Since we walked right past the obvious solution of the ECB just floating Greece the cash let me offer another solution: Devaluation by Groupon.
The Greek government sells 100 Euro vouchers for 50 Euros. The Greek government would then accept these vouchers as payment for taxation or settlement of judicial claims at face value.
Presumably the ability to settle claims or pay taxes at 50 cents on the Euro would create a demand for these vouchers which would fly into circulation and immediately sweep out the Euro as currency.
The reason being that no matter what kind of contract you either had or attempted to write in Euro that contract could be settled in vouchers, so vouchers strictly dominate Euro as a means of payment.
Greek citizens would then be willing to sell goods and services at a step Euro discount to non-Greeks since they know they can just take the Euro to the government and receive a voucher.
This would cause more Euros to flow into Greece and then on up to the Greek government. This gives the Greek government the means to repay some its creditors.
Though the official currency is still the Euro you have effectively issued an alternate currency and forced a devaluation.
The major issue I see is how to handle private debts euro denominated debt between Greeks and non-Greeks. If such debts were enforced in Euro then the value effectively doubles for the Greeks who are now doing business in vouchers. If it settled in the vouchers then the value is cut in half for the non-Greek who has to take the voucher.
I am tempted to say the solution is to have external private debts paid in Euro but then have Greek citizens be able to claim a refundable tax credit for half the amount of any debt incurred before the introduction of the vouchers. This credit is of course paid in vouchers.
Off-the-cuff I think this whole scheme gets us the monetary benefits of a devaluation without screwing external creditors.
If Greece then later wants to move off the voucher it would first stop selling them. Then the government would have to run a budget surplus and just tear up the excess vouchers it collects.
This will cause the Voucher-Euro exchange rate to rise. Once it reaches parity, you petition the ECB to allow you to swap Vouchers for Euro.
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Friday ~ February 17th, 2012 at 6:35 am
cig
If the ratio is fixed don’t you end up effectively with a new currency pegged to the euro? Worst of both worlds?
Friday ~ February 17th, 2012 at 6:38 am
londenio
Alternatively, the government can screw Greeks who have debt with international creditors, by not giving any tax credit. This was done in Argentina in 2001. Some people/businesses suffered unfairly.
Friday ~ February 17th, 2012 at 10:58 am
IVV
Wait, how does Groupon work?
Friday ~ February 17th, 2012 at 6:06 pm
jkb
You could also do this deal by adding coupons and/or redemption dates to the vouchers. These could be distributed by the government in satisfaction of its obligations for salaries, vendor obligations and the like – but would be redeemable at par for payment of any legal obligation to the Greek government. Way back in the day the US used to do this with a peculiar obligation called a “flower bond ” – a bond that had a coupon and a redemption date but was redeemable at par to pay estate taxes.
In any event the idea (coupon or not ) would actually work because it eliminates the need to call in real euros and allows conversion to a floating rate to occur more gradually (and with more connection to real transactions and wealth} than would otherwise be the case. Germany won’t lend us the money – you can lend us the money! The value of the euro has been so stable, I wonder if something like this isn’t in the works.
Friday ~ February 17th, 2012 at 7:28 pm
Don Gibson
Is the Greek govt. going to pay folks in groupons? Otherwise, they have a cashflow problem. That is, the rapidly run out of the few Euros the currently have.
Why not just cut the pay of all govt. workers by 50%? That would be equally painful and much simpler. Same # of riots.