[Dave Birch] More about Greece and the euro on the radio as I sit at my laptop. Sounds like the situation is getting extremely serious.

If the euro zone were to completely unravel, the implications to our industry would be dramatic; 17 ‘new’ currencies would be required.

[From What If… No US World Currency and No Euro? — Counting On Currency]

I don’t think this is true, in the physical sense. Greece could pull out of the Euro and create a “hard e-drachma”. There is no need for physical currency. It’s badge of national vanity, just like an airline (and soon, an army) used to be. It would be no big deal to, over time, open e-drachma bank accounts, obtain e-drachma payment cards and so forth. Here’s what I mean. I am not an economist, so I have no idea who the problems with the euro could or should be resolved. But I think I understand enough to know that the current situation is very serious.

The reality now is that the kind of long-term solution that will be necessary to save the euro requires a euro of which Greece is not a member. The longer a Greek default and euro exit are delayed… the longer a proper solution to the euro crisis is delayed, and the greater the risk that the euro will collapse altogether.

[From Eject Greece if you want to save the euro from sinking, warns a leading economist | City A.M.]

This analysis suggests that Spain, Portugal and can be saved within the euro (by, essentially, transfer payments to boost their GPDs), but Greece just can’t. Writing in the Financial Times, Martin Wolf says about Greece that:

Greece has both a huge current account deficit and a depressed economy. A big real depreciation is required. It is far easier to achieve this via currency depreciation than cost deflation.
Yet the idea of exit is also vastly difficult to implement.

[From Why breaking up is so hard to do – FT.com]

Perhaps technology can come to the rescue. Many years ago, dear old John Major proposed an extremely sensible alternative to the euro, which at the time was labelled the hard ECU (and ignored).

British Chancellor John Major is proposing a new European currency which would circulate alongside existing national currencies… The Conservative Government is sceptical about full monetary union and regards this new proposal as a way of putting forward a genuine alternative… It is envisaged that the currency, which Mr Major calls the “hard Ecu”, would be used initially by businesses and tourists, and managed by a new European monetary fund.

[From BBC ON THIS DAY | 20 | 1990: Major proposes new Euro currency]

The idea of the hard ECU was to have an electronic currency that would never exist in physical form but still be legal tender (put to one side what that actually means) in all EU member states. Thus, businesses could keep accounts in hard ECUs and trade them cross-border with minimal transaction costs, tourists could have hard ECU payment cards that they could use through the Union and so on. But each state would continue with its own national currency — you would still be able to use Sterling notes and coins and Sterling-denominated cheques and cards — and the cost of replacing them would have been saved.

What about resurrecting that idea the other way round? Why couldn’t Greece have a hard e-drachma? Everyone in Greece could carry on using euro notes and coins, which would remain legal tender, but they could open e-drachma bank account and have e-drachma credit cards and so forth. The Greek government would naturally pay its domestic bill (e.g., public sector salaries and pensions) in e-drachma that it would “print” itself, the value of the e-drachma would slide against the euro and soon enough the situation would sort itself out. People would start spending money in Greece again. The drachma would never again exist as a physical thing, purely as an electronic currency.

The Greek government might be able to further improve its fiscal balances by demanding tax payments in e-drachma and perhaps even banning the use of anything but e-drachma in certain transactions. All transactions about the equivalent of 500 euros, maybe. Or all payments to doctors and lawyers. This ought to cut down on tax evasion. Not only would the electronic currency be more efficient than the physical one, it would be better for society.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


  1. I was a good idea. For the purposes the euro was advertised for a hard ECU and an equivalent SEPA project would have achieved everything. But then the current crisis is an intended product of EMU. A fiscal union was the ultimate intention.

    I thought about the Euro slowly unravelling due to varying country’s bank capitalisations and individual bank risk-management.


    But with the ECU having become a the hub of the whole EUR system, that seems unlikely now.

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