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Two drachmas??? November 23, 2011

Posted by proeconomia in Fiscal policy, Main, Monetary policy, News on Greece, Opinion.

Here is an interesting posting from the WSJ blog, about introducing two types of domestic currency in Greece. Although the author tries her best we still have the following problem: out there people believe that devaluing a new domestic currency would boost growth. This is by no way certain since domestic devaluation in the so-called “competitive” sectors of the economy would promote a skewed growth path and will not restore domestic demand in an import-driven economy. It is imperative to recognize the lack-of-demand factor for growth, as many others do, and to point out that the “competitive” sectors have ceased to be “competitive” because of a large inflow of E.U. and domestic subsidies that were never converted to domestic investments. Couple this with the grand lack of tax revenue from these sectors and you will have increased domestic inequality and be a far cry from restoring domestic demand and growth.

P.S. The author also talks about several “controls” for this scheme to succeed (“preventing financial market participants from shorting the currency…” etc.). Maybe she misses the point that there are several that promote a domestic currency precisely because they anticipate speculation on the new currency and the opportunity to buy all of us at a discount…



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