Time to split the euro in two

The topic of what should happen with Greece has percolated in Europe for years. Around dining room tables and in sidewalk cafes across the continent, discussions about the Greek crisis somehow always find their way to the matter of pensions. The Greeks, I’ve heard countless times, retire too early. They have not worked hard enough, they have spent carelessly and have not paid enough taxes. That, the reasoning goes, is why they find themselves in such a fix now.

It’s easy to cast blame. And the blame in this case is not entirely misplaced; Greece did spend beyond its means. But it was aided and abetted by a deeply flawed system. With that in mind, and as the clock ticks toward a Greek referendum on whether to accept a deal that is no longer on the table, it’s clear it’s time for some new ideas.

So, allow me to offer one: Split the euro into two currencies.

More than half a decade after the global economic crisis plunged much of the world into a recession, Europeans have a — slightly — different perspective on the troubles on the Aegean. The condescending tone about Greece has eased somewhat, tempered with a dose of compassion. The nightly news brings heartbreaking stories of elderly Greeks, retirees unable to pay for medication; of anxious fellow Europeans, standing in line at Athens ATMs, unable to access their savings and wondering how they will even be able to buy groceries.

That’s why Europeans should be asking themselves why the bitter medicine they prescribed has failed to cure the patient. After all, Greece is worse off today than it was in 2008 or 2009, when the crisis threatened to unravel the entire European integration project.

Meanwhile, when Greek Prime Minister Alexis Tsipras sits across the table with the country’s lenders trying to negotiate a bailout, it’s clear that all countries’ minds are also on political considerations. This probably shouldn’t surprise — European leaders, including Tsipras, are politicians, and everyone worries about their constituents.

What does this mean in practice? The Dutch, who would hold the greatest per capita load of Greek debt in a massive default, are not inclined to dig into their pockets any deeper. Neither are the Germans, to say nothing of new Eurozone countries, where the populations are poorer than in Greece, and where governments have made huge sacrifices to come into line with Eurozone rules.

In addition to worrying about domestic political repercussions, EU leaders are concerned about the ramifications of failing to make a deal with Athens. If Greece leaves the euro, will the rest of the world lose confidence in the currency? Will other weak members start doing the same? What would happen if they forgive Greece’s debt? If Greece is allowed to reject lenders’ demands, will other countries feel cheated and rebel against the Brussels bureaucracy? And, then, would an even deeper depression in Greece suck in the rest of the continent, just now pulling out of a deep recession?

All these questions cloud the path forward.

In fact, it is not clear what precisely Tsipras and his hard left Syriza party really want. Some suspect he wanted negotiations to fail all along so he could pull out of the Eurozone and chart a more leftward political and economic course. Others suspect it is Europe that wants regime change in Athens. Either way, it seems that whatever else he wants, Tsipras wants to stay in power, so he will not be able to completely ignore the popular will.

Which brings us back to what should happen next.

A wise man once said when you face two bad choices, pick the third. And that is what I propose. I say keep Greece in the euro, sort of.

It never really made sense to have a single currency for the entire continent. It is time to have two currencies, one euro for the wealthier economies, another for countries that could benefit from a devalued currency that would allow them to become more competitive. With a devalued currency, for example, Greece would become a vacationer and shopper’s paradise, exports could be given a boost, and investors would start flocking along with sun seekers. Greece would get back its economic legs.

I was in Amsterdam that historic day when the euro was introduced and even then it was easy to predict something along the lines of what we see today. “The sense of shared excitement will cause a reassessment of this great monetary adventure on the day when one country’s medicine turns out to be its neighbors’ poison,” I wrote. “For now, everyone is focused on the new coins jingling in their pockets. The real test will come later. Until that day, it may be a good idea to hold on to some of those francs, drachmas, liras and guilders.”

That was 13 years ago, and I have come to respect and like the euro. So much so that I think we should have two of them. Call it Euro A and Euro B, or Euro North and Euro South. One-size-fits-all monetary policy has been cruel to the Greek and Spanish populations, where unemployment remains at Great Depression levels. Countries with the weaker version of the euro would have to pay higher interest rates to borrow, commensurate with their economic reality. But investors would at least be clear that investing in Greece is not the same as investing in Germany.

Some will say it’s a little late in the game for such a move. But trying this approach too soon would have risked unraveling the hard won and important gains of the economic integration. Now that most of the continent has stabilized, it will soon be time to look forward and come up with a long-term plan to prevent another disaster.

So, while the talk in Amsterdam’s cafes may move on to other topics, the need to make tough decisions about the future of Europe will continue. I say give the Greeks and others in Europe the choice of Euro 2.0, and let them take that third choice.

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