In the face of the European debt and financial crisis, Hamburg-based economist Dirk Meyer has a "third way": a system of parallel currencies.
A professor at the Helmut Schmidt University of the armed forces, Meyer is convinced that in its present form the euro zone is simply not sustainable in the long term. He used an address to the Berlin Freie Wähler (free voter) association earlier this week to describe a standing European dilemma: on the one hand, the euro is presently causing huge economic problems; on the other it is politically and economically indispensable.
"If we go on the way we have been, it’s going to cost us somewhere between 75 and 150 billion euros a year," Meyer said. However, giving up the euro and returning to national currencies would mean "each state to itself, and the disintegration of the European Single Market" – and the cost of that, Meyer added, was "incalculable," although he estimated it at between 300 and 400 billion euros.
Hence, according to Meyer, the euro has to be here to stay, but it should be complemented by national currencies. He characterized today’s Europe as a two-speed Europe, the requirements of which cannot be met by the euro as a single currency. He said the principle of the Single Market could only work if there were competing currencies.
From a legal point of view, there were ways that individual member states could accommodate this, Meyer said, pointing to exceptions in fishery and farming policies.
In Greece, the drachma would be reintroduced as the official currency while the euro would stay on as an equivalent currency. The National Bank of Greece would split into two departments, with the Euro Department linked to the financial and political institutions of the Euro Zone, and the Drachma Department responsible for an independent monetary policy with flexible exchange rates.
However, possible bankruptcy of the Greek state also has to be factored in, Meyer said, and were that to happen Greece should be excluded from the euro zone and go back to using the drachma as a sovereign currency while the euro would remain as a legal currency.
"If we do it that way we can reduce the temptation to take the money and run, both in terms of capital flight, but also the risk of a run on banks," Meyer said. The devalued drachma would make Greece more competitive and lead to new growth in the mid-term.
Under certain circumstances, a return to the D-mark could also be beneficial to Germany if the euro continued on as a parallel currency, Meyer said. The mark could act as a form of security if the euro area were hit by inflation, but there would also downsides, he said: for example, anybody with a life insurance policy in euros would be paid out in euros, and would get badly hit in the event of euro-area inflation.
Meyer added that he operated under the assumption that were the D-mark to be reintroduced in Germany the euro would inevitably play second fiddle to it.
Free Voter federal chairman Hubert Aiwanger said: "We’re looking for alternatives to current policies that lack alternatives with regard to Europe. We need new concepts instead of seeing Germany as the one that has to cough up ever-more for ever-longer periods."
Aiwanger does not believe Greece can pay its debts back, and that the reintroduction of the drachma parallel to the euro could be a reasonable solution. Other countries could later adopt the system as well. "There’s a disconnect in the currency zone we presently have," he concluded.
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