- By Annie LowreyAnnie Lowrey is assistant editor at FP.
At the Financial Times, Harvard professor Martin Feldstein argues for letting Greece take a holiday from the euro, allowing it to devalue its currency and ease its severe economic woes. It’s a nice idea, but a bit pie in the sky. Barry Eichengreen explains why:
The insurmountable obstacle to exit [is] procedural. Reintroducing the national currency would require essentially all contracts — including those governing wages, bank deposits, bonds, mortgages, taxes, and most everything else – to be redenominated in the domestic currency. The legislature could pass a law requiring banks, firms, households and governments to redenominate their contracts in this manner. But in a democracy this decision would have to be preceded by very extensive discussion.
And for it to be executed smoothly, it would have to be accompanied by detailed planning. Computers will have to be reprogrammed. Vending machines will have to be modified. Payment machines will have to be serviced to prevent motorists from being trapped in subterranean parking garages. Notes and coins will have to be positioned around the country. One need only recall the extensive planning that preceded the introduction of the physical euro.
The introduction of the euro did require extensive planning — and extensive costs, costs Greece might not want to pay for. Let’s do a bit of back of the envelope math. When the eurozone adopted the physical currency, in 2002, the French bank BNC Paribas calculated the price tag for the switch at 160 to 180 billion euros — 188 to 212 billion euros today. Greece is about 2.5 percent of the eurozone economy — so the government might be looking at something like a 4.7 to 5.3 billion euro cost.
That is not much. In fact, it is so little Greece might be able to afford it; the government already needs to borrow 53 billion euros to service its debt this year. But that doesn’t include the dramatic cost to businesses, individuals, and banks, or the political and plenary trouble of executing such a maneuver. Alas, Feldstein’s is a nice idea, but not one I see working.