Should Greece Abandon Euro and Return to Drachma?

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Should Greece Abandon Euro and Return to Drachma?

Antonis H. Diamataris and Constantinos E. Scaros

From time to time an issue emerges and inspires various minds to converge, often at odds with one another, to discuss it. Hopefully, collective enlightenment will result from such conversations. The Ancient Greeks did that in the Agora, the original marketplace of ideas, and we, their modern-day descendants, aspire to continue that tradition. We

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May 17, 2012

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30 readers comments


1. Philip Vorgias wrote on May 17, 2012 11:53 PM	So, the essense of Constantine's argument is that Greeks lack the discipline to live a first world lifestyle, so they need to take a 50-70% reduction in their net worth and go back in live in the 'stress free' lifestyle of their grandparents. Greeks should aspire to be like Albania and not like Germany with respect to lifestyle, that way they won't have to deal with all the challenges of a modern society. Sorry Constantinos, I'm not impressed with that line of argument. When did any nation achieve significance or security in the world by settling for a lower living standard? Finally, one argument which NEITHER of you has even touched on-how is Greece, bankrupt and walking away from it's loan obligations, going to fund a new Drachma? Fiat national currencies are provided backing by selling national treasury bonds. Absolutely NOBODY is buying Greek treasury bonds right now and won't in the near future. So how is Greece going to provide backing for a Drachma? Greece only has 10 Billion Dollars worth of Gold Bullion, so you can't go that route. The sad fact of the matter is Greece has NOTHING to provide backing for a Drachma-only the nations promise to exchange Drachma's for some tangible asset. And since Greece under Tsipras will have refused to honor it's promise to the TROIKA to stick to the bailout terms the Greek Treasury's word of honor won't be worth a cup of Greek coffee! The ugly truth is Greece has NO WAY to back a new Drachma-none!

2. Philip Vorgias wrote on May 18, 2012 12:03 AM	I have to say I'm very dissapointed that an intelligent man like Constantinos Scaros could even begin to see an upside to Greece leaving the EUROZONE. If even an educated man like him feels there is realistic 'life' after the EURO, what can you expect from the average 'Nikos' in the streets in Athens? They'll fall for Tsipras snake oil in the millions. I guess Greece and Greeks have fallen inside the Event Horizon for the fiscal Black Hole-there is no longer any way they can turn the ship around, it will fall faster and faster into oblivion. Constantinos, if you have any assets in Greece I'd get rid of them while they still command some value. Argument doesn't always reflect grim reality. Yeah.

3. Nicholas Kostopoulos wrote on May 18, 2012 9:12 AM	There is one thing that everyone for the Euro has not touched on. The Greek Citizens of Greece are fend up with the ECC's dealings with Greece. They see it as a "us against them mentality". In this environment the ECC will be abandoned by Greece by the edit of the Greek citizens. I see nothing in the news to forestall any hope of remaining with the Euro. I agree that the new currency whatever it is will be devalued, but it is what the people want. They don't trust either ND or PASOK telling that is good to stay in the ECC and the Euro anymore, and probably for years to come. While there'll not realize what is to come, they have had it with the present and past few years. Who knows what will be the result of all this; a new beginning, or a sink into the abyss.

4. Philip Vorgias wrote on May 18, 2012 1:34 PM	I can assure you with high confidence that a Greece post-EURO will be very much poorer than Greece is today, Nicholas. Let there be no ambiguity on that point. If the Greeks elect Tsipras in a pique of anger, on their heads be it. But let them know EXACTLY what the end result will be, because they shouldn't claim afterwards they didn't know what would happen. They're not going to be let off that easily.

5. LOUIS TSAKIRIS wrote on May 18, 2012 6:35 PM	They are squandering the future of their children and grandchildren who will have nothing left but to leave!

6. Philip Vorgias wrote on May 19, 2012 12:04 PM	There will be a mass exodus out of Greece, just as we saw in Albania a decade ago. Greeks will be going anywhere they can acquire employment. Since the Greek tax base will shrink accordingly, Greek government services will ceaset exist-or become trivial compared to other european nations. There will be a reduction in law enforcement as the ability to fund it dissapears, crime will become rampant. Greece will probably drop out of NATO, since they won't have the money to pay for military support. Turkey will probably be emboldened and make inroads in the Aegean and Cyprus. And since Tsipras will have alienated most of the powerful EU states, nobody will defend Greek interests. Assuming Greece isn't thrown out of the EU as well as the Eurozone. In a nutshell, we will see 1922 all over again-Greece redux.

7. Philip Vorgias wrote on May 21, 2012 3:43 PM	Am still waiting for Armodios to weigh in and tell us how repudiating the agreement and going through actual bankruptcy will be beneficial for Greece. I think he's hiding out, hopeing for an ND win in the election. That way he won't have to defend the disaster which will be Greece post-EURO. We know you're out there somewhere, Armodios!!!

8. Nicholas Kostopoulos wrote on May 22, 2012 10:04 AM	The mass exodus you discuss Phillip is happening already, and Greece is still in the Euro. The cost cutting methods that have been done, and may be done, will finish Greece off as its economy will totally disintegrate. Either way they will leave the Euro. The stupidity of this cost cutting plan was no growth with cuts. Whoever thought this extraordinary plan is a knucklehead. Cuts with no growth always collapses a economy with job losses, decreased tax revenues, loss of services, etc. Hopefully Greece will stay in, but it can only be done with a equal mixture of cuts and growth, to decrease some of the pain that will happen with the cuts.

9. Niko Seretis wrote on May 22, 2012 11:24 AM	If I were Samaras and Venizelos right now, I would plan for a coalition between them regardless of the upcoming election results ahead. That is, if they want to see Greece go forward. Tsipras will be worse than Andreas was in 1980. This will be the nail in the coffin for Greece. Our neighbors will waltz right in and start grabbing as much land as they can from Greece. They're all waiting for a weak Greece.

10. Philip Vorgias wrote on May 22, 2012 1:14 PM	I don't disagree that stimulus of the private sector might have lessened the austerity pain, Nicholas. But even so, leaving the EURO will create far, far worse problems than currently exist in Greece. Those who argue otherwise are badly misinformed.

11. Philip Vorgias wrote on May 22, 2012 1:19 PM	It will likely take three parties minimum to form a working coalition, Niko. And it'll take political leaders with some balls-Samaras hasn't demonstrated yet that he has any.

12. ARMODIOS PAPAGIANAKIS wrote on May 22, 2012 1:41 PM	LOLLLLLLL!!!!! “Hello, hello, come out, wherever you are!” Philip, I’m truly flattered! I expect my letter to the editor to be published this coming weekend, so you, Mr. Diamatari and other readers will have plenty of opportunities for retorts, but here’s a teaser. I advocate a post-default, albeit far from perfect, wealth producing free-market capitalism for a sovereign Greece, with a sovereign currency, to finally expose, and excise, the decades-long, and failed socialist policies of the incestuous cronies (including ND)in both Athens and Brussels. However, as I’ve written before, capitalism is not just about wealth and prosperity, it’s also about failure — recognizing it, liquidating it and properly pricing it. Indeed, bankruptcy EXPOSES the failure and folly of inept policies, incompetence, greed and corruption of both governments and private entities. Bankruptcy is the ultimate economic arbiter which punishes the inept and rewards the vigilant. In fact, bankruptcy is the linchpin of capitalism, and left to its own devices, would actually make Greece more competitive because it would attract successful entrepreneurs, who unlike the privileged creditors of Greece, deserve to be rewarded for their fiscal vigilance by buying Greek assets at a discount ultimately expanding their respective business and help GROW the economy.

13. Philip Vorgias wrote on May 22, 2012 1:50 PM	As I've maintained the bailout-while far from perfect-gave Greeks time to introduce reforms. Apparently that effort has been too much for them, they're throwing in the towel on a desperate gamble that 100% of their debts will be forgiven-instead of the 70% forgiven by the Bailout Deal. I fell sorry for my mother nation, but that's not going to be allowed. If Greece defaults on their obligations, they'll be booted out of the Eurozone and possibly the EU. And when that happens we'll get a chance to see your no-frills capitalism in action! But it's going to be hard to defend 30% unemployment and a 40-50% drop in net worth for every Greek as an improvement over the 'good ole days' of Austerity! Cordially, as always.

14. Nicholas Kostopoulos wrote on May 22, 2012 2:30 PM	Its funny Philip but a economist I know said before the last elections were even thought off, that the Greeks would try to get the world to forgive their foreign debt. They still believe that at the 11th hour all of their debt will be forgiven, unfortunately due to other nation's problems with debt (Spain, Italy, and Portugal) this can't realistically be done. The way out of this mess I see as impossible to accomplish, because to accomplish this austerity budget would destroy forever Greece's economy. They don't have the power or business sense like the rest of the world. They have never paid their fair share in taxes, worked hard, and don't know how to have a business type of nation. Who I pity is the lonely Greek citizen, who now is starving, becoming more homeless, and made fun of in the world now.

15. Philip Vorgias wrote on May 22, 2012 5:39 PM	I don't agree that recovery is 'impossible to accomplish', Nicholas. Other nations have done it with far more ground to make up than Greece does. Greece is in a recession, but look at Japan after WW2 with it's industry totally destroyed. Same for Germany. Greece can and must reform it's economy. But I agree with you that many Greeks think their nation is 'special' and they deserve to be treated better than others. They just had 70% of their debt erased. Most people would be damn glad to get that reprieve, but Greeks aren't satisfied. They want a clean sweep, so they can go right back to 'business as usual'. If Greece is not reformed and ALL their debt would be forgiven tomorrow, they'd be right back to a similar situation in a couple of decades. Not a doubt in my mind about that.

16. ARMODIOS PAPAGIANAKIS wrote on May 23, 2012 1:34 AM	Exactly my point gentlemen; Both Germany and Japan were wiped out, yet still managed to recover and prosper. Greece needs the same. A painful, bankruptcy induced, economic depression would scar Greeks and Greece’s creditors for generations, much like the Weimar hyperinflation did for Germans, and would finally help excise the grossly incompetent and corrupt Greek political and economic status quo that we all rail against. It’s no surprise that most Greeks essentially voted for continued leftist welfare in the recent election. Finally, The 70% debt “forgiveness” combined with austerity actually INCREASED Greece’s debt to GDP ratio from an impossible 120% to an un-godly 160%. Repeat after me gents…“Greece is insolvent”.

17. Philip Vorgias wrote on May 23, 2012 6:03 AM	We'll likely get the chance to see your last-best outcome realized, Armodios. Tsipras will assure bankruptcy is achieved. My only solace is I'll get to see his arrogance shattered as the EU says 'NO' to his proposals.

18. Basil Zafiriou wrote on May 23, 2012 10:08 AM	So if I can follow your reasoning Armodios, we should nuke Greece to really see it come back strong. Read Frédéric Bastiat’s “broken window” parable. As a free-market disciple, you’ll appreciate it.

19. ARMODIOS PAPAGIANAKIS wrote on May 23, 2012 10:31 AM	In light of Tsipra’s “the people against capitalism” philosophy, I will not see my “least-best” outcome. I doubt he will invite or incentivize entrepreneurs or potential investors to risk their proprietaty capital to invest in Greece with the potential to profit. He will more than likely attempt to nationalize industries and put more closet communist bureaucrats in control of the Greek economy instead of openly socialist ones. He won’t have the debt, but neither will he achieve economic recovery.

20. ARMODIOS PAPAGIANAKIS wrote on May 23, 2012 10:41 AM	Basil - Bankruptcy doesn’t break the windows or destroy existing assets, it re-prices them – lower. Try reading Bastiat again.

21. Dean Argiris wrote on May 23, 2012 2:29 PM	Greece leaving the Euro would be disastrous. Expect hyperinflation and no economic boost. Interest on already existing loans will rise, further burdening the Greek people. Greece really needs to reinvent itself. Austerity does have some devastating effects, it has forced a hard pressed people to take further financial hits. Of the biggest 15 countries within the EU, Greece ranks 14th in terms of monthly wages. They don't have much money to begin with. 66% of Greek revenue is from payroll taxes and with 22% unemployment, there definitely is a revenue problem facing Greece. Now, the one upside to austerity is that the Memorandum of Understanding issued on February 9th 2012, compels the Greek government to begin consolidating and streamlining some of their agencies. Greece has an overly complicated government, with 6 ministries overseeing nearly 200 health insurers, slow moving courts, and an intricate web of power sharing between the three branches of government. The complications of the Greek governmental system, in conjunction with an unpredictability in regulations, has deterred foreign business investments within Greece. Austerity measures are addressing this. The failure in austerity was that both the EU and IMF did not tailor the austerity package to suit Greece. It was a cookie cutter package. Mr. Diamataris talks about the increased division within Greek society and this is precisely what it crippling Greece. The factionalism which has plagued our motherland for a hundred years continues to drive down any chance of economic progress. This is the crux of the issue.

22. Constantinos E. Scaros wrote on May 23, 2012 4:49 PM	It's great to see a vigorous debate with support on both sides of the issue. Question: why would Greece fall apart NOW, mass exodus and all, if it were to return to the drachma. Why wasn't there such impending doom in Greece in 1999, when it last used the drachma?

23. Basil Zafiriou wrote on May 23, 2012 6:32 PM	It’s the transition back under current circumstances, Dean, that creates the problem. It took years of preparation to switch from drachmas to euros. Also, the public then obviously accepted that they were transitioning into a strong currency and would not suffer losses. The opposite is the case today. At the first signs of a return to the drachma, therefore, there would be a mass bank run resulting in the collapse of the Greek banking sector. The new drachma would depreciate massively (estimates range from 50% to 70%), so that debts of Greek companies denominated in other currencies would soar, bankrupting much of the Greek business sector. Inflation would skyrocket; investments would tank (given the uncertainty, the chaos and lack of bank credit); necessities that are imported, from medicines to gasoline, would have to be rationed, since the country would lack the foreign currency to buy them (and, under the circumstances, who would sell to Greece on credit?). Greece can return to the drachma, if that is what the Greeks want, but first it would have to strengthen its economy, gain the trust of markets and its own people, plan the return carefully and give itself , the Greek banks and Greek businesses enough time to prepare. Under current conditions, the transition would, in Zorba’s words, amount to a “full catastrophe”.

24. Basil Zafiriou wrote on May 23, 2012 6:42 PM	Armodios, a)Countries aren’t business corporations, where ownership can be passed from one set of shareholders to another. B) Even normal business bankruptcies are governed by legal provisions that encourage negotiation and an orderly restructuring of debt to preserve value, as under Chapter 11 for example. It rarely pays to unilaterally repudiate your debts and walk away: assets inevitably lose value in such circumstances. C) If, after all the analyses to date, including several currently posted on this paper’s website, you still cannot appreciate that a disorderly Greek default entails horrendous losses, I’ll never be able to convince you. D) My post was in direct response to what you wrote. Here are your words (my emphasis): “BOTH GERMANY AND JAPAN WERE WIPED OUT, yet still managed to recover and prosper. GREECE NEEDS THE SAME.”

25. ARMODIOS PAPAGIANAKIS wrote on May 24, 2012 1:28 AM	LOL Basil!!! I guess you’re too busy reading Bastiat and watching re-runs of Zorba to actually read my posts. Try reading the sentence immediately following “Greece needs the same”. Of course there will “horrendous losses”, for some…followed by tremendous gains, for others, and eventually the economy will recover.

26. Nicholas Kostopoulos wrote on May 24, 2012 9:43 AM	The appearance of the Euro'd countries show that getting the Euro has been a big mistake for the ECC poorer countries. Great Britain was smart to avoid the Euro since day one. The euro was designed for rich nations at the time like France, Italy, and especially Germany. Germany has been its biggest and loudest advocate. The euro has really only helped Germany alone become the powerhouse in the ECC.

27. Niko Seretis wrote on May 24, 2012 11:10 AM	The Euro would've worked fine in Greece had monitors be put in place for the transition from the Drachma to the Euro. Their was immediate inflation in Greece when they switched over. Prices were rounded off in Euro's for different products but they ended up costing the consumers 3 times as much to purchase. This was happening overnight and know one in the government bothered to address it. This was the biggest complaint I heard from everyone I talked to.

28. Philip Vorgias wrote on May 24, 2012 11:56 AM	Prices eventually normalized after the intitial start-up problems, Niko. The EURO has been a major boon for Greece, it has raised aggregate GDP tremendously. The only folks whov'e suffered under the EURO are those who are uncompetitive in the new economy-and were protected under the old economy by work rules, labor laws and protective legislation. Sure, those folks have had a tough time. But they're not all of Greece. For every story of failure there have been 2-3 of success. I can't imagine any Greek wanting to trade their own personal aggregate GDP of today for what they had in 1999-except maybe the folks who were 'protected' under the old regimes. As for why was it easy to transition from the Drachma to the EURO in 1999 and why would it not be equally easy to transition back today? Going to the EURO in 1999 was embracing a strong currency. Going back to a new Drachma now-with Greece in receivership essentially-would be an unmitigated disaster. How would Greece back the new Drachma? They have no tangible assets like Gold Bullion that anybody would want. And since nobody in their right minds is buying Greek treasury bonds right now the new currency could not be backed by monetized-debt (how most modern currencies are backed). The door to going back to the Drachma no longer opens, Constantinos. I can't believe you really believe that's a viable option. At any rate I can't believe YOU would accept your paycheck denominated in new Drachmas! Drop the charade of point/counterpoint wiht Mr. Diamataris and come down on the side of reality!

29. Constantinos E. Scaros wrote on May 24, 2012 9:45 PM	The other comment I have for the group is: I have a hunch that the "Mitt Romneys" of Greece are the ones who have the most to lose by a return to the drachma, and so maybe they dupe the masses into thinking that it's bad for them, too. Don't get me wrong - I'm no socialist. But I understand that here in the U.S., those receiving corporate welfare and other subsidies have hoodwinked the working class into resenting welfare for the poor, while welfare for the rich slides under the radar. The populist in me says: "If the bankers don't like it, it must be GOOD."

30. Philip Vorgias wrote on May 25, 2012 12:30 AM	There is no upside to going back to a Drachma, Constantinos. You're deluding yourself to suggest otherwise. Sometimes the interests of the wealthy and the middle class coincide.
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