The problem is all inside your head she said to me The answer is easy if you take it logically I'd like to help you in your struggle to be free There must be fifty ways to leave your lover. -- Lyrics by Paul Simon The euro appears to be a marriage of incompatible partners. A June1st article in the UK Telegraph titled " Why Europe's Love Affair with the European Project Is Ending " reported that two-thirds of 9,000 respondents thought that havingthe euro as their single currency was a mistake. For Greece, it was a tragic mismatch from the beginning; and likemany a breakup, it is really about money. |
Greece is a vivaciousyoung woman chained to a tyrannical old man. She yearns to be freeto dance on her own; but breaking up is hard to do. Defaulting onher debts will force her out of the eurozone and back to issuingdrachmas, and she could get brutally beaten by speculators onforeign exchange markets for her insolence. Fortunately, there are alternatives to an ugly divorce.
Thetreaties binding the 17 member nations are just a set of rules,entered into by mutual agreement; and rules can be bent or broken,especially in crises. The ECB (European Central Bank) broke alitany of rules to save the banks, and so did the Federal Reserveto save Wall Street in 2008. Rules that can be bent for banks canbe bent for people and nations -- not just Greece, but all theother eurozone countries threatening to file for divorce. Paul Simon says there are 50 ways, but here are five creativealternatives.
1. The Open Marriage: Return to the Drachma Without Abandoning theEuro James Skinner, former chairman of NEF (the New Economics Foundationin the UK), suggests that the Greek government could start issuingdrachmas without abandoning the euro. Drachmas could be reservedfor domestic use -- to pay the government's budget, hire workers,build infrastructure and expand social services. He writes : Greece is suffering from a lack of money because the only source,the single currency, has dried up. But there is no law that statesthat there has to be only one currency.
... By enabling the Government, monitored by the Central Bank, tospend newly created money directly into the economy, bypassing thebanking sector, the burden of increasing national debt can beavoided... This program for creating a new Greek Drachma, bypassing theprivate banking sector, could start tomorrow. Its immediate effectwould be to get the unemployed back to work.
All existing eurotransactions can continue as before, quite separately from the newcurrency. The two currencies can perfectly well c-oexist and runalongside each other... Foreign banks will continue to deal ineuros and other currencies as usual. This solution was successfully used in Argentina when its currencycollapsed in 2001.
The government walked away from its debts andstarted issuing its own Argentine pesos. Three years after a recorddebt default on more than $100 billion, the country was well on the road to recovery . Exports increased, the currency was stable, investors returned,unemployment diminished and the economy grew by 8 percent for 2consecutive years. 2. Separate Bank Accounts: Fire Up the Printing Presses at theGreek Central Bank In a March 19 article on Seeking Alpha, George Kesarios observed that the Greek central bank has the power to issue more than justdrachmas.
The ECB is not an ordinary central bank: Rather, it is a confederation of central banks. Each Europeannational central bank can theoretically do the same types of marketoperations as the ECB and then some. The forefathers of the eurohave left many monetary windows open, which, if used correctly, cansolve the European debt crisis in a very short period withouttaxpayer funds. He cited article 14.4 of the Protocol on the Statute of theEuropean System of Central Banks, which provides: 14.4. National central banks may perform functions other than thosespecified in this Statute unless the Governing Council finds, by amajority of two thirds of the votes cast, that these interfere withthe objectives and tasks of the ESCB.
Such functions shall beperformed on the responsibility and liability of national centralbanks and shall not be regarded as being part of the functions ofthe ESCB. That means the National Center Banks can do whatever the ECB can --and even things it can't. The Greek central bank could step in andstart issuing euros itself. Again, there is precedent for this.
Itwas under Article 14.4 that the Irish Central Bank was able to print 70 billion euros as "emergency liquidity assistance," and theGreek central bank has already printed 44 billion euros itself. The Greek government could print euros, refinance its sovereigndebt, and pay the interest to itself, effectively eliminating theinterest burden. Among other precedents, there is Canada, which borrowed from its own central bank from 1939 to 1974 to fund majorinfrastructure projects and social programs. It pulled this offover a 25-year period without hyperinflating the currency, drivingup prices, or increasing the public debt, which remained low andsustainable.
There is the concern that the euro might suffer by devaluation ifother Eurozone members followed suit. But Kesarios points to the Japanese experience, "where one can print and print and thenprint some more, without the value of the currency being markeddown (due to positive trade flows)." The euro might be equallyresilient. 3. Divorce: Just Walk Away According to the New York Times , the 130 billion euro bailout that was supposed to buy time forGreece is now mainly just servicing the interest on the debt.
The"troika" -- the ECB, IMF and European Commission -- which holdsthree-fourths of the debt, is sequestering the bailout funds to bepaid right back to themselves in interest payments. This is merelygoing to compound the debt to disastrous levels, without a singlecent going to the Greeks or their comatose economy. Interest rates on Greek ten-year bonds have gone over 30 percent recently . Under the Rule of 72, at 30 percent compounded annually, debtdoubles in 2.4 years.
If the Greeks can't even pay the interest onthe debt today except by borrowing, how are they going to repaydouble the principal in a mere 2.4 years? At 30 percent, the Greekscould be paying over 100 percent of their GDP in interest charges. Legally , a contract that is impossible to perform is void. Alexis Tsipras, leader of the radical left-wing Greek party Syriza,which is now in second place in the Greek parliament, calls it an " odious debt ," a legal term for a national debt incurred by a regime forpurposes that do not serve the best interests of the nation. Anodious debt under international law need not be repaid. 4.
Spousal Support: The Public Bank Option If divorce is too much to contemplate, Greece's crippling interestburden can be relieved by taking advantage of the ECB's verygenerous 1 percent rate for bankers. Article 123 of the MaastrichtTreaty forbids member governments from borrowing directly from theECB, but it makes an exception in paragraph 2 for "publicly-owned credit institutions" --something Greece will have plenty of when it nationalizes itsbanks. They can line up at the ECB's window for itsbargain-basement 1 percent banking rate and use the borrowed fundsto buy up the national debt. Researcher Simon Thorpe wrote to the ECB and asked whether they would object if a publicly-owned creditinstitution were to borrow from the ECB and use the funds "tosupply the money to a government such as the Greek government inorder for that government to pay off its debts to financialmarkets." The ECB replied: According to the Treaty -- as you have just quoted -- such publiclyowned credit institutions "shall be given the same treatment bynational central banks and the ECB as private credit institutions."It is up to the banks to decide how to use the money they haveborrowed from the central bank system.
5. The Dowry: Impose a Financial Transaction Tax Thorpe notes that the ECB has issued and lent nearly one trillion euros to thebanks at 1 percent since December 2011 -- three times the totalGreek debt of 355 billion euros. If Greek public banks borrowedfrom the ECB at 1 percent and bought Greece's sovereign debt, thedebt could be paid off in 10 years just from the returns on a verymodest Financial Transaction Tax (FTT) of 0.3 percent. Imposing a tiny FTT on all financial trades would not only be alucrative source of revenue but would prevent the attacks ofspeculators, both on the newly-issued drachma and on the sovereigndebt of Greece and other Eurozone countries. The FTT has alreadybeen implemented in many countries.
In 2011, there were 40 countries that had FTT in operation , raising $38 billion ( 29bn). Where There Is a Will, There Is a Way The problem is finding the will, particularly among the Eurocratleaders holding the reins of power, who may not be looking for anamicable workout. The marital problems of Greece and the Eurozonestem from an arbitrary set of rules that were entered into and canbe changed by agreement. But as Mike Whitney maintained in a June 3 article titled "Europe Moves Closer to Banktatorship": These people are not interested in fixing the EZ economy.
They areengaged in a stealth campaign to... solidify the power of bigfinance over the individual states... To avoid that dire scenario, the popular majority needs to grab thereins of power. It is fitting that Greece, the birthplace ofEuropean culture and democracy, is the focus of the struggleagainst bondage to an elite banker class.
Greece can dance again ifshe can set herself free.
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