March 7, 2011
Talk of default / Drachma rebirth heats back up
Der Spiegel carries analysis that Greece is being painted into a corner where a return to the drachma may be the only way out, along with an estimated 30% default on public loan obligations:
"Greece's debts are rising rapidly despite radical austerity measures. Now a group of leading European economists has warned that creditors might have to write off more than 30 percent of their loans. Greece might even have to reintroduce the drachma to overcome its debt crisis, they argue.
The European Economic Advisory Group (EEAG), a group of leading European economists, has warned that Greece may need another bailout by 2013 at the latest.
Greece's current savings program won't suffice to cope with its debt problems, the EEAG said in a new report which was published Tuesday. Greece is unlikely to be in a position to refinance itself via the financial markets once the current rescue package runs out, the economists said.
The Greek government has so far stressed that it will "pay back every cent" and will start reducing its debts in 2014 at the latest.
The EEAG recommends drastic steps to prevent the EU from having to provide Greece with long-term aid: Greece should either return to its national currency, the drachma, or launch even tougher austerity measures, including general cuts in wages and salaries."
Since the beginning of the crisis, there has been a contingent of financial commentators outside of Greece who have supported the idea of a return to Drachma as the easiest way to ease Greece back from an impossible euro-based level of public spending. This "easy way out" though would have much longer repercussions on Greece, effectively locking the door on integration into the much more lucrative eurozone market, versus a drachma-based market that would fuel tourism (among other things) but make it tough on the Greek consumer to buy imported goods: i.e., the result could be a return to an economic picture something like the 1970s.