Sunday, September 11, 2011

Returning Greece to the Drachma

To the Drachma
The standard of living reached in Greece since it joined the European Union means austerity will be inadequate to rebalance the economy. Returning Greece’s currency to the drachma, on the other hand, would allow market forces to set the country’s wage levels, induce other indebted European Union members to reform without Continental prodding and thus solidify the euro.
Greece’s gross domestic product per capita of $30,400 in 2008 was close to the European Union average. It was caused not by an exceptional surge in productivity, but mostly by huge subsidies and extensive borrowing. Greece’s continuing current account deficit, estimated by The Economist at 8.3 percent of gross domestic product in 2011 despite a severe recession, indicates that it remains deeply uncompetitive.
From Spiegel, with the article recreated in its entirety as the implications for the EUR, the eurozone, and crony communism as massive:
German Finance Minister Prepares for Possible Greek Bankruptcy

German Finance Minister Wolfgang Schäuble, who is reportedly doubtful that the country can be saved from bankruptcy, is preparing for the possibility of Greek insolvency. Officials in his ministry are currently reviewing scenarios for handling such a situation, exploring what it might mean for the rest of the euro zone. Under the first scenario for a Greek bankruptcy, the country would remain in the euro zone. Under the other, Athens would abandon the common currency and reintroduce the drachma.

The European bailout mechanism, the European Financial Stability Facility (EFSF), is playing a key role in those considerations. Soon the EFSF is expected to be given new powers agreed to by European leaders at a special euro crisis summit in late July. Two instruments at the EFSF's disposal are at the forefront of the Finance Ministry's scenarios.