An 11-year-old boy went viral this week - not an unusual
occurrence in itself, but perhaps somewhat more unexpected because
his entry into the halls of internet celebrity came in the form of
an illustrated solution to the European
Jurre Hermans of the Netherlands
a hand-drawn diagram of a euro-drachma swap, complete with an
unhappy Greek citizen, to the Wolfson
Prize contest held by noted euro-skeptic Lord Wolfson of the U.K.
Jurre's answer to the question "If member states leave the Economic
and Monetary Union, what is the best way for the economic
process to be managed to provide the sounded foundation for the
future growth and prosperity of the current membership?"
alongside five more serious entries competing for pieces of a
$250,000 grand prize.
Simple as the Dutch boy's entry may have been, it more or less
accurately captured the struggle faced by any nation contemplating
bailing out of the common currency.
Greece's problems are fairly simple and well-understood, though
sometimes obfuscated by foreign reporting. The main issue is a
crippling debt load largely owed to German and English banks.
Working without an effective tax collection system and crippled by
massive corruption, the government couldn't even collect enough
money in the good times. As foreign investors bail out, interest
rates spiral upwards and unemployment surges, there's simply no
money to be had.
The one realistic option is for Greece to
to the drachma - the currency it should almost certainly
never have left, given the serious book-cooking that had to take
place with the help of financiers like Goldman Sachs to get the
Aegean nation into the EU in the first place. The practical effect
of this will be to instantly impoverish Greek citizens and holders
of Greek bank accounts, who will try to pile into a more valuable
currency such as the dollar, pound or euro.
The upside will be extremely cheap labor in Greece, relative to the
rest of Europe, which in theory will attract a flood of foreign
and jumpstart growth. In practice, this doesn't always work - a
race to the bottom of the pool of marginal labor cost is not only
unsustainable but impractical, given the difficulties inherent in
trying to adjust European standards of living to those enjoyed by
the labor force of China, Indonesia and Bangladesh.
Even after a
record debt restructuring
which saw Greece effectively receive forgiveness for more
than half of its $206 billion dollars of privately held sovereign
, the euro needs to tackle the question of whether Greece will
eject from the common currency or receive further support. Farther
down the line, as the crisis develops, these same questions may be
asked of nations closer to the 'core' of the eurozone: Portugal,
Spain, Italy or even France.