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

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.