Below is my proposal for Greece to return to economic stability.
Greece’s public debt is in euros. It is estimated at 360
billion euros. In US Dollar terms that’s currently $500 billion. If
Greece exits the Eurozone it will bring the entire currency union to the
brink of collapse.
Let’s say Greece exits the Eurozone and adopts the US Dollar as its de facto currency
for a five-year transition period. The value of the euro will collapse
vis-a-vis the US Dollar from the current US$1.35/€ to a possible
US$0.70/€ assuming a roughly 50% decline in the euro’s value. Such a
euro collapse is entirely possible if Greece abruptly exits the Eurozone
and is followed by talk of other Eurozone countries following suit.
Due to the devalued euro the Greek debt will then calculate to $250
billion in US dollar terms, or a 50% debt reduction in dollar terms.
Remember, at its introduction in 1999, the euro was traded at US$1.18/€
but by October 26, 2000 it had fallen to an all-time low of
US$0.8228/€. Also, this is not like the ‘haircut’ proposed last month
which would result in a €100 billion debt reduction, at most, with the
added risk of a credit event.
The US Federal Reserve can help Greece meet its financing
needs during the five year transition period by lending to the Bank of
Greece at favorably low interest rates. The US Federal Reserve is a
privately-held institution and it has lent funds to central banks in the past via swap arrangements:
The Bank of Greece will authorize an initial money supply
in New Drachmas in order to exchange or swap for US dollars with the
Federal Reserve. The New Greek Drachma will be pegged to the US Dollar
at an initial exchange rate of 30 GRD/1 USD. The New GRD will not
circulate during the five-year transition period to prevent currency
fluctuation. The GRD money supply during the five-year transition
period will be used strictly for swaps with the Federal Reserve. For
five years Greece’s debt obligations and any budget deficits will be
covered by the Federal Reserve funds swapped for the New GRD. After the
five-year transition period Greece will introduce the New GRD as its
official currency.
This plan will boost American investment in Greece,
including investment from Greek-Americans who will proudly participate.
A trade treaty between Greece and the US can be signed eliminating all
import tariffs between the two countries. American tourism to Greece
will be boosted as the currency in both countries will be the same for
the next five years. Drilling for gas and oil in Greece’s Exclusive
Economic Zone can be contracted to US companies. Greece will buy
military hardware solely from the US as part of the new arrangement.
Bank deposits will return to Greek banks as threats of a default will
be diminished.
Greece’s debt interest costs will be reduced considerably.
Sound fiscal management should result in a primary budget surplus.
Greece can continue the liquidity swaps with the Federal Reserve until
it can issue sovereign bonds in the open market at interest rates
favorable to Greece.
This will install confidence in the new Greek economy and we will immediately see the light at the end of the tunnel.
Georgios Gialtouridis
Boston, MA
olympia.gr
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