I agree with most of what you say, it makes a lot of sense but sense is something that seems to be in short supply both in Greece and in Cyprus. Self-interest seems to be the driving force behind change rather than the interests of the nation as a whole! In Cyprus legislation to allow the introduction of Casino’s can be achieved within twelve months …….but legislation for the construction of a crematorium, about 12 years and counting! !!!!
The immediate effect of returning to drachma is it will cause inflation.
I have never seen why this is inevitably so. The Drachma would be a sovereign currency and legal tender only in Greece. If it was locked to the Euro then whatever happens to the Euro happens to the Drachma. The income and external expenditure will still be in Euro’s and other traded currencies. IMO: It makes no difference whether the Drachma was locked at Euro 1 = 1 Drachma or 1 Euro = 10,000 Drachma the internal purchasing power of the new currency will remain unchanged. I will not devalue.
A ratio of 1:1 makes more sense because the day you make the swap, all accounts remain the same ‘number’ only the denominator will change from Euro to Drachma. If you had a 1000 Euro’s in your account then after midnight you would have 1000 Drachma and a civil servant paid say Euro 25k pa will be on Drackma 25K. If you live in Greece it really makes little difference.
Parallel currency and Social division? I am not sure I agree with that view? With strict capital controls, those with Euro’s will buy goods at the same price as anyone else. When the payee gets the Euro’s and puts them into his bank he will be credited with Drachma, not Euros’s! The Euro’s would go into the country’s reserves as foreign currency. Capital control would prevent large sums of Euro’s being ‘exported’ by the Elite into foreign bank accounts.
Nikitas:
.…… And as we are often told, going to the drachma does not cancel foreign debt
True ….. but it makes it easier to repay because you are not paying government employees and other state costs in a ‘foreign currency’ over which you have no control. And a foreign currency is what the Euro is! If say 75% of your income is going on paying state salaries, pensions, social benefits etc. which, at the moment, is with earned Euro’s, then with the Drachma as the legal tender within Greece, the central bank (independent from the ECB) can create this without either debt or interest.
Obviously a much stricter control over tax collection is required and also over banking which will have to come under the direct management of the Central bank (Nationalisation?). So to me, not a simple step but one that has benefits if rigorously controlled.
The overbearing and economy killing bureaucracy needs dismantling by people with common sense, not those with vested interests in retaining the status quo. Both Greece and Cyprus need a real dose of the reality of not complying with the laws of the country and that goes from the very top of the tree to the street cleaner.
When I refer to ’The Elite’ I mean not just those that are rich, although the Elite normally are, but anyone who has sufficient wealth, power or influence to set themselves above the law of the land or in some cases above international law. This is not just a Greece/Cyprus problem if you follow what is going on in the UK. Lords and MP’s bending the law on just about everything from child abuse and Paedophiles to expense account fraudsters….. but every time they bleat ‘I have done nothing wrong !’ Different tune if you happen to be poor and are caught claiming some benefits it has been decided you are not entitled to …… you can face jail but not so the Elite!
I have never believed that the Euro was a workable idea! A sovereign currency has many more advantages than disadvantages …… provided it is properly applied and controlled( BTW: I do realise that that is a rather Utopian view and wishful thinking ……. but maybe we will see ‘Citizens Tribunals/Committees’ ….. like they had during the French revolution. Ah well, nothing wrong in wishful thinking is there?)
