SYRIZA, YOU CAN DO THIS – AND YOU CAN DO IT NOW
from Trond Andresen
As a point of departure I refer to this paper, on page 2 in the Real-World Economics Review, issue 71, 28 May 2015. The paper argues for and describes how to possibly implement an electronic parallel currency in Greece.
But the proposal for a parallel currency should now be even more specific, tailored to the current drama and urgency. And the pressure to do something along the lines suggested below is increasing all the time (because the so-called “bailouts” only imply further exponential debt growth in a pyramid game – something that is mostly not recognised in the media and by commentators).
Here are my suggestions: PHASE A
- Forget the need to first organise government hardware for the system. Decide instead to do it initially via the cloud; fast – can be supplied on short notice (by this firm, for instance – DISCLAIMER: I have no commercial engagement there whatsoever). But prepare transit to government servers while the cloud-based system is up and running and gains confidence and popularity. Start with mobile to mobile only, but build a terminals network while the system picks up. Involve the Greek Postal System as the backbone of the network, under the Treasury (not the Central Bank, which continues with euros).
- Declare that all recipients (employees and pensioners) of wages from the government will receive from a certain date onwards – say – 10% in “Tax Notes” (“TN’s”, but name can of course be something else). This is 10% on top ofcurrent wages in euros, and one TN is nominally considered on a par with one euro. The TNs can be used to pay tax, see below) and do not have to be declared legal tender. Explain to the public (comprehensive and persistent information to the public is very important) that if recipients wish to start spending them, they must first – following an acceptably safe KYC (“Know Your Customer”) procedure – go to the nearest post office and identify themselves with passport or similar so that the P.O. can send a confirmation to the system that the mobile phone number actually represents the person in question.
This gradually builds up a database of id’s connected with persons’ mobile numbers. People who procrastinate still receive the regular TN payment into their TN account, but they can’t access it until they register as explained above.
- Businesses which wish to participate must do the same ting. They do not of course receive any monthly TN payments, but they can sell things for TNs to the government, and people will with time start to offer them TNs in payment for purchases along with euro.
- Explain that any person or firm can pay 10% of their taxes with TNs, one TN counting as one euro.
Before proceeding to PHASE B (below), note that 10% out and in is a fairly low figure. The idea is to not rock the boat too much in the initial phase. This is also the reason that the TNs are paid out in addition to current euro wages/pensions. Few recipients will protest against this (but this is changed in PHASE C, see below.)
PHASE B
This is when the system has gained a fair amount of confidence and TNs are widely used along with euros. Firms mostly accept a mix of euros/TNs in payment even if some choose a TN share smaller than 10%, and many private sector workers and self-employed also do that for their wages. There is an incentive both for businesses and workers to accept a reasonable TN share, since that results in more sales or probabililty of getting a job. Terminals are gradually available in most businesses, and the Post Office employees are by now schooled and able to help people with advice and other TN-related services. Post Offices can also do non-mobile transactions using old-fashioned giros for the few that do not have or wish to use a mobile phone. There is now a well defined market for exchange TNs/euros, and the TN exchange rate is not too far below par since people have started using a 10% TN share to pay taxes. The initial very low and volatile exchange rate has stabilised at a higher level.
PHASE C
The government wishes to directly or indirectly employ a large share of unemployed. This will be possible if all current employees/pensioners instead of 100% euros plus 10% TNs, now accept – say – 70% euros and 40% TNs. This means that there will be euros freed up for government payouts to former unemployed, using the same euro/TN mix for them. The tax payment mix is also changed accordingly, to 7/11 parts euros and 4/11 parts TNs. This increase in the allowed TN share of tax payments ensures that the euro/TN exchange rate does not fall (much).
PHASE D, E …
Possible Grexit and 100% TNs, but this is not necessary, one can take the time needed with the parallel system – with little turbulence and a smooth process, only with some adjustments now and then to the official payments and taxation TN/euro mix, based on how things develop. One can even go gradually back to 100% euros, if that is the wish.
And during all these phases, the Greek government will have a much stronger position concerning negotiations about euro public debt relief.
____ Trond Andresen is a lecturer in control systems and system dynamics at The Norwegian University of Science and Technology. His economics research page is here
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Real-World Economics Review Blog 
«The government wishes to directly or indirectly employ a large share of unemployed. This will be possible if all current employees/pensioners instead of 100% euros plus 10% TNs, now accept – say – 70% euros and 40% TNs. This means that there will be euros freed up for government payouts to former unemployed, using the same euro/TN mix for them.»
That is in effect a substitute for taxation: instead of funding welfare with taxation, it is funded with forced sales of trackable bonds called “TNs” to recipients of state payments.
Now the question is what is going to be the exchange value of “TNs”, which cannot be used to buy imports, and are issued in ever greater numbers, with euros, which are internationally recognized, and cannot be tracked as they are to the bearer.
Try to imagine going to a greek restaurant, ordering souvlaki for 4 people, and then trying to pay in TNs 36% (4/11) of the bill: the owner of the restaurant thinks that he cannot use the TNs to buy the frozen New Zealand lamb that went into the souvlakis, if he accepts them the government knows exactly what 36% of his sales are, and therefore the total, and therefore he has to pay VAT on the total, and smiles and says “discount of 25% for euro cash”. Thus the trackable, inconvertible TNs get valued at 30% of face value.
And this happens *everywhere*. Greeks use cash and avoid giving and taking receipts, and not just because of tax evasion, but also because a lot of greek trade and income is illegal (plenty of proceeds from various crimes, mostly economic crimes, like bribery, embezzlement, people smuggling, …).
http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010?currentPage=all
«There was no consumer credit in Greece: Greeks didn’t have credit cards. Greeks didn’t usually have mortgage loans either.»
«The easiest way to cheat on one’s taxes was to insist on being paid in cash, and fail to provide a receipt for services. The easiest way to launder cash was to buy real estate. Conveniently for the black market—and alone among European countries—Greece has no working national land registry.»
However the idea of doing just 10% and as an *extra* is I think small enough to be sustainable, even if it is trackable.
Trackability, of money or property, is a really unpopular idea in Greece. Especially with government employees and pensioners, who very often do something illegal on the side.
«This means that there will be euros freed up for government payouts to former unemployed, using the same euro/TN mix for them.»
Besides there is no need to raise extra funds to pay for welfare to the unemployed, which is however very unpopular in Greece because giving out money to strangers is really against the dog-eat-dog, hypercapitalist greek culture. Greek politicians use left-wing rhetoric to fool delusionary progressives abroad, but are uniformly extremely right-wing economically like their voters. As Y Varoufakis pointed out unemployment welfare is almost non-existent in Greece. What greeks voters want is not welfare for the unemployed, whom they don’t care about, as many of them are immigrants. What greek voters want from the greek political system is safe government jobs and pensions for friends and family, not welfare for unknown strangers.
Anyhow, Greece could well afford to pay for fake jobs for the unemployed on their current (or rather 2014, pre-SYRIZA) GDP because of these numbers:
Employed, unemployed, work force:
research.stlouisfed.org/fred2/series/LFEM64TTGRA647S
research.stlouisfed.org/fred2/series/LFUN64TTGRA647S
2001: 4.11m 0.51m => 4.62m
2008: 4.52m 0.39m => 4.91m
2014: 3.48m 1.27m => 4.75m
GDP inflation adjusted:
research.stlouisfed.org/fred2/series/NAEXKP01GRA189S
2001: €197 billions (€47,900 per worker)
2008: €250 billions (€55,300 per worker, +15% wrt 2001)
2014: €187 billions (€53,700 per worker, +12% wrt 2001)
Final private consumption, inflation adjusted, and net imports:
research.stlouisfed.org/fred2/series/NAEXKP02GRA189S
research.stlouisfed.org/fred2/series/BPBLTT01GRA636S
2001: €132 billions (net imports €10 billion)
2008: €172 billions (net imports €35 billion)
2014: €130 billions (net imports approx. zero)
Median income, age 16-64, PPP adjusted:
appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_di03
2001 9,639
2008 12,825
2013 9,123
All the numbers above show that greek GDP and median incomes and total consumption (and also total population BTW) are much the same in 2013-2014 as they were in 2000-2001; the main difference is that in 2013-2014 there were 600k less people in employment, and GDP-per-person was proportionally higher.
Now if total GDP and private consumption are the same and there are 600k, or 15% less people in employment the obvious solution is redistribution: that is to share them, via government taxation and transfers, so that the same total GDP and consumption is shared by the same number of workers in 2013-2014 as in 2000-2001. It is just after a difference of 15% in the number of employed workers.
Hi, Ground, I checked out your website. As an ex-control chap myself, I found the Simulimk model you described very interesting.
I assume you’re aware of Steve Keen’s work with his Minsky software?
It has the advantage of including balance sheet operations as well as doing Simulink-style GUI modelling.
By “Ground”, you mean me, “Trond”?
Mea Culpa – a combination of auto-correct and laziness…..
I also note from your ‘Dynamics of Accumulation’ paper that you are familiar with Keen’s work.
Seems like you are both working in similar areas of dynamic modelling.
Steve and me are close friends and collaborators since 1996 onwards. We meet in between.
Thanks to “Blissex” for comprehensive and also critical commnts. Very useful. I will quote him(?) here in between my own comments:
>instead of funding welfare with taxation, it is funded with forced
>sales of trackable bonds called “TNs” to recipients of state payments.
Well, initially they are paid out ON TOP (10%) of current wages/pensions. Who will refuse that?
>Try to imagine going to a greek restaurant, ordering souvlaki for 4
>people, and then trying to pay in TNs 36% (4/11) of the bill: the
>owner of the restaurant thinks that he cannot use the TNs to buy the
>frozen New Zealand lamb that went into the souvlakis, if he accepts
>them the government knows exactly what 36% of his sales are, and
>therefore the total, and therefore he has to pay VAT on the total, and
>smiles and says “discount of 25% for euro cash”. Thus the trackable,
>inconvertible TNs get valued at 30% of face value.
Well, as I suggested you start out with 10% – not 4/11 – on top of the current government euro spending flow. Following Gresham’s law, people would wish to spend TNs not euros, while the restaurant owners want euros, not TNs. No big deal, a balance will be struck. Restaurant owners who do not accept TNs will lose business to those who partly accept them (and the acceptable mix can of course be decided and adjusted freely by each business). And businesses will ask their employees to accept a share of TNs in their wages. Those who accept can easier keep their jobs, or get a job if they are unemployed. TN acceptance and confidence will gradually spread through such processes. If the TN stabilises at – say – as low as 30% against the euro, no big deal. Then it is for the government to put more TNs into circulation – the government is not at all constrained in TN creation. But if the gievrnment taxes back approximately the same TN flow that they inject (somewhat less back in taxes in the startup period because they want to build up a circulating stock of TNs out there), and agents know that taxes can be paid with the same share of TNs versus euros as spent into the econom by the government, then I believe that TNs will stabilise with time in a higher range – say – 80-90% vs the euro – when initial and irrational skepticism is waning and there has been a positive contagion mechanism at work among agents, in the sense that they see that (other) people and businesses increasingly accept a share of TNs in payment.
>And this happens *everywhere*. Greeks use cash and avoid giving and
>taking receipts, and not just because of tax evasion, but also because
>a lot of greek trade and income is illegal (plenty of proceeds from
>various crimes, mostly economic crimes, like bribery, embezzlement,
>people smuggling, …).
Yes TN use is trackable, it is very difficult to cheat on taxes in electronic TNs. This will be a boon for Greece, a characteristic of the proposal that should be applauded. Any Greek government of today will of course also continue to implement more effective tax collection systems for *euro* transactions. A fraud-free TN circulation system should have a very good effect on the general attitudes to tax payment, also for euros. This has to happen anyway, so this is not an argument as such against a parallel currency.
But of course on may – as you do – just predict only dire outcomes and nothing changing for the better, because the Greeks with their supposed mentality are a completely lost cause. That is a good exercise to feel superior, but I wish instead to constructively discuss solutions that at least can give a hopeful start for a better future for Greece.
>Besides there is no need to raise extra funds to pay for welfare to
>the unemployed, which is however very unpopular in Greece because
>giving out money to strangers is really against the dog-eat-dog,
>hypercapitalist greek culture.
It is very difficult to conduct a serious conversation on such premises. The Greeks I have met (ordinary people, not oligarchs) seem to be human beings like you and me. albeit living in in a society with bad traditions concerning tax evasion. I think that most Greek families have close (and often young) relatives that are unemployed, and that they would welcome a large government-initiated “new-deal”-type program to employ especially the young. And it will be easier to pay for this by injecting an additional means of exchange, instead of increasing the tax burden in euros on already employed people and businesses.
>Greek politicians use left-wing rhetoric to fool delusionary
>progressives abroad, but are uniformly extremely right-wing
>economically like their voters. … What greeks voters want is not
>welfare for the unemployed, whom they don’t care about
Whew. Are you assuming that the typical Greek has similar attitudes on this like yourself?
>Anyhow, Greece could well afford to pay for fake jobs for the
>unemployed on their current (or rather 2014, pre-SYRIZA) GDP
So the assumption is that a large-scale “new deal” type program for the unemployed can only be with “fake jobs”. Well, Roosevelt did it, but the 30-ies Americans were probably not so hopeless as those feckless Greeks …
Anyway, at least a thanks for this from you:
>However the idea of doing just 10% and as an *extra* is I think
>small enough to be sustainable, even if it is trackable.
«And it will be easier to pay for this by injecting an additional means of exchange, instead of increasing the tax burden in euros on already employed people and businesses.»
Many people have the impression that greek politicians think that german taxpayers are the “magic money tree” they could harvest to pay for whatever they wanted…
If the “magic money tree” is instead «injecting an additional means of exchange» that is a recipe that Greece has tried many times, and the result have been mostly just to add inflation, especially if GDP is at full potential as it was in 2013-2014
Many greek voters remember well indeed that Greece has had recent long periods of very high inflation consequent to very levels of «injecting an additional means of exchange» in the past 30 years and I guess is the reason why, especially the poorer ones, they got really fed up with being paid in ever depreciating dracmas (15-25% per year for a long time), while their kleptocratic middle and upper classes kept their wealth in dollars, francs, marks, and that’s why they are so attached to the euro.
In Greece «injecting an additional means of exchange» basically means punishing workers, pensioners, and the poor, while giving huge advantages to those who have put a few hundreds billion of capital abroad, as Y Varoufakis wrote:
«For if the Greek state is effectively to confiscate the few euros a citizen has in her bank account and turn them into drachmas of diminishing value, she will be able to take the Greek government to the European Courts and win outright.»
«the ongoing crises has led Greek savers to withdraw oodles of their savings from Greek banks and either shift them offshore (London, Geneva, Frankfurt) or stuff them in their mattresses, or hide them in their freezers (in ‘bricks’ of 500 notes). This means that, by the time we come to an exit from the euro, the stock of savings will be in euros and the flow of incomes and pensions (once the banks re-open) will be in drachmas.
So, unlike in Argentina, a Greek euro-exit will drive a wedge between stocks and flows, savings and incomes; with the former revaluing massively relative to the latter. Moreover, the very availability of such large quantities of ‘hard’ currency savings, in the hands of the average Dimitri and Kiki on the street, will ensure that the decline in the value of the new drachma will be precipitous (something that did not happen in Argentina since most savings were in pesos also).
In short, even if we neglect the devastation caused by the delay in the introduction of the new currency (something Argentina did not have to worry about), the new currency will be debased ever so quickly due to this bifurcation, leading to hyperinflation and the loss of most of the competitive gains we might have hoped for from the devaluation.»
Is the use of the word, bailout, a correct description of what has been going on? I do not think loans are bailouts.
More exact language would be an improvement.
Uncycle: I am very aware of this. I write ‘because the so-called “bailouts” only imply further exponential debt growth in a pyramid game’.
So I think we agree.
Here is an excerpt from the recent post on the new Greek MoU annotated by Y Varoufakis:
The Government commits to consult and agree with the European Commission, the European Central Bank and the International Monetary Fund on all actions relevant for the achievement of the objectives of the Memorandum of Understanding before these are finalized and legally adopted. [This is astonishing: A government commits to agreeing with the troika, even if it does not agree! Of course the opposite does not apply: the troika does not commit to “consulting and agreeing with the Greek government”. Note too that the troika considers all legislation to be subject to its approval, including laws on higher education etc. Greek sovereignty is being forfeited wholesale.].
After signing this MoU, I dont think Syriza can do anything at all.