What if all Greece really needed was a temporary Grexit?

In this blog post, I’m trying to expose an idea I had a few days ago about how a temporary and supervised Grexit may actually help to stabilize and improve the economy of Greece in order to include Greece in the eurozone again in a few years.

Why the Euro isn’t that great for Greece:

A lot of people criticize the Euro for being a shared money without a shared economy policy. Here’s why: when a country start importing more than it exports, its money start loosing value against the other one, and the prices of the goods it exports become higher while the prices of things he sell become lower for the other countries.

This mechanism evens out the differences between countries and usually avoid issues like the current debt crisis. Greece would need to lower the value of its money, but most european countries want a stronger euro, so things aren’t working great for Greece, which has an economy that much weaker than mainstream european countries.

As a result, Greece suffered from joining the Eurozone. It doesn’t come as a surprise: Greece lied to join the Eurozone; it lied because it didn’t pass the rules the European Central Bank defined to join the Eurozone but manipulated their numbers for years to make it hard to see. As a result, they joined a pack of countries with a conflicting interest relative to currency exchange rates, and saw their inefficient economy becomes even more fragile.

Why a Grexit may not help:

Given this situation, many may wonder why Greece want to stay in the Eurozone. The reason is actually simple: leaving the Eurozone would make it harder for  Greece to sell to mainstream european countries due to money exchange rates, and would exclude Greece from the countries eligible to receive financial help from the European Central Bank.

Additionally, the new Greek currency would quickly plummet as no one would trust a radical leftish government not the devaluate the currency, and everyone would prefer to own euros, a stable currency.

If this gets out of control, Greece could loose an additional amount of money by seeing the capital fly away from the country, making the currency less valuable, which in turn would tempt more people to dump the currency: a vicious circle.

What’s the plan for a temporary Grexit:

So, it seems pretty clear Greece can’t affort a Grexit to improve his export/import balance without help, but cannot afford a non-Grexit without a vast a continuous help from other countries. It’s a doomed situation. Except if…

Except if European countries promise to help maintaining the new Greek currency stable. Here’s the plan: Greece converts its Euros (and the own of Greek people) into a new currency. Then it devaluate the currency sharply (let’s say to 75% of its value) by generating new bills which the government can spend.

The government would grant an Unconditional Income of ~6000€ to every person living in Greece, in exchange for the loss of salary due to the sharp decline of the local currency. This unconditional income will help increase internal spending, by helping poor peoples get the basic products they need, which are likely being produced in Greece. Part of the measure would be compensated by the shift to higher tax rates of medium-rich people and the rest would be financed with the devaluation.

A deal would be signed with Europe which states that Greece promise not to devaluate the currency any further in a given timeframe, and European countries commit to preserve the reimbursement of the Greece debt in that new currency, and even support this currency so that its value grows by 2% per year in that given timeframe.

A currency whose value is sure to grow 2% per year will attract private investors, which will invest in the currency, making its value higher and lowering the need of direct financiering of the new currency by other European countries, so it would cost them less than the actual 2% of increase to achieve the increase, because private investors would do part of the work.

When the new currency reaches a sufficient value, Greece could join the Euro again, protecting the capital of private investors to fly away once the currency reaches the promised value.

I’m not sure any of this work, but maybe it does.

Published on 2015-07-11 under ALL, GREECE, ECONOMY, POLITICS, EUROPE


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