The Questions of Drachma: Realism or Utopia?

Thanos Ioannidis *

A benevolent scholar of economic and political affairs in Greece could only but warmly greet the initiative of Mr. B. Viliardos and of, to initiate a public dialogue -demonized till today both from media and academic community, for the potential of Greece transitioning to a  national currency, the feasibility of the project, the problems and the benefits that may arise.

Monetary Unions – What does history tell us?

From the 18th century, No monetary union in the sense of a single common currency and a central bank as lender-of-last-resort has survived its dissolution, resulting in mostly tragic consequences for the less powerful member-states, a product of mainly British and French colonialism, which resulted either in riots, revolutions or wars [i] .

Since the end of Bretton Woods in 1971, currency has become fiat money and therefore a source of debt which in order for the central banks to offer, they must lend it. In other words, from 1971 forth, debt became money.  So, the ECB lends through the central banks of the Member States the commercial banks and they in turn lend the economy. The presentation of the Bank of England on the creation of money in modern economy, literally from nowhere (out of thin air), is quite comprehensive and revealing. [ii] [iii]

Leaving a monetary union and the transition to a new national currency …. could very well be beneficial for the country itself.  This can be derived from a study done by Adam Slater, chief economist of Oxford Economics UK, one of the best known independent international corporate consultants, who argues that history shows that the withdrawal of Greece from the euro would not be inevitably a disaster.  Specifically, the study indicates that more than 70 countries have abandoned monetary unions from 1945 onwards and only a small minority suffered losses in national product (as shown in the table below) [iv] .  The most numerous of these losses, as in the former Yugoslavia, may be explained by other types social shock such as civil war [v] .


Therefore, the question that arises effortlessly is how much lower are the costs of borrowing our national currency (Euros), for all the financial needs of the State as compared to printing (to have ie. the printing right) our own national currency -such as the new drachma- and be burdened only with the cost of printing?

Even supposing that the sum of the 360 billion euro debt were to be deleted and we stayed in the Eurozone, we would continue to accumulate debts because we would continue to borrow our national currency -besides being unable to exercise any monetary and fiscal  policy and reduce our trade deficit- thus being driven within a few years to the same impasse.

Deletion of Debt and Recovery of National Sovereignty

By now, each of us is wondering if the country can cancel its debt by unilateral action based not on political slogans but on realistic arguments according to international treaties, decisions, resolutions etc.  which make Greece’s debt status, not only a problem of global dimensions, but also, a revocable condition for the country.  Here is an indicative list of the catalytic legal arsenal that, we believe, the Greek government has at its disposal (and perhaps a little more):

a. The general Assembly [vi] of the UN adopted (draft decision) basic principles of restructuring the external debt of a State in the 69 thSession of the 10 thSep 2015 (A / 69 / L .84 ) with 136 votes in favor and 41 absences (including Greece’s).  The vote clearly showed the “state of play” within the Organization where developing countries support measures to increase the stability and legitimacy of the international financial system and the powerful developed countries usually prevent the implementation of such measures, arguing that such discussions should take place within the international financial institutions and not in the UN [vii].

In our view, the most important point of the nine principles adopted concerning the national /state sovereignty and delivered briefly in the text of the decision is in the following terms: “A sovereign state has the right … to design macroeconomic policy, including the restructuring of foreign debt, which can not be reversed or prevented by any offensive measure ‘.

b. The European Parliament’s resolution of 13 March 2014 on the fact-finding report on the role and work of the Troika regarding the eurozone countries that have been put into a program [viii] which is directed against the Troika and its violation of European legitimacy in the lending regime imposed on Greece.

c. The report of the independent Council of the UN Human Rights Special Advisor (March 27, 2014) which is a confirmation by the international community and the UN of the violations of human rights in Greece, on the promotion and protection of human dignity, which is the essence of the principles of international law (ibid).

d. The announcement of the UNHCR Office of the UN which welcomes the Greek government’s decision to hold the referendum of July 2015 and calls on the international community for solidarity with our country. It is Impressive to note, inter alia, the invocation of Article 103 of the UN Charter, according to which ‘… no agreement treaty or loan agreement may require a country to violate the political, cultural, economic and social rights of the population, nor may a loan agreement set aside the sovereignty of a state. “ [ix]

e. The Parliamentary, Truth Commission’s preliminary report on the debt that was disclosed on June 18, 2015 indicating that Greece is not only unable to pay the debt, but should not pay it, since it is illegal. Note that, the Commission says that states have a right to unilaterally declare bankruptcy when debt service is not viable without committing internationally a wrongful act and therefore bear responsibility for it. It should be underlined that on 12 Nov 2015 [x] by decision of the Parliament’s President [x] the work of the Commission ended (in essence canceled) and the report was removed from the Parliament’s website.

The Transition to a State-National Currency

For those who claim that there is no ‘technical way’ -and if there is, which is it?- for Greece to abandon the EU, they can refer to a lengthy study of the consulting company, Capital Economics [xi] which won in 2012 the first prize of Wolfson Economics, the highest valued prize after the Nobel prize in economics.  The title of the study is “Leaving the euro – A Practical Guide submitted by the company along with 440 other contestants to the Policy Exchange Thing Tank of Great Britain.  Despite the objections we express (the most important being the requirement that the country will not unilaterally cancel the debt) which we have analyzed elsewhere [xii] , It would be useful to specify the findings relating to our case:

  • During the 20thcentury, a total of 69 countries have moved from one currency to another without encountering major problems. Experience has shown that the ‘mechanics’ of transitioning to another currency is complicated but not unachievable and can be completed within a period of up to six months.
  • Characteristic cases are: countries like Britain and Japan in 1931, the United States in 1934 and France in 1936 after the abandonment of the gold standard and, much later emerging markets after their official bankruptcies and currency depreciation of ‘Asian tigers’ in 1997, Russia in 1998, Argentina in 2002 and very recently, Iceland in 2008.
  • Nearly all departures from a monetary union during the recent 100 years were associated with low macroeconomic volatility and most were completed swiftly. Examples are Austria-Hungary in 1919, India and Pakistan in 1947, Pakistan and Bangladesh in 1971, Czechoslovakia in 1992-93 and several former Soviet republics from 1992 to 1995.
  • Some countries experienced hyperinflation, but the main culprit was not technical part of leaving the currency but the correctness of the monetary and fiscal policy that ensued the monetary change. Countries with independent central banks experienced low inflation and concurrently economic growth while central banks that printed currency to finance government deficits instead, experienced high rates of inflation and even hyperinflation.

Two Recent Opposing Examples

At this point, we must highlight two countries cases: the case of Argentina where the country is a popular example (to avoid) of the ‘drachmo-skeptics’ and the case of Iceland, where the country’s recent economic bankruptcy and the then impressive recovery and return by Keadas has been in our view, carefully concealed. It appears that Iceland was successful simply due to the determination of its citizens, without any partisan mantle, who unilaterally refused foreign debt, imposed bankruptcy and liquidation of their banks and then their reconstitution as well as the exemplary punishment of bankers and politicians who were held responsible for the bankruptcy of the country.

As for Argentina, it is certain that the country is experiencing once again economic collapse and social revolt.  But why; The answer lies in the name … Mauricio Macri.  The new President of Argentina with the help of the plutocratic oligarchy of the country, ‘hidden’ international friends etc … and in essence, the granting of power by Kirchner, suggest that Argentina has returned to the times of Menem and why not Videla, since only seventy hours after taking office, he issued 29 presidential decrees to impose, without the approval of the parliament.

After about 14 years of judicial adventures with vulture funds and the ‘blind to justice’ American judge  Thomas Griesa, who failed to impose anything on Argentina, Mr. Macri comes and announces the deal with Paul Singer’s vulture fund and restarts negotiations with the IMF for the country’s debt.  It should be noted that the Considering that the Kirchner governments had achieved a ‘haircut’ with international lenders of 97% for the debt of Argentina repaying 25 cents to the dollar on average.  All this and many more would not have a convincing narrative without the Argentine currency, the peso.  Since December 10, 2015, the first day Mauricio Macri was sworn to office, the peso was allowed to float and thus it depreciated by 50% with a slight recovery thereafter.  Thus, the ‘crisis carpet’ was laid and the Macri measures followed, all very similar to our own bleak 6-year adventure.

It seems that Iceland is following a diametrically opposite course than Argentina. The country has already shown strong signs of recovery after the financial crisis of 2008-2009. This is because with the support of its citizens, it overcame the economic ‘theology’ of the neoliberal status quo and dared ‘heterodoxically’ to imprison 29 senior bankers, allowing the banking institutions to go bankrupt and then reconstitute them on a sound basis, controlling the national currency and refusing to repay lenders [xiii].  Even the IMF on March 2015, was forced to recognize the macroeconomic conditions as the best since the crisis without the country having to compromise the existence and operation of state-welfare, but however, left for Iceland an open challenge to ‘rejoin’ ( sic) the international financial markets [xiv] .

And if we would be quick to separate the geostrategic importance of Greece and that of Iceland, implying here the geopolitical weight of each country and the balance of power which  obliges our country to be more ‘realist’ on its international status and therefore obligated to all sorts of  national retreats, we should note the following: Iceland is one of the first countries to join NATO post WWII since the Arctic Route was a strong point of conflict between the great powers which, is nowadays revived with the free trade agreement between Iceland and China [xv] (the first time a European country) and the intention of the US to return to the island with an outpost airbase due to the escalating geopolitical tension between the US and Russia [xvi] .

Managing the New Drachma: Devaluation, Bilateral Agreements, Banks

The issue of a ‘dramatic’ devaluation of the new drachma should be treated with skepticism since during the initial introductory stage, the new drachma would not participate in international currency markets (FXmarkets) in order to avoid speculative attacks or even the undermining of the Currency (non – convertible currency).  It would work temporarily and until the stabilization of the economy in conditions of NDF market (Non – Forward) which would prohibit FX trading, as is the case in several world currencies [xvii].  Of course, in this case, capital controls should be taken for granted in order to avoid (expected) capital flight abroad.

Following the logic of avoiding logistics problems and an internal panic climate, the rate will be fixed at 1 : 1  drachma / euro.  Obviously, the Greek banking system should fall completely under state control as shown below and all bank accounts automatically converted into the new currency and with the new rate.  On the positive side of this solution we should take into consideration that the new drachma would not need to be ‘gathered’ from the foreign exchange markets as it would not circulate before its introduction.  The possibility of black market phenomena developing, creates the skepticism that this can distort the currency and that the then government can restore ‘normality’ on both political (TRUST) level and on economic activity as soon as possible.

Alternatively, we could not follow the above provisional monetary protectionist regime and instead opting for a de facto devaluation and introduction of new drachma at a rate of up to 1: 2 (EUR / dr.) following assessment of the international political and economic situation at the time.  This strategy is favored by those who believe that the new drachma should be part of the free-floating mechanism and a “rationalizing” shock will prepossess devaluation speculation thus minimizing problems of trust in the new currency.

The settlement of transactions for inelastic needs could be done through bilateral agreements (eg oil import from Russia or Iran) and foreign exchange settlement through a forward contract at a fixed rate (not in USD) or through currency swaps.  Transnational agreements are a mode of procurement where the State has replaced the private enterprise in order to import vital goods without the need for intermediaries, and thus enters into direct dealing with another state through a ‘framework’ Agreement.  It is obviously, that without the restrictions imposed by the EU in international trade among members, the country can turn to the global market (world sourcing) with multiple alternative supply chains and distribution channels.

So, fuel, medicines, transportation equipment, specialized machinery, etc. could all benefit from an agreement between Greece and another state based on other criteria such as geopolitical balances, alliances, geostrategic aspirations, etc. instead of speculative trade alone.  Such a ‘technical’ approach has been followed for years by the MoD for the supply of primary and secondary defense material, while a focus was given to its wider use during the period 2006-2009 with an appropriate legislative framework, [xviii] but with poor results, we may say, due to  a series of political problems alone.

What should be understood is that the value of each currency is nothing but the CONFIDENCE to the state of issue and the PRODUCTIVITY of the State and its citizens.  To put it extremely, the value of the currency is nothing more than the right of international capital to publicly vote for the performance and efficiency of a country.
The question is, when we want it and with what participatory conditions to the domestic economy.  If TRUST to the government and state where to collapse that would mean that the currency would collapse simultaneously [xix] regardless if  it was the euro or the drachma.

It is obvious that there can be no one-dimensional answer to the question whether the devaluation of the currency is a curse or blessing.  Never in the economy, can there be  monetary or fiscal measures that yield only positive or negative results so as to satisfy the equation.

General equilibrium exists only in stochastic econometric models.  In fact, inflation is moving between extremes of hyperinflation and deflation where either the absence or exaggeration to one of two extremes drives the economic cycle is continuous and cyclical change.

ioan2Inflation trends are not created through printing of money ( money supply ) but due to the speed of circulation (money velocity) which generates the bulk of the currency through the bank and the Fractional reserve banking system.  Very aptly and related issues such as currency wars (devaluations) raging worldwide, the massive issuance of money (quantitative easing) and the reduction of interest rates to zero (zero nominal lower bound) or even negative rates (NIRP), have been repeatedly covered by the analyst .gr .

At this point we should note that printing money even through national state currency without taking into account the speed of circulation (money velocity) and the overall productivity of the economy, leads to the same tragic results.  In any case, money is not created by the physical printing but at a rate of over 70% (as currently with Fractional reserve banking) from banks by lending to companies and households.

The export trade could then (due to devaluation) become competitive, and thus improved, if the export product is of high added value or totally domestic added value, it is aimed at international markets with less competitive currencies in relation to the drachma and, it maintains a niche market comparative advantage (comparative advantage by David Ricardo) or even a strategic competitive advantage (competitive advantage) as would be supported by M . Porter [xx]

Devaluation is not only a concern for commercial purposes and inflationary pressures.  A devaluation is also a ‘tool’ through which the economy cancels its internal debt.  Unfortunately, in case of devaluation, debts in foreign currency increase proportionally to the rate of devaluation.  So, the debt will become increasingly burdensome for Greece and the other lenders will not accept (even for political reasons) any debt reduction which would delete part of their assets as doubtful of ever being collected.  Therefore, the unilateral cancellation of external debt in this case the only way.

Safeguarding and securing foreign reserves in euros could be achieved firstly by imposing outward capital controls, through a temporary supply of plastic (electronic) money (like what supporters of a cash less society propose) to the citizens until the restoration of circulation of drachma  banknotes and coins and, through the liquidation of part of the portfolio of the systemic banks, in order to address inelastic needs (imports) of the trade balance.

Regarding the latter, we must clarify the following. As proposed by the Secretary General of EPaM Mr. Dimitris Kazakis during an internet broadcast of “To mikrofono” (the microphone),  for the temporarily address of a bankrun (in 2015), the Greek State could to oblige the Greek banks to sell a small part of their portfolio to get liquidity of a few billion than to hasten the lending via the ELA (over 89 billion Euros) and thus be subjected to political blackmail by Mr. Draghi, and thus forcing Greece to come to the negotiating table without actually being able to react [xxi] .

From the aggregated balance sheet of Monetary Financial Institutions and the Bank of Greece (BoG) [xxii] ( snapshot ), it is clear that the Greek banks, by the end of May 2015, held in their portfolios bonds from EU countries totaling 56.7 billion euros.  Given that the data published by the Bank of Greece in May 2015 are correct, it is fair to estimate [xxiii] that these bonds being mostly titles of Luxembourg and Great Britain, could ne easily liquidated in the secondary market.  In the case tat the data of the BoG are not real, then a question of reliability of the Bank of Greece arises regarding the quality of its published accounting statements.  In any other case, Mr. D. Kazakis should come back with further details.

ioan3Regarding the collective deletion of all private debt, principles of social criteria should be applied and then an effort should be made to stimulate demand by indirect increase of disposable income and purchasing power.  Otherwise, how could consumption increase?  Who could easily reject a ‘seisachtheia’ (shaking off of burdens) on first home mortgages once they have already been repaid once or twice (the initial value) when taking into account all to date mortgage payments?

But here the answer is not unequivocal. Prior to this, the government could buy all non performing loans which would otherwise be bought by vulture funds at an estimated 5-7% of their nominal value.  Along with the declaration of leaving the Eurozone, the banks should be put into a under state control and liquidation sincethei are already insolvent and then, following their bancraptcy, get reconstituted into a new and healthy basis, temporarily under state control.

Bank of Greece

It is self evident that following the return to national currency, the BoG would have to return under state control.  How would we otherwise have total control of the currency and general monetary policy by a state which believes that it exercises its sovereign rights?  For example, what economic criteria for the national economy, are the Bank of Greece and the corresponding CB of Belgium the only cases od central banks whose shares are traded on the stock exchange?  What macroeconomic factors beneficial to the national economy does this approach serve?

The argument that even Russia does not have a central bank controlled by the state and therefore how could small Greece succeed in this, seems misleading without first demonstrating if its is right or wrong, at least the intention, to obtain a State Central Bank.  Indeed, the operation of the Russian Central Bank could only qualify as an oxymoron given its orientation towards the international financial system rather than the Russian ruble, as stated in the Russian constitution.  We could draw reliable conclusions only if we knew all the facts. Otherwise, they would ne considered as simple hearsay.

Russia besides not being able to, it may possibility not want to, or it may possibly conform to a new realpolitik as it is prescribed by the Russian political-business oligarchy in power.  By analogy, could’nt it be described as a paradox, the fact that the US, without the direct assistance of Russia can not implement, for several years their space program, neither their military, telecommunications or weather programs etc?  This is because the Russians are supplying the Propulsion Vessels (engines RD -180) for the US missiles; without them, analysts say that at least for 10 years, America will not be able to implement its space program.  Only recently, the Deputy Minister of US Defence told Reuters that the US may purchase up to 18 Russian rockets in order to support the military satellite launching program for the next 6 years [xxiv] .  How could this be conventionally explained while in the midst of ‘hard’ economic sanctions of Washington against Moscow?

‘Politeian men economias charin’ [xxv] – Instead of an epilogue

The return to the national currency is not an ideological obsession or political ‘theology’.  The currency is above all the top expression of state sovereignty.  History has not even once shown that a Member State prospered within a ‘common’ currency imposed on him, or a “parallel currency”, or a “double currency” etc.  Regarding debt, David Graeber in his book “Debt: The first 5000 Years” substantiates that most uprisings and revolutions in world history have have resulted from debt issues.

In the case of the EU, the common currency could work if I was implemented like the program implemented by Alexander Hamilton in 1790 in the US following the devastating civil war, which brought together all debts of individual states into a single debt under the auspices of the federal state.

International organizations and institutions do not provide opportunities for stability as the neo-liberal school believes, but instead, they reflect according to the realists, the distribution of power in the modern world.  And indeed, the international institutions have little influence on the behavior of states and therefore promise little to promote stability in the post-Cold War era as conclusively concluded by John Mearsheimer . [xxvi]  Among others, obviously the EU, the Eurozone, the ECB, the ESM, etc., are incuded.

Additional to all this, the insurmountable problem of human geography of Europe these days is becoming more intense.  What happened in the US in 1790 and what Margaret Thatcher said (that the euro is the federalisation of Europe by the back door), would mean that centuries of European wars, different cultures, ontological narratives and a strong worldview diversity  characterizing the peoples of Europe, could not ultimately become a field of political union of Europe [xxvii] no matter how insistingly some seek to make it so.

The problem of heavily indebted and crumbling Greece is national.  Anything else without prior unilateral waiver, dissolution and liquidation of the existing banking system by creating a new healthy basis and national testing, the withdrawal from the EU and the Eurozone and, the introduction of sovereign currency will inevitably, sooner or later, result in the dismemberment of the country.  Anything that is not in the national interest, is also not a precedent for its  application. The way has been shown to us by our spiritual fathers, centuries ago.

The father of political realism Thucydides expressed it bluntly:  The alliances do not last forever and the accession of the state to other alliances should be done under conditions dictated by the specific timing without impairment and weakening of national power (balance of power).  Also, the Stageiritis Aristotle, the greatest personality of all time as concluded in a recent study of MIT/MediaLab in the US, believes that the currency is the by convention” element  defined by law by the ‘city’ and is the binding agent that modulates the trading relations of citizens and thus the Consistency and Survival of the State Itself . [xxviii]

The question of whether there exists a political body to manage this transition is a pretext for postponement and an excuse to keep Greece as another European satrapy in perpetuity.

Obviously there isn’t a political party, at least in the Parliament.  But when tsociety, due to all which we have been discussing, trandforms to ‘terrible reservists’ as coined by Aeneas in the  4 th century B.C., then the question is reversed as follows: Is there a political party that will be able to face the revolted?

* Thanos Ioannidis is an economist specializing in Purchasing & Logistics Management.  He has over 30 years experience in the public and private sectors and has worked as an expert at the Council of Europe and NATO. He studies issues of International Political Economy and he periodically writes for the  blog:


[i], some of the main cases: Monetary Union of Colonial New England, Latin Monetary Union (LMU), Scandinavian Monetary Union (SMU), the Common Monetary Area (CMA) , Eastern Caribbean Currency union (ECCU), The East African Currency Area, The German monetary union (Zollverein), the monetary union between Belgium and Luxembourg (BLEU)

[ii]…/2014/qb14q1prereleasemoneyintro.pdf , by M. Mc Leay et al., BoE’s Monetary Analysis Research Directorate, Quarterly Bulletin 2014Q1

[iii] , by M. Mc Leay et al., BoE ‘s Monetary Analysis Directorate, Quarterly Bulletin 2014Q1

[iv] , The plight of the transition to a national currency: Economic history says otherwise … ‘Thanos Ioannidis, September 13, 2015

[v] )

[vi] This means that the decision is not binding since this privilege is reserved only for the  Security Council


[viii] George Kasimatis , ” The inhumanity of Greece’s borrowing scheme: The Greek experience of a European concern with Global dimensions’ , Publishing House A. A. Livani , 2015









[xvii] An Overview Profile Feed of Non-Deliverable Foreign Exchange Forward Markets Laura Lipscomb Federal Reserve Bank of New York May 2005

[xviii] LAW 3433/2006 – Government Gazette 20 / A / 7.2.2006, defense of the Armed Forces Material Supplies.

[xix] , up Countries Can Devalue a Currency Anymore; Martin Armstrong, 27 May 2014

[xx] Competitive Advantage Creating and Sustaining Superior Performance, Michael E. Porter 1998, the Free Press, a division of Simon & Schuster, Inc., NY

[xxi] ‘ GREEK BANKS: HOW uncontrollably THEY DESTROY BANK CREDIT ‘, 10 Jul 2015



[xxiv] http : // www . reuters . com / article / cz – usa – space – russia – idUSKCN 0 X 600 H

[xxv] Aristotle , ” Politics “, Volume 3, 1133a 35

[xxvi] John Mearsheimer, ‘The False Promise of International Institutions’ , International Security, Winter 1994/95, vol.19, No.3, of pp 5-49

[xxvii] Univ. Hephaestus, ‘Worldview of Nations, Athens 2014 Publications Quality

[xxviii] Moral – Ethics , 1133 a 29 up to 1136 b 25


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