Originally Posted by
Snapper
I don't claim to be an economist but I thought that happened because the debt would be denominated in Greece's currency, Drachma say?
So a hotel in Greece might currently offer a room for, say, 25,000 Drachma; and for want of any other figures, let's say that 20% of that eventually trickles back to the government in taxes. If the exchange rate against the Euro was EUR 1 = GRD 250, for someone from Europe booking that hotel room it would cost them around EUR 100. The Greek government would net 5,000 Drachma from this. That's either 5,000 Drachma or 20 Euros. If their debt is denominated in Drachma, they can repay 5,000 Drachma.
If Greece then inflated its currency by, say, 25%, in theory that same hotel room will cost GRD 31,250 and at the same time the exchange rate will fall to EUR 1 = GRD 312.5. Someone from Europe booking that hotel room will still pay EUR 100 for it because of the fall in the exchange rate. The Greek government would now net 20% of GRD 31,250 = GRD 6,250. So they can now afford to repay 6,250 Drachma.
This wouldn't address any structural problems the country might have (black market trade, size of public/government organisations, social security, etc.) so it's never going to be a permanent fix. But it could put a plaster on things for a while.
It's interesting stuff though Keith. I think we are in for a few interesting years, especially with the outcome of last night's agreement. If I might quote directly from the Beeb's website:
But perhaps most significant was eurozone leaders' announcement that there will be tougher controls in future on the budgets of member countries, integration of taxation, and a whole new framework for running the eurozone, including a new leadership structure which will rival the decision-making mechanism of the wider European Union.
The Europe five years from now might be quite a different beast from the Europe of today.
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