Greece: keep the Euro add the Geuro

from Claude Hillinger

The Syriza party under Alexis Tsipras won the Greek election on a promise to end austerity. Negotiations between the new Greek government and the European Union have at this writing not yet begun. It is clear that whatever the outcome of the negotiations, the EU will at most finance a tiny fraction of all the expenditure programs that Syriza has planned and is already implementing: Re-hiring government employees, raising the minimum wage, stopping many privatization projects, and other measures. Equally evident is the fact that under present conditions, the Greek government does not have sufficient own resources to finance what it has planned. To think that the programs can be paid for by taxing the Greek Oligarchs is fantasy. So what can be done?

I have a proposal: There are according to Wikipedia http://en.wikipedia.org/wiki/Local_currency about 2500 local currencies in existence throughout the world. Their purpose is always the same—to create additional demand in a depressed economy. In this they have some success, as evidenced by their popularity. The success is however limited. They are local initiatives that create some additional demand for local small businesses and some additional employment, mainly in the service sector. They cannot accomplish more because they do not enable payments at regional or national levels; they do not involve a banking system for making payments or issuing loans; they cannot finance any of the large transactions on which a modern economy depends. But, is it not possible to take the basic idea from the local to the national level, keep the basic feature of increasing demand while eliminating the shortcomings of merely local currencies. I believe that it is not only possible, but highly desirable, specifically in the case of Greece, but also for other countries of the Euro area, that by design have lost control over their money supply.

Here is my proposal: The Greek government should create a second currency to be named the GEURO. The Geuro would be legal tender with the same value as the Euro, but for domestic payments only. Any payment, in the private sector, or to the government, for example for taxes or fees, could be made equally in Euros, Geuros, or any combination of the two.

The government would start to make all payments, for wages, transfers, etc. with a combination of the two currencies. For example, they could set a ratio of 80% Euro, 20% Geuro.Without any further aid from the EU, the Greek government could increase its spending in this example by 20%.

The government should mandate banks to open a Geuro account parallel to every Euro account so that the Geuro could be freely used in payments through the banking system. There would however be no obligation for a bank to exchange Geuros for Euros. Also, banks would be prohibited from making loans in Geuro, so that there would be no additional instability introduced because of possibly nonperforming Geuro loans.

Under my proposal, the Greek government could quickly and very substantially increase domestic demand, which was its principal campaign promise and it could do so without the need for agreement on the part of some external authority.

I can see further long term benefits from such a system, not only for Greece, but for all countries of the Euro zone. The introduction of the Euro was a mistake, but abandoning it now would be very costly both in real and psychological terms. Under my proposal, the Euro could be maintained, while giving to the individual countries the possibility of a flexible anticyclical fiscal policy, a possibility that they now lack.

For Greece there would be still another advantage: Should negotiations with the EU at some point fail, then an independent Greek currency would already be in existence and would not have to be created under crisis conditions. Having to fear the Grexit less, Greece would gain some bargaining power in the negotiations.