'It's in Greece's Interest to Reintroduce the Drachma'

[xchrom]

http://www.spiegel.de/international/europe/0,1518,796251,00.html

Economist Hans-Werner Sinn is the president of the Institute for Economic Research (ifo), a leading German think tank in Munich. He spoke to SPIEGEL about the euro crisis, the growing uselessness of a bailout and a possible way back to the drachma for Greece.

SPIEGEL: Mr. Sinn, the Greeks have decided not to hold their referendum. They want to keep the euro and allow themselves to be rescued by Europe. Can we all breathe a sigh of relief?

Sinn: What politicians refer to as a "rescue" will not actually save Greece. The Greeks won't ever return to health under the euro. The country just isn't competitive. Wages and prices are far too high, and the bailout plan will only freeze this situation in place. So it's in Greece's interest to leave the euro and reintroduce the drachma.

SPIEGEL: How would that work?

Sinn: It must happen quickly. Greek banks will have to close for one week. All accounts, all balances and all government debt would have to be converted into drachmas. Then the drachma would depreciate.

SPIEGEL: In that case, Greek citizens would try to empty all their bank accounts as quickly as possible. There would be chaos.

Sinn: One would have to manage. Granted, there will be a localized storm; but, afterward, the sun will shine. Wealthy Greeks transferred their assets to safe havens abroad long ago. The money will come back to Greece only once Grreece has re-established its competitiveness.

[On the Road]

1. The Big Question is: If Greece Goes Back to a Separate Currency,

whether their debt will continue to be denominated in euros. If Greece changes to a significantly devalued drachma, their debt could effectively double. Deleveraging would be an even greater challenge than they have now.

[girl gone mad]

3. They would default on those debts.

[On the Road]

4. Yes, That's Probably Right

If they decide to do that, though, they would have to move forward without the ability to borrow. And the secondary effects of a default could really cripple this weak recovery.

[BR_Parkway]

2. If wages and prices are too high, how'd the wealthy accumulate assets

to transfer to safe havens abroad?

[nxylas]

6. That bit jumped out at me too

Translation from the original Austrian*: The Free Market Fairy is punishing Greece for wasting its money on actually paying workers instead of letting the 1% gamble it away.

*=as in Austrian economics, I'm not trying to tar the entire population of Austria with the same brush.

[marmar]

5. kr

nt