If Greece’s next set of elections produces a government opposed to its bailout, this could lead to a parallel currency to the euro emerging in the country, rather than a formal exit of the euro zone and return to the drachma, economists at Deutsche Bank said Monday.
In a note, Deutsche Bank said Greece was unlikely to leave the euro as this would result in “widespread default and a collapse of the banking sector, which could lead to economic, social and political catastrophes.”
Instead, the bank’s economist Thomas Mayer in Frankfurt thinks a more likely scenario would be a partial stop in financial assistance, with continuing support for debt-servicing needs and the Greek banking sector but no further support for the financing of the government’s primary expenses.
“In this case, (the) difficulties of the Greek government in paying its bills could induce it to issue IoUs that would form the nucleus of a national parallel currency,” the world’s biggest currencies-dealing bank said, dubbing this parallel currency the “Geuro”.
This would allow Greece to devalue its exchange rate without formally exiting the currency union. (Foxbusiness)
Greek Euro: “Geuro” – Something Like a “Sip of Euro”?
Although the Greek crisis has challenged Greece’s lenders to their tolerance limits, it is still an inexhaustible source of inspiration for bankers. After the term “Grexit” a mainstream abbreviation to …economically describe “Greece Euro Exit”, a new language monster appeared on Monday. Thomas Mayer, economist at the German Deutsche Bank, popped up a new word to describe a parallel Greek currency, the “Geuro“!
According to Mayer, the Geuro could be introduced as a Greek currency, should June-17 elections produce an anti-bailout government. Instead of the country to formally exit the euro zone, Greece would introduce its own currency for national transactions and use the euro for external repayment of its debts. The Geuro could be devalued.
I am not in a position to know whether Mayer’s inspiration comes from the famous G-point. But a association combining the English pronunciation of the Geuro [dzuro] with the Greek word ‘dzura’ (sip) makes me think that the Greek euro will be just a sip of the EU euro.
How about they just call it the ‘Gyro’?
“Gyro” would certainly be THE runner, especially with tzatziki and potatoes.
This would make sense for the people (even though not much for a modern economy). A “currency” that is consumable can never totally lose its value. Remember the cigarette trading on the black markets after the war! Consequently, many Greeks already engage in barter trade. For the state’s finances, this isn’t helpful at all, though. How to tax Gyros trade, and use the revenue for paying for expenses? Ok, the public “servants”, especially the tax collectors, would become fat, but still…
sure. I remember in Germany after the war women were trading stockings and chocolate. There are always alternatives.
This “free trade” in the Western zones sure was preferrable to the, hmm, “enforced exchange” system of the Russians in the East. It’s good to have a choice…
BTW, Mayer is no longer Chief Economist of Deutsche.
His idea of the Greek government issuing IOUs in Euro is not new. I have written about this several times myself.
To start with, the government could issue post-dated Euro checks for all of its domestic obligations. That, too, is nothing new. Half of the Greek small/middle-market works with post-dated checks forever. If this were to work, a secondary market would develop for such papers similar to a “domestic Euro”.
And before anyone thinks I am so smart for having thought of this, my role model was California. When they ran out of money (mind you: the 8th largest economy in its own right!), there was no press conference by the President, the Secretary of Finance and the Fed Chairman to announce in a somber voice that they would do everything to save the USD and, for that matter, the American Union. Had they done that, and had they repeated that all the time, markets might have started to believe it…
Well, ok, Klaus, but the problem of such a “post-dated check” system is that it totally depends on the confidence of the receivers in at least belatedly receiving their money. Of course, this works in California, a US state that is an economic powerhorse, and dwarves most other nations of the world, including Greece, in GDP. After all, the golden state has never defaulted, always paid its IOU’s, and actually isn’t deeply in debt (that is legally prohibited, which is part of the political problem). Sacramento only has a cash flow problem, because of the political deadlock preventing a reasonable tax policy.
Athens, on the other hand, not only has a cash flow problem, but also a huge debt problem, already has shown that it can’t and won’t pay its obligations in full (haircut) and the public trust in future governments fulfilling financial promises of former ones is ecactly zero. I don’t think that under such conditions Greek “post dated checks” can ever become an alternate currency. Most people would treat those as worthless papers and refuse to deliver any goods and services for nothing.
So, sorry, but to me this whole idea of inventing a second currency to overcome a shortage of the real one is just wishful thinking. Let’s remember what a currency is: A means for making it easier to exchange goods and services that is trusted by the people to have at least temporary value. Greek “post dated checks” don’t have any value at a time when everybody is talking about a Greek default. And the same is true for the Geuro or other second class money, no matter how it is called. You have to ensure that those banknotes are backed by something of real value, like the German Rentenmark in 1924, which was based on national real estate property! But to simply print “Monopoly” money, or rubberstamp checks, ain’t no way out of a financial squeeze, or else everybody would do that.
he is not? he has been referred as such everywhere. whatever… and thanks.
That raises an interesting point about the strange and wonderful english language as spoken by native speakers rather than international speakers
as G can be hard or soft ( and before you ask there are no rules about that…!) my instinctive pronunciation was a HARD G
I read “Greuro” as “Grrrr-euro” which might be more accurate
also Mono-Euro could be right. from Monopoly…
Uhmm .. how about pseuro?
All kidding aside, is there any reliable source which would reveal how the Troika’s programme is/has been progressing?
PS-Euro : nice name as well. It associates with PS-I lol
the only ‘reliable’ source is the Troika, I would say.
It is interesting that Deutsche Bank should come up with this GEuro idea. It is an acknowledgement that a purely internal currency would allow Greece to properly finance much of its internal economy without the need for further large scale borrowing of Euros. However gaving confirmed that such an internal currency would be helpful rather than harmful to the Euro the, Deutsche Bank then go on to proscribe that:
The value of the GEuro should be based on a promise of redemption in Euros in the Future.
The remaining Euros are dedicated to debt repayment.
Europe (Germany?) should take control of Greece’s banks.
The idea of an internal currency is good but these additional proscriptions represent the dead hand of banking. If Greece is to stop borrowing for its own needs then it has no reason to be bound by such proscriptions. It need only concern itself that it issues the internal currency in a way that plays fair with the Euro.
It is inevitable that the advice of a bank will be to issue a currency based on debt, even when it is a debt that most probably can never be paid and will spend most of its life valued at a fraction of its nominal value. This is an absurd and unnecessarily troublesome basis for a currency. It can simply be issued debt free by the government as receipts for service to the nation. This gives a moral basis for its circulation, it is fair to respect service to the nation by accepting the currency in trade. Instead of being a monetisation of debt it is a monetisation of work performed in service of the nation. The value of the currency will be the goods and services of the nation that are a fair reward for the service to the nation that it was issued in payment for.
There is no reason for the Greeks to stop gaining, holding and spending Euros, indeed they will need to. The internal currency will allow both government and people to reserve their Euros for foreign obligations and purchases. Less Euros will be needed as the internal currency displaces them in the internal currency but Greece and its people should seek to retain enough use of Euros to meet their foreign obligations and purchasing needs. It should do this to avoid any need to convert the internal currency into Euros or use it for foreign purchases. With its Euro debt reduced by the size of its internal economy, this should be possible. There is no need to subject the virgin untested currency for unfavourable evaluation in foreign markets and this should be avoided until there is a reason to do so such as: there no more Euros left or the Euro looses its value. As the internal partner in a dual currency system, there is no reason for the internal currency to have any contact with external markets – it should be regarded as having zero international value.
I don’t know what should happen to Greek banks. I think that first they should be investigated by a new Greek government along with a debt audit which most likely will result in repudiations and prosecutions. If a debt has become unrepayable then you have to investigate which part of that debt was done wrong and repudiate it so that you can remain honourable to the most genuine obligations.