko8c7jlX
— Bloomberg Markets (@markets) May 22, 2015
Why would Germany propose this? What would be gained by a parallel currency?
ReplyDeletePresumably this is either more pressure on Greece or a proposal that is in Germany's interests. If Schauble had Greece's interests in mind (I won't say at heart) he would have advocated cutting Greece a break long ago, letting it recover, grow and pay its alleged "debts".
"I won't say at heart"
ReplyDeleteHa! yes exactly! LOL
Parallel or “local” currencies facilitate trade in an area which is small compared to some larger area: the larger area being a currency union of which the small area is a part. A classic example was the Austrian town Worgl which in the 1930s issued its own currency. Trade and employment then picked up. But you can guess what happened next. Those austerity loving Austrian authorities thought employment creation was a disgrace and shut down the currency.
ReplyDeleteMy take is that a 2nd currency for Greece would work if they use it with discretion: i.e. used it to facilitate a BIT MORE employment, without hindering the process of internal devaluation (i.e. hindering the process of getting the cost of Greek produced stuff to continue falling in terms of Euros). But Greece being Greece, they’d probably issue too much of the 2nd currency, which would mean Greece effectively sliding back to a Drachma dominated economy.
But that’s hunch. I’m not sure I’m right.
Sure, parallel currencies, like that in Worgl, have been very effective. But why would Germany propose it?
ReplyDeleteIt reads like a surreptitious way of reintroducing the drachma as a parallel currency before it is reintroduced as the national currency?
Is Germany selling further EU federal (fiscal, monetary, etc) integration to its own public by making an example of Greece by ensuring an orderly Grexit?
Schaeuble just blinked. No way do the eurocrats want to force Greek out of the EZ.
ReplyDeleteThe parallel currency option has been discussed. YV may have mentioned it to him as an alternative, too.
This would cut Greece some space in the EZ without giving the creditors a haircut or altering the rules.
There are always work arounds if the parties agree to them. Schaeuble seems to be floating this idea to see what the response is.
@ John
Greece would still have to pay its external debt in euro but the parallel currency could be used to provide liquidity within Greece so that Greece doesn't have to impose austerity to the degree it cripples the economy and prevents recovery. Solvency is basically a cash flow (liquidity) issue. A country is solvent as long as it can meet its debt obligations.
The alternatives are some sort of restructuring, which the creditors don't want and the eurocrats don't want as precedent, so parallel currency that would be accepted in Greece in payment of taxes could obviate that.
Tom,
ReplyDeleteMaybe I've missed something, but instead of all these shenanigans why not simply give Greece a fair deal within the EZ? Is this a political face-saving exercise by Germany or just a cover for more looting? Why go to all this bother when the simplest and most effective solution has been available from day one?
There must be reason to the madness, but what is it? The whole thing looks completely bonkers!
OK, the eurocrats don't want a precedent for restructuring the debt. But two things.
ReplyDelete1. Greece may have been in a position to pay its "creditors" from the off had the EZ been sensible and met Greece halfway.
2. Eventually the debt will have to be restructured. As Michael Hudson says, a debt that can't be repaid won't be repaid. The debt is fu**ing enormous! King Croesus couldn't pay it back!
Europe has a long history of 'alternative currencies', from more fringe to mainstream, and use of quasi-money in times of stress.
ReplyDeleteDon't forget metal-lovers were indirectly responsible of the two great European (world) wars in the last century. And likely, gold-bugs bis (aka hard money crowd in Germany) are throwing away the EU.
Neil has described how Greece could create a new floating greek euro if pressing the ECB through ELA and Target-2 systems. But if for whatever reasons this is not done, the alternative Mr.Strangelove is presenting could be a possibility to prevent the total collapse of the Greek state and the upcoming chaos.
I,
ReplyDelete"metal-lovers were indirectly responsible of the two great European (world) wars in the last century"
Definitely... and this goes back pretty far to other conflicts post Roman empire running under state currency...
I see it as Tom does they could use it for domestic projects and use the EUR for international transactions.. ex/im etc..
But they at least use it to pursue domestic public purpose...
I see parallel to the scriptural accounts where you can see the Herodians running the drachma system spending drachmas and staters and then extracting "tribute" while at the same time under the authority of Rome issuing/spending the denarius then extracting "poll tax"....
So Herodians (out of the old Greek empire) got a lot accomplished locally to Judea using the drachmas meanwhile Rome was able to do what it wanted to do using the denarii there and in the rest of Rome... no one ever depicted "out of money" in the scriptural accounts...