The Greek
economy has not been doing well over the last few decades and has frequently
missed scheduled debt payments due to running out of cash. The current ruling
party, Syriza, also struggles with defaulting on debt and receiving more
bail-outs from creditors (both impractical solutions to resolve economic
problems in the long run). Furthermore, the ECB (European Central Bank) is
restricting emergency loans to the Greek banks. As a result, the Greeks may
have to abandon the euro and seek an alternative. One alternative that is
tempting for Syriza is issuing temporary IOU’s or “scrip” to replace cash. The
scrip has been successful during emergencies in the past; for example, in the
1690’s, Massachusetts used the scrip to pay citizens “tax anticipation notes”. Essentially
this method allows the government to save hard cash for other uses – such as
paying debt – during emergencies. The scrip
would become a medium for exchange until the country is debt-free.
Even
though using temporary IOU’s seems like a viable approach, this method is not
flawless. One of a few major problems with the scrip is that micro-bartering
systems, which cause the value of the scrip to change, within smaller regions
of a country may be made. If this occurs then the government will have difficulty
collecting taxes and replacing the scrip with cash. In generall, the
main objective for Greek banks will be to earn more euros and spend fewer. The
scrip will only provide the Syriza party with a few months to accumulate the
necessary euros to pay debt.
Do you think that the Scrip should be used in the
short-run for the Greeks?
It's weird how the author seems so suggestive of Greece using Scrip at first, then takes a 360 turn and says, "here's why it's a bad idea". That's the impression I got at least. I can see how Scrip might be tempting for Greece, it could buy them time. But, it could also make things worse. I think the second problem he suggests is big, "If Greek banks accepted scrip, they would soon be flooded with it and drained of euros, making it hard to pay the interest on their own debts." Couldn't this make things worse? So, while Scrip may be enticing in the short run, this won't eliminate the country's core problems. Rather, it will shift it's problems to the banking system, as the author states. What's more preferable, buying time now and worrying about the problems later, or just dealing with it now?
ReplyDeleteSimilar to Cameron's sentiment, this seems like the short term fix for abandoning the euro altogether and it seems to have similar consequences. Maybe Greece simply needs to shut the doors to depositors looking to withdraw their money like was done during the Great Depression in America and throughout the world. They need a fix to reduce spending and they may need to fall onto the citizens for a while, but replacing the euro with an IOU currency will only exacerbate the problems they have now.
ReplyDeleteI think that the scrip system would have to be in place for much longer than just the short term considering how much debt Greece owes. I don't think it is feasible that this currency system would work. Also, the example for success dates way back to 1690, which is a far cry from how the world is now.
ReplyDeleteSome people might argue that the scrip would not solve the fundamental problem of Greece in the short-run, namely the unsustainable burden of public debt. I think,however, that its adoption would change the balance of power between Greece and its creditors, and by making the output perspective of the euro area less catastrophic for Greece, open negotiating space for debt conversions.
ReplyDeleteI think the scrip system does have benefits, one such being, people may not hoard them because the value of it decreases as well as they would have to pay 1% weekly tax. Also, I think the scrip system may help to stimulate the Greece economy. However, I think that the scrip system would not be as of a feasible method to solve the Greece debt. Furthermore, I think the scrip system could be use along with another regulatory method to help Greece from their current economic turmoil.
ReplyDeleteP.S., I thought it was interesting that the economist Irving Fisher suggested that the scrip system would solve the U.S. state of economic depression which was mention in an article writtten by George Monbiot in the Guardian News. Also, I was surprised that Roosevelt’s government banded the scrip system because it may have created a loss of power for the federal government (Monbiot, G., 2015).
Here is the link to the article I paraphrased above.
http://www.theguardian.com/commentisfree/2015/feb/17/currency-scheme-1930s-save-greek-economy-eurozone-crisis