Europeans are stumbling towards the precipice, hoping nothing else unravels in the Euro economy before the Greeks return to the polls on June 17th. Guess what? Spain is unraveling fast. While we all wait on D-Day, Spain has hit crises in regional lending, bank solvency and sovereign debt. Yet a week ago the Germans proposed a way out – a new plan for the Euro and the Greeks. What happened to it? Not much, so it seems.
That alternative is the Geuro – widely reported yet soon forgotten. The Geuro plan is being proposed by Thomas Mayer, Chief Economist at Deutsche Bank, and involves creating a parallel currency in Greece. This parallel currency, or Geuro, would be a kind of promissory note that would guarantee its holders that the currency would convert to Euros. Though not an official German Government proposal, you can be sure that officials have looked closely at it.
The plan looks like a workable compromise between a Greek exit and continuation. It could allow the Europeans to put the Greek problem to one side while turning attention to what matters now – Spain and Portugal. It’s the only innovation on the table, yet even Mayer seems to suggest it will only be contemplated after the June 17th election.
The Geuro plan means Greece does not officially leave the Euro, which German newspaper Frankfurter Allgemeine Zeitungpoints out is technically not possible anyway. First up, the Greek Government would be able to start paying its officials and pensions in Geuros and businesses would be able to reset market prices, free of the Euro. The Geuro would fluctuate in value against the real Euro and would allow the Greeks to start lowering the price of goods in order to revive their economy.
What’s not clear is how this would affect their debt repayments which would still be denominated in Euros but, the argument goes, at least they would have a functioning economy with a currency that could devalue. The Mayer proposal is the only proposal so far that allows policy makers to take control of what’s happening in Greece, which they surely need to do. Waiting on June 17th is beginning to feel like tempting the inevitable – the bank run, the civil unrest, the sense of uncontrollable crisis.
Full article can be seen here: http://www.forbes.com/sites/haydnshaughnessy/2012/05/29/germans-hatch-a-new-plan-for-greeks-and-the-euro-give-it-a-shot/
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