Greece may be forced to accept a “grey solution” of multiple currencies to solve its financial problems, a Princeton University authority on the euro said in Atlanta May 13.
Harold James, a professor of history and international affairs, and the author of The Rise of the Troubled Euro provided an historical overview of the euro during a lecture at Emory University’s Goizueta Business School.
Dr. James echoed the day’s headlines that Greece may run out of money as the news was announced that it had slipped back into recession.
He defined the “grey solution” as providing “not full membership and not an exit” from the eurozone.
A return to Greece’s traditional currency, the drachma, or a replacement national currency might be used by the Greek government to pay its civil servants and for Greeks to pay their taxes, while the euro would remain for trade and other purposes.
Dr. James certainly wasn’t predicting the use of such a “parallel” currency, a policy that has been refuted by Greece’s finance minister Yanis Varoufakis.
But he portrayed the Greek financial crisis as another example of how politics has complicated the health of Europe’s common currency over the years.
The dissolution of the parliament in December and the delayed election of a new president interrupted Greece’s economic recovery that had been ignited by bailout loans from the European Union, the European Central Bank and the International Monetary Fund.
In late January Greek voters elected a radical leftist party and president, which was interpreted as a rebuke to the austerity measures forced upon the country.
During the period up to the election, many Greeks failed to pay taxes, according to Dr. James, further deteriorating the country’s financial health.
He cited several times the view of the economist Martin Feldstein that the euro had been created to undergird a harmonious Europe. His own view acknowledged the political objectives but also referred to a desire of Europeans to create a currency that would provide a counterweight to the U.S. dollar.
He also said that in his opinion a better measure for reaching such a goal would be to create a European defense force, but readily admitted that such a development was a political impossibility.
Despite the suffering that many Greeks have endured during the financial crisis, Dr. James said that the majority of Greeks do not want to abandon either the eurozone or the EU.
Additionally, he said that no one including the German government or the international financial institutions, which have bailed out Greece, want “to pull the trigger” and be responsible for Greece’s departure from either the eurozone or the EU.
Without predicting how Greece’s financial problems would be resolved, he did speak in favor of new forms of cross-border cooperation including a unified European-wide capital market to reduce the impact of financial crises.
Dr. James’ presentation was sponsored by Emory’s Department of Economics, the Halle Institute for Global Learning, the Hightower Fund and the Federal Reserve Bank of Atlanta.
