Wall Street Journal
May 24, 2012
Greece needs a solution to its impending financial demise, and that solution is to restore its competitiveness by leaving the euro and devalue. Period. End of chat.
Of course, it's not as easy as that. A clean break with the euro and the resurrection of a fully floating drachma or some new, replacement currency without addressing the massive losses that creditors would suffer would do untold financial damage.
There's a need for a balancing mechanism. My proposal, one I floated in a column this past November, is for the creation of two de facto currencies, a financial drachma and a convertible drachma.
Through this arrangement, the Greek authorities and their counterparts will be able to parcel out the losses in a smoother and hopefully more equitable way than through the uncertain and disorientating experience of a single, across-the-board devaluation. The smoother and faster that process is dealt with, the earlier Greece can get back on its feet to start growing and attracting investment again.
My plan involves a synthetic "financial drachma," which will have a fixed exchange rate to the euro and will be a vehicle through which past debts would be settled, and a "convertible" drachma, which would float freely. The floating convertible drachma would be valued one-to-one with the financial drachma, but the latter would maintain a rate into euros predetermined by the European Central Bank and the International Monetary Fund.
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