- - Sunday, October 25, 2015

ANALYSIS/OPINION:

After many tumultuous months, Greece has finally emerged with a stable government that is committed to implementing the reforms required by the nation’s creditors. It is an appropriate time for Prime Minister Tsipras to consider the advantages of the three-tier euro.

The three-tier euro would divide the euro into three separate and independent euros, which would float against each other, with the free market setting their relative value. Broadly speaking, the present euro would remain the currency of the Northern European countries, euro-M of the Mediterranean countries and euro-F of France and any other financially strong countries that prefer the French approach to stimulating growth by spending.

With implementation of the three-tier euro, euro-M would immediately drop in value to perhaps one-half of the euro. This would give all the Mediterranean countries a quick gross domestic product boost through an increase in the number of people taking vacations or relocating there for retirement living. It would bring back many old customers who have been priced out of the market and, in consequence, improve property demand and the need for regional airline travel. It would result in economic growth and the creation of new jobs, essential for the people in the Mediterranean countries and for assimilation of the tidal wave of refugees. It would engender confidence in the future.

The basic problem is the single-tier euro and the destructive financial straitjacket it has imposed on the Mediterranean countries. Europe cannot come out of the euro mess without first recognizing that this is the underlying problem.

The present situation is a disaster for the future of Greece, for the future of the eurozone and Europe, and most importantly for Greece’s heritage as the cradle of Athenian democracy. Greece is the country of Pallas Athena, a goddess whose roles included protectress of civilized life and defender of righteous causes. Greeks must act in accordance with their heritage and stop divisive infighting which would reduce Greece to a failed state.



Further, Greece should act in a manner which serves the essential interests of Europe as a whole, and not just Greece alone.

A majority of the Greek population has consistently supported membership of the eurozone, and also membership of NATO. Unfortunately these desires have been strained almost to breaking point by the very high unemployment caused by the single tier euro. Spain, Italy and Portugal are very hard hit by this problem, as well as Greece.

This very high unemployment, particularly among the young, is tearing apart the fabric of Europe. Austerity does not solve the problem, but rather compounds it.

The euro crisis cannot be solved by severe spending cuts and layoffs, which have caused the Mediterranean economies, in particular, to spiral down. Enforced higher taxes do not help. Economic growth needs lower taxes. On the other hand, a functioning eurozone requires rules which are applied fairly to all member countries. This is not possible with the single-tier euro.

Further, the enormous debt overhang found primarily in the Mediterranean countries must be addressed. Managing Director Christine Lagarde of the International Monetary Fund has made clear that this debt must be restructured, preferably by taking necessary write-offs.

Greece must be able to negotiate satisfactory debt relief, which will cost the debt holding countries hundreds of billions of euros.

Previous bailout funds were spent inappropriately by politicians then in power. The other side of the euro coin is that this should be considered in relationship to the advantages Germany and other northern countries have enjoyed.

The key fact is that the single-tier euro has given Germany a roughly 20 percent currency advantage. Most businesses operate on tight profit margins and in consequence a very large number of companies in the Mediterranean countries have been forced out of business.

This is demonstrated by Germany’s increase in the European vehicle market from one-third to one-half. The financial advantage to Germany must be in the hundreds of billions of euros.

A very heavy price was paid by the vehicle industries in France and Italy, in particular, which were either put out of business or kept going by government subsidies. These costs must total hundreds of billions of euros, and are financial justification for debt relief.

The IMF should investigate this situation. In addition it would be particularly helpful if German institutions would also make this analysis which requires detailed expertise. As well as newspapers and other media, there are a number of top German universities recognized for their expertise and impartiality.

Germany is right in insisting on detailed and honest accounting for individual projects, which should be made in accordance with International Financial Reporting Standards (IFRS).

Greece should be prepared to enter into firm international agreements to strengthen the present agreements on reforms in Greece, provided the Mediterranean countries can get necessary debt relief. All the Mediterranean countries should be prepared to enter into similar international agreements.

Debt relief is very important if the eurozone is to have a stable long term future. Without it Greece will continue to have to be bailed out every few years, with the problem getting much worse each time, and with Grexit becoming inevitable at some point.

The future of Europe is at stake. The opportunity is for Prime Minister Tsipras to take the lead by entering into good faith discussions with Greece’s creditors on how to make the eurozone work. It would be helpful if he asked New Democracy and other parties to support him in what should be a bipartisan Greek initiative.

Robert Laidley is president of The Atlantic and Conservation Institute.

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