Ifo’s Sinn says “bring back the Drachma”

Financial Mirror (Cyprus) - - FRONT PAGE -

It is time for Greece to make a dar­ing leap and adopt its own cur­rency, said Ifo Pres­i­dent Hans-Werner Sinn, adding that the drachma should be in­tro­duced im­me­di­ately as a vir­tual cur­rency.

“All of the coun­try’s con­tracts, in­clud­ing its debt con­tracts with for­eign­ers, should be con­verted into drachma. This would make the Greek gov­ern­ment and the Greek banks sol­vent once again,” Sinn said in Mu­nich.

“At the same time, the Com­mu­nity of States should also re­frain from try­ing to col­lect up all of those euro ban­knotes cur­rently in the hands of Greek cit­i­zens, but should al­low them to be used for cash trans­ac­tions in­stead, although prices would be stated in drachma,” added Sinn.

“Ac­cord­ing to an of­fi­cial as­sess­ment by the EFSF bailout fund, the Greek gov­ern­ment is in­sol­vent, and since it is in­sol­vent, so are the banks closely con­nected to it”, ex­plained Sinn. In this sit­u­a­tion the ECB should no longer al­low the Greek cen­tral bank to grant com­mer­cial banks fur­ther emer­gency loans.

“This will nat­u­rally bring the econ­omy to a stand­still un­less a new fis­cal bail-out pack­age is of­fered or Greece re­turns to the drachma. Since it is fore­see­able that ne­go­ti­a­tions over another bail-out pack­age will only waste more time, with­out a suc­cess­ful out­come, Greece should in­tro­duce a new cur­rency,” ar­gued Sinn.

Since the new drachma would de­pre­ci­ate rapidly, Greece would pre­sum­ably ex­pe­ri­ence a strong eco­nomic up­turn within one or two years, be­cause Greeks would buy fewer im­ports and tourism would see an up­turn. In ad­di­tion, flight cap­i­tal would flood back into the coun­try very quickly.

In Sinn’s opin­ion, “the Com­mu­nity of States should soften the dif­fi­cult tran­si­tion process with gen­er­ous fi­nan­cial as­sis­tance, which should be ear­marked for hu­man­i­tar­ian aid for the poor­est. More­over, Greece should be given the op­por­tu­nity to re­turn to the euro at a later date and at a dif­fer­ent ex­change rate.”

Ac­cord­ing to Sinn, “the Greeks on the whole have pots of money, around 120 bln eu­ros more than would nor­mally be ex­pected of a coun­try of its size. But this sur­plus cash has largely been taken out of the coun­try and is ex­tremely un­equally dis­trib­uted. Greece’s so­cial­ist gov­ern­ment can surely now be ex­pected to make an ef­fort to raise part of the money re­quired to avoid a hu­man­i­tar­ian dis­as­ter it­self.”

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