Monday, February 15, 2010
Four Solutions for Greece.
This is a modern reproduction of a Trireme (ancient Greek warship). Thanks to the Trireme Trust for permission to reproduce the picture (taken in Greece). Photo by Mary Pridgen.
Solution No. 1.
Cut all wages in Greece by 50% or thereabouts. This would NOT, repeat NOT reduce living standards in Greece by 50% or anywhere near. This solution amounts to the same as devaluing the Drachma in the old days when Greece had its own currency. And that was never a big problem for Greeks.
Unfortunately it would be very difficult to explain this to Greeks. Greeks are even more childish and self-centred than the rest of the human race –which is saying something. And that’s not my opinion: it’s the opinion of Greeks themselves. E.g. see here and here and here.
Solution No. 2.
Re-introduce the Drachma and have it run alongside the Euro, as suggested here. Not a bad idea. Given high unemployment in a particular area, a market opens up for a secondary currency in that area. This has been tried in numerous towns round the World, and it seems to work moderately well. See here.
Solution No 3.
The Warren Mosler suggestion. This involves printing and distributing one trillion extra Euros to Euro countries on a per capita basis.
I don’t understand this solution. Seems to me that the basic problem is the DIFFERENT performance of Euro economies. A measure which treats all countries in a similar fashion may be a temporary solution, but I don’t see how it’s a permanent solution.
Solution No 4.
The rest of the Europe bails Greece out. The big problem here is moral hazard: every PIG country will then want to get its nose in the trough. But on the bright side, the acronym and metaphor align nicely.
And finally please note that my main qualification for pronouncing on matters Greek is that I rowed the Trireme up the river Thames in London (with the help of about 200 others).
Afterthough dated 17th Feb. Fifth solution: Greece leaves the Eurozone and returns after devaluing the Drachma, as proposed by Martin Feldstein.