http://www.nytimes.com/2012/05/23/world/europe/greek-businesses-fear-switch-from-euro-to-drachma.html?hp
"With a devalued currency, inflation would rise rapidly, and Greek companies would struggle to pay the euro-denominated bills of their suppliers. Trade with other countries would slow sharply for a while, as suppliers halted deliveries, further crippling Greek businesses that depend heavily on imports.
Even large Greek exporters that might benefit from a devalued currency are opposed to a return to the drachma, fearing damage to the country’s image as a place to do business.
The troubled Greek banking system, which is already running on fumes, would face a serious run as depositors pulled their funds. An estimated 250 billion euros, or about $315 billion, has already left Greek banks since the crisis first broke open three years ago. In the days after this month’s elections, more than 700 million euros, worth about $890 million, were pulled, a pattern that Greek bankers expect to continue until greater political and economic certainty is restored.
The International Monetary Fund estimates that a Greek exit from the euro would lop more than 10 percent from Greece’s gross domestic product for at least the first year after a return to the drachma."
All very temporary effects on trade.
Ten percent of nothing is nothing. Currency protection is available at the German branch bank down the block. Businesses should do their banking with the German banks. Half the deposits have left Greek banks this way.
The Drachma would come from the Greek government and pay the Greek government. I can see no way to stop the Euro from circulating in private hands.
The case against the Drachma is fiction put about by bond holders.The Drachma would be rather like the two Dollar bill.
http://www.bbc.co.uk/news/business/market_data/overview/
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http://krugman.blogs.nytimes.com/2012/05/22/britains-blunder/
Britain’s Blunder
In the nature of things, the IMF can’t go to a country not in need of a financing program and say bluntly, “Ur doing it wrong”. Nor can it easily climb down from its original endorsement of the Cameron-Osborne austerity program. But the latest consultation comes about as close as the Fund can to saying that a huge error is underway, in particular mentioning “hysteresis”, the risk that the economy’s austerity-induced weakness will inflict long-run damage.
So I guess we can add the IMF to those “dangerous voices” Cameron wants to shut up.
Also, for all those who went on and on about British inflation: I have a hard time working with the ONS data, but here’s what I get from the latest report:
The inflationistas, wrong again.
So I guess we can add the IMF to those “dangerous voices” Cameron wants to shut up.
Also, for all those who went on and on about British inflation: I have a hard time working with the ONS data, but here’s what I get from the latest report:
More Krugman:
Sensible Nonsense
OK, I see that Raghuram Rajan is now saying that “sensible” Keynesians see no easy solution to our depression, because
Reading Rajan here, you’d imagine that New York was close to full employment, that the unemployment problem was mainly in places like Nevada that had the worst housing bubbles. And it’s true that Nevada, with an unemployment rate of 11.7 percent, leads the nation. But New York has an unemployment rate of 8.5 percent! Not exactly full employment.
More broadly, Rajan seems to believe that we are a nation with pockets of high unemployment, but not a broad national problem, so that you somehow need surgical policies to address the issue (which in practice is an excuse to do nothing.) But here’s the distribution of US population among states with different levels of unemployment:
More than half the US population lives in states with more than 8 percent unemployment. Almost three-quarters lives in states with more than 7 percent unemployment. Less than a tenth of the population lives in states with less than 6 percent unemployment.
We are not a nation with pockets of high unemployment. We are a vast expanse of very high unemployment with a few pockets of not-so-high unemployment — exactly the kind of scene where broad-based expansionary policy is exactly the right thing to do.
Again, I find it astonishing that anti-expansion arguments are advanced without even a bit of data in support, when a few minutes of looking at that data would make the foolishness of the arguments obvious.
Why, it’s almost as if people are looking for reasons not to do anything, and aren’t interested in the facts."
A general increase in government spending may be too blunt – greater demand in New York is not going to help families eat out in Las Vegas (and hence create more restaurant jobs there).Do people making arguments like this take even a moment to look at the actual data?
Reading Rajan here, you’d imagine that New York was close to full employment, that the unemployment problem was mainly in places like Nevada that had the worst housing bubbles. And it’s true that Nevada, with an unemployment rate of 11.7 percent, leads the nation. But New York has an unemployment rate of 8.5 percent! Not exactly full employment.
More broadly, Rajan seems to believe that we are a nation with pockets of high unemployment, but not a broad national problem, so that you somehow need surgical policies to address the issue (which in practice is an excuse to do nothing.) But here’s the distribution of US population among states with different levels of unemployment:
We are not a nation with pockets of high unemployment. We are a vast expanse of very high unemployment with a few pockets of not-so-high unemployment — exactly the kind of scene where broad-based expansionary policy is exactly the right thing to do.
Again, I find it astonishing that anti-expansion arguments are advanced without even a bit of data in support, when a few minutes of looking at that data would make the foolishness of the arguments obvious.
Why, it’s almost as if people are looking for reasons not to do anything, and aren’t interested in the facts."
It seems real democracy helps.
.
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