Posts Tagged ‘Olive Euro’

Eurozone crisis: Greece considering leaving the Euro and bringing back the drachma

May 6, 2011

The economic and fiscal variations within the Eurozone have become too large to be hidden away and perhaps it is time for the Euro to split. A two-tier Euro could be an interim solution but it makes no sense to force the currency to compensate for and match the wildly different shapes of the member economies.

Greece going back to the drachma or to an “olive” Euro may not be such a bad thing for the rest of the Eurozone though it will only probably lead the Greeks to delay taking the actions that will anyway be necessary. Fiscal profligacy cannot be sustained.

back from the euro to the drachma?

Der Spiegel:

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union — regardless which variant is ultimately decided upon for dealing with Greece’s massive troubles.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany’s behalf.

…… Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

“It would lead to a considerable devaluation of the domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 percent of gross domestic product after such a devaluation. “A debt restructuring would be inevitable,” his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy…..


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Time to bring in an “Olive Euro” or to bring back the Deutsche Mark?

December 30, 2010

50 Deutsche Mark banknote: image commons.wikimedia.org

As long as there is no economic and fiscal union in Europe, the Euro is going to be plagued by the inherent weaknesses of errant nations. The current economic weakness in Greece, Portugal, Spain and Italy and the political inability – or unwillingness – to deal with the simple financial housekeeping that any competent housewife would handle as a matter of course suggests that the fiscal union will never happen. Non-compliance with the stability rules by nations lead to few sanctions. This in turn leads to the question whether the Euro has any long term future in the absence of fiscal rectitude across all the participating nations.

100 Euro banknote from Germany

100 Euro banknote from Germany

The weakness of the Euro has in fact helped to boost exports from Germany and the relatively strong growth in Germany is mainly export driven. Nevertheless many Germans are beginning to worry about the value of their Euro when this value is being diluted by the “less responsible” nations. Germans are remembering that “German” Euro notes are easily identifiable (as are the notes printed in the different countries). There are calls for the German government to maintain the value of the “German” Euro when the Euro loses value! (German Euro banknotes can be identified by their serial number, which will always start with the letter “X”.) It is already noticeable that money changers in Asia are beginning to check the country of origin of the Euro banknotes they are dealing with. I can imagine their future reluctance to deal with notes having serial numbers beggining with “Y” (which would be a note from Greece). Some are calling for the Euro to be separated into a “Northern Euro” and an “Olive Euro”. It is only a short step to different values appearing unofficially for Euros from different countries.

Der Spiegel reports on the growing calls for the return of the Deutsche Mark:

Surveys show that many Germans are worried about the future of the euro, but the country’s political parties are not taking their fears seriously. The number of grassroots initiatives against the common currency is increasing, and political observers say a Tea Party-style anti-euro movement could do well.

Rolf Hochhuth is campaigning against the euro — and his stage is Germany’s Constitutional Court. “Why should we help rescue the Greeks from their sham bankruptcy?” he asks. “Ever since Odysseus, the world has known that the Greeks are the biggest rascals of all time. How is it even possible — unless it was premeditated — for this highly popular tourist destination to go bankrupt?”In the spring, he joined a group led by Berlin-based professor Markus Kerber that has filed a constitutional complaint against the billions in aid to Greece and the establishment of the European stabilization fund, which was set up in May 2010. Hochhuth wants the deutsche mark back. “I don’t know if this is possible. I only know that Germany lived very well with the mark.”

It’s an opinion that suddenly places this nearly 80-year-old man in a rather unusual position, at least for him: on the side of the majority of Germans.

(more…)


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