- Accept that some Eurozone countries cannot survive within the Euro.
Greece for example, as the most seriously troubled of these has only one major problem – the Euro itself. As long as its currency is tied to that of Germany in particular, the Greek economy is destined to a gradual unceasing decline. It has few major unique
industries and needs a lower exchange rate to have a hope of competing. German products are therefore relatively cheap in Greece – no wonder Merkel does not want Greece to leave – and Greece is no longer a cheap holiday option. Few major companies will ever
move production there while this situation exists. Therefore, Greece must leave and the question is how to achieve that without the widespread mayhem predicted.
- 2. Keep it secret in the run up to its departure.
Rampant speculation in the financial markets could derail any plan to break up parts of the Eurozone.
- 3. After markets close on the chosen Friday evening make the announcement that Greece, Portugal, Spain, possibly Italy and maybe one or two other vulnerable countries are leaving the Euro.
Why these other countries? Well mostly because they have heavy reliance on tourism and, with Greece’s currency plummeting, they would lose a significant part of this trade to the only ‘cheap’ holiday destination in Southern Europe. This would tip those economies
even closer to the edge. Even if they did not leave at the same time the market pressures on their sovereign and other debts would become intolerable. All these countries would likely benefit from strong inward investment giving their economies the chance
to recover – perhaps putting them in the position to pay off a higher proportion of their debts.
- 4. After the announcement close all financial markets in Greece for one week.
This would allow markets to analyse the situation and become stable (relatively) when re-opening.
- 5. Issue a New Drachma to be exchangeable for Euros one-for-one.
All bank accounts in Greece (certainly for Greek citizens) would be re-denominated in the new currency and all Euro bank notes within Greece would by law have to be surrendered to banks who would initially over-print them and subsequently exchange them for
new paper currency. Coins could be ignored for the time being. To enforce this, it would be illegal for anybody to take Euros out of the country except, perhaps, in very small quantities.
- 6. Announce to international lenders that all of their loans to Greece (Government and Private Sector) would be re-denominated in New Drachmas and Sovereign debt would additionally be discounted and re-scheduled.
This would cause much pain for lending institutions, particularly private sector banks, and Governments may well have to increase their support for these. Greece would now be open for business on a much more competitive basis and could have a strong
and growing economy, subject to the Government taking adequate measures to ensure proper domestic economic prudence. Inflation would be an issue, but given the state of the Greek economy, probably not a critical issue, and it would work its way out of the
system over time (as is happening in the UK).
- 7. Ensure that all remaining Eurozone members sign up to central CONTROL of fiscal policy, agree to central allocation of funds to poorer regions, remove remaining barriers to the free movement of companies and employees and, perhaps most
important of all, a single Eurozone ‘First Language’.
This last is an absolute pre-requisite to the free mobility of the workforce and therefore the ability of the region to absorb variations in economic performance across the Eurozone.
I said 7 Easy Steps. I should perhaps have said 6 Easy Steps and 1 Impossible Step. However, without Step 7, the Euro will ultimately fail, and that would be a great shame.
About the author:
Richard is co-founder and chairman of RetireEasy.co.uk, an online tool for retirement planning.