Should Greece Leave The Euro Zone And Return To The Drachma ?

Should Greece leave the euro zone and return to the drachma?

In the short term, leaving the euro would be disastrous for the majority of Greek and very risky for other Europeans. But there is an alternative solution, which has an evil name: inflation.Greece has a short term problem: should we leave the euro? The vast majority of Greeks (three quarters, according to opinion polls) refuse to do, both fearing to lose what remains of their economies and to be further strangled by the weight of external debts (private and public) in euros or dollars. So, inevitably, the drachma actually downgrade significantly (by at least one third, and perhaps more) in relation to these currencies, surpassing even the real cost of repayment.But supporters of the leaving of eurozone argue, precisely, this devaluation of the drachma would solve also the problem of long-term Greece. Since the creation of the euro, Greece has seen its consumer prices, the reflection more or less faithful reflection of its producer prices, increase by 44%, against 23% across the eurozone (22% in France, 20% in Germany). If Greece had kept its national currency, the drachma, the surplus country's inflation could have been cleared by a lower exchange rate drachma / euro. But, with the euro, it was no longer possible, and the external competitiveness of Greece has melted away very quickly, reducing domestic economic activities.Return to the drachma could clear this loss of external competitiveness, to stimulate domestic activity after one or two years of painful transition. And Greece and could restore growth instead of having deflation slowly its productive system, as is currently the case (GDP fell by 6.2% between the fourth quarter 2011 and first quarter 2012 ).

Thus the dilemma: in the short term, leaving the euro would be dramatic for a large part of the Greek population, but in the long term, it would provide them oxygen whose country is now private.

There is one alternative solution, which could reconcile short and long term,while avoiding the collateral effects of the exit of Greece to the rest of the eurozone, which would be severely weakened, speculation would affect then Spain and even Italy. This solution has an « evil » name: inflation. Imagine that, in the north of theeurozone (Germany, Austria, Finland, Netherlands, Belgium,France) , inflation rise from 2% to 4% per year. And that, in the south of the same area (Italy, Spain, Greece, Portugal, Cyprus, Malta), he decreases from 4% to 0%. In the whole of eurozone, the rate of inflation would not change, but every year, external competitiveness of the southern countries would gain 4%, and four or five years, the economy will regain the colors that it has lost. We could even go farther, and fix as annual objective of inflation for the whole zone not 2 % either the less, but 3 % or the more. For that purpose, it would be necessary to modify the rules of the European Central Bank, which, at present, official for only objective, the price stability (in fact a little between 1 % and 2 %, not to stifle the activities with non-existent or low productivity gains, as the health, the education or the services(departments) to the persons). Let us suppose that it is possible. In that case, the real value of the debts (public and private) would be reduced every 3 % year, mechanically.

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