Tuesday

14th Jul 2020

German bank tables plan for parallel Greek euro

Germany's financial giant Deutsche Bank has floated the idea of a "geuro" - a parallel currency allowing Greece to devaluate while staying in the eurozone if an anti-bail-out government takes over in Athens.

If left-wing radicals win the 17 June elections in Greece and stick to their promise of scrapping the €130 billion bail-out and its austerity requirements, Greece could still stay in the eurozone without financial aid if it introduced a parallel currency, says a Deutsche Bank study published on Monday (21 May).

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  • Greek 10 euro-cent coin - soon to be a parallel currency? (Photo: Constantine Gerontis)

The "geuro" would consist of promissory notes, a form of government debt that can be sold on. It would devaluate sharply against the euro but would allow the government to buy itself some more time to carry out reforms and pass budget cuts.

"I think such a parallel circuit alongside the euro is the most probable development," Deutsche Bank chief economist Thomas Mayer said on Monday during a press conference in Berlin. He said the "geuro" would allow Greece to lower its wages and boost exports: "This way they would be back in business."

One pre-condition for the scenario to work would be that aid would still come from other euro-countries and the International Monetary Fund - most likely only for paying back Greece's debt. Cash-strapped Greek banks would also need to be rescued by creating a European "bad bank" - according to the Deutsche Bank projection.

Mayer explained that the eurozone bail-out fund, the European Financial Stability Facility, could re-finance Greek lenders, restoring confidence so that Greeks would stop withdrawing their cash from banks.

Meanwhile, Greek far-left leader Alexis Tsipras - who may become the country's next prime minister - on Monday redoubled his attack on German Chancellor Angela Merkel.

"Greece is a sovereign country - it's not for Ms Merkel to decide whether we should go towards a referendum or not," he said in reference to reports that Merkel suggested a referendum on euro membership should be held at the same time as the election. Merkel's office has said she never made such a statement.

Tsipras repeated his line that Greece is being forced to commit "suicide" under austerity measures imposed by foreign lenders, in what he dubbed a "barbaric and inhuman" bail-out programme.

"It is an experiment - a neoliberal shock that is driving my country into a humanitarian crisis," he said.

The 37-year old politician also rebuffed claims by some EU leaders that the eurozone would be fine if Greece left: "The eurozone is like a chain of 17 links - if one link is broken, the whole thing is destroyed, so it is absurd to think Greece can be destroyed and the eurozone saved."

Germany's finance minister Wolfgang Schauble earlier this month said the euro area is these days better prepared to withstand a Greek exit and that no country could be kept in against its will.

On Monday, after meeting France's new finance minister Pierre Moscovici, Schauble softened his tone, saying: "We have to do everything to keep Greece in the euro club."

Schauble was less welcoming on the idea of sharing the debt burden among the 17 eurozone countries - a concept known as eurobonds.

Moscovici cited "major disagreements" on the issue, which the new French president, Francois Hollande, is set to bring up on Wednesday during his first EU summit.

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Within the space of one week, EU politicians have begun talking in a matter-of-fact way about Greece's exit from the eurozone, but analysts say this would involve upheaval far beyond what the casual statements imply.

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