Saturday, 8 September 2012

US Dollar Proposal for Greece

100 US Dollar bill Series 2001




Georgios Gialtouridis

On Dec. 7, 2010, in a joint press conference at the Maximos Mansion in Athens, Greece with former Prime Minister George Papandreou staring silently, former IMF chief Dominique Strauss-Kahn in authoritarian style offered the following advice to the Greek people:

“So don’t fight against the doctor. Sometimes the doctor gives you medicine you don’t like; but even if you don’t like the medicine, the doctor is there to try to help you.” Strauss-Kahn was referring to the reforms being introduced in Greece in order to bring the economy back on “the good track,” as he claimed.

The ‘medicine’ is the brutal pulverization of Greece’s economic landscape where in the name of productivity and competitiveness a relentless series of fiscal austerity measures is being forced upon the Greek people. Through a combination of deep cuts in salaries and retirement benefits, longer workweeks and increased retirement ages an attempt is being made to ‘depreciate’ productivity costs so that Greece may become more competitive. This tactic is known as internal depreciation.

The dynamics of this internal depreciation are trapping Greece in a vicious economic cycle with spiraling unemployment. Two years, one IMF chief and three Greek Prime Ministers later, the Greek economy having been subjected to fiscal atrophy now resembles, in Strauss-Kahn’s terms, a malnourished patient in the intensive care unit on respiratory support, intravenous therapy and feeding tubes with German and other European politicians portraying family members standing over the unfortunate soul determined to pull the plug.

As a member state’s exit from the currency union is not addressed in either the Maastricht or the Lisbon treaties, a disorderly default by Greece followed a Grexit and immediate return to the drachma will most certainly create issues in the country’s financial sector not seen since WWII. As per various analyses, the immediate depreciation of the drachma would exceed 50 per cent followed by additional corrections. Speculators, hedge funds and credit rating agencies will prevent Greece from accessing the capital markets using its own currency as the country will be forced to meet any short- and/or long-term borrowing needs by tapping hard currency at unfavorable interest rates.

On November 1, 2011 I had proposed to the United States Federal Reserve a plan for Greece to exit the Eurozone and adopt the US Dollar as its de facto currency for a five-year transition period before the country officially returns to the drachma as a way out of this economic depression.

Using the Dollar Liquidity Swap Lines in coordination with the United States Federal Reserve, Greece’s economy will immediately obtain the liquidity and confidence necessary to entice growth. As a disorderly default by Greece followed by a Grexit will most definitely create shockwaves across the Atlantic, preventive measures such as the US Dollar proposal will contain the damage while the US Dollar will enhance its position as the world’s safe haven currency.

At the end of 2011 the share of US dollar-denominated assets in global foreign exchange reserves remained almost stable at 62.1%. The euro’s share in global foreign exchange reserves stood at 25.0%

The US Dollar needs to hold this position as the world’s leading currency for reasons of global financial stability. The US Dollar proposal for Greece will reinforce the confidence placed on the American currency.

There is also the geopolitical perspective. The United Nations Convention on the Law of the Sea gives Greece the opportunity to exploit its offshore natural resources as revenues from the sales of its mineral wealth can help offset the country’s debt burden. The hydrocarbon exploration within Greece’s Exclusive Economic Zone can be used as a platform to boost Greece’s strategic alliance with the United States by licensing offshore exploration blocks to US interests which will in turn solidify the United States’ footing in the turbulent region in order to protect those interests. Greece should define its Exclusive Economic Zone and join Cyprus, Israel and the United States in a mutually beneficial long-term energy alliance and at the same time silence any hostile neighbors.

On January 1, 1999 a currency union was created having violated the fundamental principles of fiscal integration. There was no political union or fiscal union in place, the necessary foundations for any viable monetary integration. After two and a half years under continued tutelage from the IMF, the ECB and the EC there is no end in sight as the Greeks’ hopes and dreams disappear, all for the sake of this flawed fiscal integration vision. Greece now has the opportunity to unbind itself from the seemingly endless constraints and sacrifices planned not for Greece’s own salvation but for the Eurozone’s itself.
Georgios Gialtouridis

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