Ifo’s Sinn calls for ‘or­derly Grexit’, elec­tronic cur­rency

Financial Mirror (Cyprus) - - FRONT PAGE -

Hans-Werner Sinn, Pres­i­dent of the Ifo In­sti­tute in Mu­nich has spo­ken out in favour of an or­derly Grexit.

“The fore­see­able in­sol­vency of Greece is deeply re­gret­table. Greece now needs to im­me­di­ately in­tro­duce a new elec­tronic cur­rency as le­gal ten­der and must stop all euro pay­ment or­ders to other coun­tries abroad and im­pose cap­i­tal con­trols”, Sinn said on Sun­day. “The new cur­rency would de­value against the euro, which would make the coun­try com­pet­i­tive again.”

In ad­di­tion, a debt con­fer­ence in­volv­ing all cred­i­tors to dis­cuss a hair­cut in the wake of the euro exit would be needed. This would par­tic­u­larly af­fect the euro states, the Euro­pean Cen­tral Bank (ECB) and the In­ter­na­tional Mon­e­tary Fund (IMF).

The Greek cen­tral bank should no longer elec­tron­i­cally pro­duce any new eu­ros or is­sue euro bank notes, noted Sinn. The euro bank notes that are still avail­able in Greece could re­main as par­al­lel cur­rency, although all wages, prices, rents and loans should be quoted in drachma, he added. Within a few weeks bank notes could be printed in the new cur­rency.

Ex­ten­sive em­pir­i­cal analy­ses by the Ifo In­sti­tute have shown that de­val­u­a­tions can jump-start an econ­omy in a fi­nan­cial cri­sis. They make im­ports more ex­pen­sive, mean­ing that the pop­u­la­tion buys more do­mes­tic prod­ucts.

Ex­ports, in the case of Greece pri­mar­ily tourism ser­vices, go up as they be­come cheaper; and flight cap­i­tal re­turns to the coun­try. It typ­i­cally takes one to two years for an econ­omy to re­turn to growth. Euro­peans would cer­tainly need to of­fer Greece gen­er­ous as­sis­tance in terms of crit­i­cal im­ports like, for ex­am­ple, medicine, Sinn con­cluded.

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