Exit Strategy, Warren Mosler Edition

November 28th, 2011
in Op Ed

by Dr. Dirk Ehnst

This proposal by Warren Mosler, via Randall Wray, is probably too short to be considered useful. Be your own judge, take your time to eat this:

1. The Greek government would announce that it will begin taxing exclusively in the new currency.

2. The Greek government would announce that it will make all payments in the new currency.

Follow up:

That’s all, folks!

There are some questions and answers following this proposal. I have not much to add (since I agree with Warren Mosler), but want to point out one thing. Going back to a Europe with national currencies will work, although it will also create a period of (financial) trouble. However, to fix the (real) problems it will be worth it. Also, not fixing the (real) problems might spell even bigger (financial) trouble.

Countries with financial troubles have often returned to growth by changing its currency and when they did often devalued their currency while they were at it. Often it was not deliberate but just came out of a financial panic, that helped to set into motion an adjustment mechanism: the more capital fled, the lower the exchange rate dropped and the cheaper domestic goods and services became, the less imports entered the market and the more exports found their way onto export markets. If demand has been your problem, then this will certainly fix it. Oh, and transfer your problem to somebody else. (Whether it is a zero-sum game I might not say at this point.)

Of course, keeping the euro might also be an option. However, the countries with problems of high unemployment would need a (real) lifeline in order to stabilize economics and social conditions. This is not forthcoming. Angela Merkel had congratulated the new Spanish president yesterday, but hopes of German money coming to the rescue of the Spanish real economy – and not Spanish banks in debt to German banks – will die quickly, I think.

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About the Author

Dr. Dirk Ehnts is a research assistant at the Carl-von-Ossietzky University of Oldenburg (Germany). His focus is on economic integration and economic geography, covering trade, macro and development. He is working at the chair for international economics since 2006 and has recently co-authored a book on Innovation and International Economic Relations (in German). Ehnts has written at his own blog since 2007: Econblog 101. Curriculum Vitae.

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