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View Full Version : Economics damage control; Geuro coming?


Ace Gunner
05-29-2012, 01:45 PM
Greece could build up a parallel currency - or 'Geuro' - that would enable the country to remain within the eurozone, said top Deutsche Bank economist Thomas Mayer.


There has been a growing chorus arguing for a so-called "Grexit", a Greek exit from the eurozone, with central bankers openly discussing the possibility.

Mayer, Deutsche Bank's chief economist, has come up with a plan that sounds like a simple solution to all of Greece's problems: The country should introduce a parallel currency to the euro.

This construction would enable Greece to have a cheaper currency and thus comply with the country's payment obligations. At the same time it would also remain within the eurozone.

The new currency could consist of bonds issued by the Greek government, which could be resold, Mayer explained.

At first, the Geuro would massively devalue compared to the euro, Mayer said. But the Greek government could strengthen the currency with fiscal discipline.

"I believe that such a parallel circular flow to the euro is the most probable development," Mayer told a news conference in Berlin on 21 May.

Mayer's scenario requires that the International Monetary Fund and other eurozone countries keep up their support for Greece.

"We believe that the debt service and the banking sector will further be supported other than the primary government expenses," Mayer said, according to Dow Jones Newswire.

The government would have to pay its bills to officials and retirees with bonds, which would then be used as a parallel currency, while the euro would remain the official one. As a consequence, Greece would have a soft and a hard currency.

This solution has been used before during the crisis in Argentina. EU finance ministers, however, might not be too enthusiastic about Mayer's proposal because it could incite other eurozone countries, also hit by the crisis, to take similar steps.

Mayer assumes that the EU, IMF and European Central Bank troika would not stop their cash injection, even if the next Greek government rejects the agreed memorandum.

A forced exit

Economist Michael Hüther, director of the Cologne Institute for Economic Research, holds a different view. He believes that should the Greek decide against austerity measures, the country could not count any longer on receiving financial aid from international lenders.

Hüther called the principle of no money without conditions "sacrosanct". If Greece refused the agreed reforms, it would not be acceptable to keep the country in the eurozone, the economist said on Monday in Berlin, according to EurActiv Germany. "The euro is going to survive without Greece," Hüther said.

A few days ago, reports in German media had exacerbated the sense of crisis in Greece, with reports that German Chancellor Angela Merkel urged Greek President Karolos Papoulias to hold a referendum on membership in the eurozone.

Although the German government quickly rejected the reports, they stoked anti-Merkel sentiments in Greece where, according to opinion polls, support for staying in the eurozone has lately been higher than ever - more than 80%.

Greece is preparing to for a parliamentary election on 17 June after an inconclusive 6 May vote. According to EU diplomats, European leaders are expected to discuss ways of keeping the country in the eurozone at today's informal summit in Brussels.


http://www.euractiv.com/euro-finance/german-economist-proposes-geuro-greece-news-512896