When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Monday, May 28, 2012

An Exit Strategy for Greece et al

Everyone in the Eurozone is wringing their hands about Greece and its possible exit from the euro (Eurozone). Here's an exit plan to which one could say, "the devil is in the details," but this looks like an "elegant" strategy--

Mosler/Pilkington: A Credible Eurozone Exit Plan – Smart Taxes Network: "So, we contend that the periphery governments should have a credible exit strategy on hand and it is to this that we now turn. Such a strategy would not be very hard to implement and would consist of two key principles: 1. Upon announcing that the country is leaving the Eurozone, the government of that country would announce that it would be making payments – to government employees etc. – exclusively in the new currency. Thus the government would stop using the euro as a means of payment. 2. The government would also announce that it would only accept payments of tax in this new currency. This would ensure that the currency was valuable and, at least for a while, in very short supply. And that is pretty much it. The government spends to provision itself and thereby injects the new currency into the economy while their new taxation policy ensures that it is sought after by economic agents and, thus, valuable. Government spending is thus the spigot through which the government injects the new currency into the economy and taxation is the drain that ensures citizens seek out the new currency."

    

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