Plan to Leave Euro for Drachma Gains Support in Greece

So now it is time to ponder the once unthinkable: that Greece might end its 10-year use of the euro and return to its former currency, the drachma.

Such a move is still officially anathema in Athens. But a growing body of economists argues that it would be the best course, whatever the near-term financial and economic implications. And now, with a referendum on the European-led bailout facing Greek voters, a vocal minority that has long called for a return to the drachma might find itself with a growing group of listeners.

A return to the drachma is unlikely to offer a quick cure for Greece’s ills. Default on the nation’s $500 billion in public debt would become a certainty, depositors would take their money out of local banks and, with a sharp devaluation of as much as 50 percent, inflation would loom. A return to the international credit markets would take years.

But drachma defenders contend that these worst fears are overdone. Yes, there would be disruption and panic initially. But, they say, pointing to Argentina’s case when it broke its peg with the dollar in 2002, the export boom ignited by a cheaper currency and the ability to control the drachma would eventually work in Greece’s favor.

“The real problem is that we are operating under a foreign currency,” Vasilis Serafeimakis, a senior executive at Avinoil, one of Greece’s largest oil and gas distribution companies, said of the euro. In the last year, he has been banging the bring-back-the-drachma drum.

“If we had our own currency, we could at least print money,” Mr. Serafeimakis said, referring to the ability to revalue the drachma. “And what is the worst thing that happens if we do this? I don’t get a Christmas gift from one of my bankers.”

His voice is still a lonely one.

According to a recent poll in the Greek newspaper Kathimerini, 66 percent of Greeks believe that returning to the drachma would be bad. But proponents of a euro exit say that beneath the surface, more Greeks are beginning to question the euro.

“The view that Greece should exit the euro is more widespread than you would think,” said Costas Lapavitsas, a Greek economist at the University of London who has long pressed for a return to the drachma. “It is just that the opposing view is so dominant.”

Until now, many Greeks have been wedded to a European identity forged by a national embrace of the euro and the wealth that, for a time, came along with it. Talk of returning to the drachma had mainly been held up as an apocalyptic vision rather than a viable policy option.

But for a growing number of Greeks, the collapse of their economy is apocalypse enough.

Prime Minister George A. Papandreou threw down the gauntlet to the Greek people Monday when he surprised the world by announcing a referendum on the latest bailout plan. But it was his finance minister, Evangelos Venizelos, who that same day put a finer point on the question.

“Are we for Europe, the euro zone and the euro?” he asked. Or, he continued, does Greece return to the drachma?

Under the latest bailout plan from Europe, Greek debt held by private institutions would be written down by 50 percent. In return, as long as Greece stayed on track carrying out painful austerity measures through 2015, Athens would continue to receive more bailout money to finance its remaining debt.

When Mr. Papandreou brought that tentative deal back from Brussels last week, the escalated protests and rioting on Greek streets were a sign that it was not something his people would easily stand for.

Supporters of a return to the drachma note that the severe budget cuts of the last two years had resulted in almost closing the budget deficit — as long as interest payments on its debt are not counted.

Stripping out interest payments, Greece is expected to register a budget surplus next year of 1.5 percent of its gross domestic product (compared with a budget deficit of 8 percent of G.D.P., when interest is counted), and that, in effect, would give it the freedom to stop paying its debts.

It is an argument for defaulting on the debt and starting over, in other words. That sense of reborn autonomy is what lies behind the drachma movement that Mr. Serafeimakis is promoting.

Eleni Varvitsioti contributed reporting.

Article source: http://www.nytimes.com/2011/11/02/business/global/plan-to-leave-euro-for-drachma-gains-support-in-greece.html?partner=rss&emc=rss