Tuesday, 14 February 2017

Greece to ditch euro and adopt dollar - possibly!

It has been suggested by President Trump's new ambassador to the EU that Greece is looking at ditching the euro and adopting the US dollar. Supposedly the Greek government is actively looking at this.
After two years of tranquility after their last bail-out the Greeks are due to make another pass at the fan in July this year when they will have to find €10bn - which of course they don't have.

But are they seriously looking at the US dollar as a life raft?

This blog thinks not. No, what is happening is that the Germans are reluctant to hand over more money because there are elections and Merkel is already in deep for letting a million hostile migrants into the country so the Greeks are playing a little game with the connivance of President Trump and putting the wind up Brussels. The play being: give us more money or we will drop you and go dollar.

Obviously a lot of countries do use the dollar as their currency, so the idea is not completely outlandish. Ecuador and El Salvador use it as their official and only currency; others such as Zimbabwe use it because their own money is worthless.

However using the dollar does not actually fix anything for the Greeks. Dollarization imposes fiscal discipline just like the euro does. To get out from under the cosh they need to restore the drachma, which of course they can print at will.

So this is all bluff.

(Unless of course they plan to adopt the dollar and default on all their debts at the same time! But no, they couldn't be thinking that, could they?!)