Greece is in bit of a predicament at the moment. Arguably its biggest problems are not whether it can put an agreeable proposal together by Friday, or whether it should leave the Eurozone or not.
The biggest problems are, I would suggest:
- Greece would like its people to work, 25% of its people are unemployed, and half of its youth.
- Greece does not have any money.
In that respect it is not different from any any other government ever, in the history of the world.
Rulers always wanted people to work, usually a special kind of work called war-fare.
And rulers had to think of ways to pay them.
So in order to do this, governments invented taxes. Then, in order to pay these taxes in an efficient way, you needed to have money. Which meant that you had to work for money for the government directly, or for others who in turn obtained money working for the government. The government collected the taxes and gave them in part to their soldiers, who now did not need to plunder any more to supply themselves. Where did the money come from? The money was issued by the government, to its hangers-on and for work it commissioned. Because unless it did so, nobody could pay taxes. And as long as it collected as much taxes as it issued in new money, there would be no inflation. A virtuous circle all around.
(This mechanism was also useful when creating an empire, and getting people in the colonies to work for you. Issue government money and tax them. They now have to work.)
Clearly, the money has to be tamper-proof to avoid counterfeiting. But apart from that money does not have to have a value or be backed by gold or anything. The government must accept it as taxes, that makes its value. Even tamper-proof wooden sticks would do, and were indeed used, the tally-sticks.
It becomes quickly clear, that the ECB, trying to starve Greece into submission is bluffing. Because Greece collects the taxes, and as long as it puts something into circulation which is tamper-proof and it accepts it in return for tax payments, Greece has resolved its first problem. It has money.
It can now decide to give that money to its people, and that will increase GDP which creates jobs. Or Greece can make its unemployed work on public works projects, and it has resolved its second problem, unemployment.
(The only other problem which might appear again, once Greeks have more money, that Greece imports a lot more than its exports. That was a problem last time around Greece had more money – it bought too many BMWs and did not sell enough olives or tinned peaches – but I will address that in the another post)
Now, there is of course another major benefit to the government issued money. The government does not pay any interest if it issues it just like that. It does not borrow it from anyone. If it had issued its own money, it would have saved the interest, and its people would be better off. Especially the ones who do not hold government bonds, which will be the great majority of Greeks, the poorer 90% of the population.
Which money is running out in Greece?
The problem at the moment is that there is a danger that the banknotes are running out. In any economy, there is never enough notes to cover all the money in bank deposits. So Greeks want to save their funds from the financial terrorists such as Schulz, Gabriel, Renzi and Juncker, who threathen Greece with expulsion from the Eurozone, it is natural that Greeks want to save their funds from a potential Grexit and devaluation and queue up to get as many Euro notes out of the cash-machines as possible.
So it is only the cash banknotes which are running out. Money is still available in bank accounts to transfer and pay bills.
But Greeks are also reluctant to accept payments in credit cards and bank transfers, so commerce is impeded. It is up to the seller to accept these forms of payments, and whereas some will, thinking there will not be a Grexit, others, who are less sure, will not.
Clearly the situation is very damaging for the economy, and therefore a new supplementary currency, the G-Euro should be issued in Greece.
a) gets around the problem of shortages of notes in the economy
b) makes clear that Greece will not run out of money and be forced into Grexit
The G-Euro can also be used to
c) get people back to work
d) be used to pay taxes and pay for government expenditures.
The G-Euro is therefore proper money according to our definition above and will be accepted in the country.
So what should that money look like, which can be issued by the government, as a parallel currency, to be used in addition to the Euro?
Lots of people have thought of how money can be issued – here is an example of a mixed mobile-phone based money/real money payment system, which will be pretty difficult to operate. It will probably have to be a lot more simple.
The G-Euro – only available in electronic form – issued at exchange rate 1:1 to Euro
The new currency would be very similar to a debit card account, but be more universally accepted, especially for smaller transactions.
It would be even simpler to operate than a bank card, and operated by the government, and not the banks. Each Greek, based on his national ID card number, would have an account at the “Greek G-Euro Bank” which would have the exact same number as his ID card.
So in order to pay for his purchases, the buyer simply gives the retailer his ID card number, he then enters his PIN number into a G-Euro app on the retailer’s mobile phone, or computer website, and the money can be securely transferred to the retailers G-Euro account. Just like a debit card. Smaller transactions could be batch processed at the end of the day, and would be convenient for sales to trusted buyers. So a regular customer buying his bread at his local bakery will run a tab, until the baker decides to call in the credit, by processing all transactions at the end of the day/week.
FAQs about the G-Euro:
Why would people use the G-Euro payment system?
Simple, the government puts 30 G-Euro into each account each month.
Why would retailers accept G-Euro?
Retailers have taxes to pay, VAT and national insurance contributions for their employees, and they could use the G-Euro to do so. They can also transfer G-Euro to their domestic suppliers, if they accept them. Or their foreign suppliers, if they accept them.
What if I run out of money in my G-Euro account?
Once the 30 G-Euro are used up, the owner of the G-Euro account could transfer money from his normal bank account into the G-Euro account. He could then continue to purchase goods and services from retailers who only accept G-Euro and cash (assuming notes will continue to be scarce). Clearly that would help pensioners who so far relied on cash withdrawals of their pensions, which had become pretty difficult, now they can transfer their pension to the G-Euro account and use the pension money to purchase goods and services.
Can I transfer funds from my G-Euro account into a Euro account?
Why would a foreign supplier accept G-Euro and not insist on Euro?
A foreign supplier might not have enough Greek taxes to pay to use up the G-Euro he receives in payments. However, for the Greek economy as a whole, there will always be more taxes to pay, than there are G-Euro. So the foreign supplier could accept G-Euro, and could sell the G-Euro back to the Greek government for a guaranteed 90 Euro cent for each 100 G-Euro cent. Taxpayers could apply for these G-Euro which were sold back to the government, and buy them off the government at a guaranteed 95 Euro cent to cancel 100 Euro cent worth of taxes.
Can a Greek citizen sell the 30 G-Euro he receives each month directly back to the government? Or could he hold onto it until he has to pay taxes?
No he could not, he has to spend it with retailers, suppliers, or foreign suppliers. Only they can use it then to pay taxes, or if they do not have enough taxes to pay, to sell it to the Greek government.
Are retailers, suppliers, foreign suppliers obliged to take G-Euro?
No, only the Euro is legal tender in Greece, and it is against the law to issue any other legal tender.
Sorry, if the G-Euro is not legal tender, why would retailers, suppliers, foreign suppliers accept them?
If they do not, their competitors will, and they would lose sales.
What is the cost to the Greek economy?
It does not cost Greece anything to issue 30 G-Euro a month to each of its citizens. It just credits it from the computers at the G-Euro bank to each individual G-Euro account holder. That would pump 4.3bn G-Euro of spending power into the economy in its first year.
What are the effect on GDP?
Hard to say exactly, it will go up for sure, at least by 4.3bn, but probably twice as much if we assume a multiplier factor of 2. The 4.3bn represents an increase in GDP of 2.4%. If the multiplier is 2, then this will generate an increase in GDP of 4.8%.
What are the effects on job?
They are difficult to quantify, but the Greek government believes that each increase of GDP by 1% will create 15,000 jobs. So perhaps 75,000 jobs can be created from that additional demand, making a little dent into the 1.3m unemployment figure.
What are the draw-backs in terms of taxes lost?
It gets a bit complicated here: It looks initially that up to 4.3bn additional taxes will need to be raised, otherwise the government increases its budget deficit. Because now 4.3bn G-Euro are used to repay 4.3bn Euro tax demands, whereas previously 4.3bn Euro were needed to do so. As the government cannot credit its Euro accounts with G-Euro, there is a shortfall of Euro tax receipts of 4.3bn.
In reality, no shortfall will arise. If the multiplier is 2, then GDP will increase by 4.8%, so tax liabilities also rise by 4.8%.
Tax liabilities are typically 50% of GDP, so if tax liabilities increase by 4.8%, the tax liability increase, measured as a proportion of GDP, is 2.4% of GDP.
Now the 4.3bn G-Euro issued by the government (2.4% of GDP) could be used to extinguish the additional 2.4% tax liability of GDP.
Which taxes should be raised, if that is necessary?
No taxes have to be raised to make up a shortfall in the governments budget deficit if the multiplier is 2 and the tax take of GDP is 50% of GDP.
In reality the tax take is slightly lower than 50% of GDP, and the multiplier slightly less than 2. In which case small tax rises are necessary to make up for a shortfall.
The beneficiaries of this additional G-Euro consumption will be the richer parts of Greek society, who own the companies which benefit from additional sales, as well as the importers of goods to Greece. They should be charged additional corporation tax, a wealth tax, such as property tax, and for importers an additional import tax.
How about inflation, will Greece become like Zimbabwe?
No, Greece will put money into the economy, with G-Euro, but withdraw the same amount of money with increased taxes.
Now, the G-Euro adds 4.3bn to the economy, but might additional corporation/property/import taxes (should they be needed) not cancel out at least part of the benefits?
There will be a time benefit factor: The G-Euro will be introduced a.s.a.p, so that additional spending is available immediately. But the G-Euro can only be used to pay taxes from next year, giving the economy an immediate 4.3 bn additional spending power now to kick-start the economy.
What about the rest of the unemployed if only 75,000 jobs are created, what does the G-Euro do for the remaining 1.2 m Greek unemployed?
Greece could add an additional 0.5 million jobs through an “employer of last resort” programme, letting Greeks earn some money on environmentally friendly public works projects. The cost of a programme which would give 30 hours/week work to individuals at the Greek minimum wage (pro-rata at approx. 500 Euro/month) would be 3bn G-Euro. So participants in these projects would be paid in G-Euro.
How do we know how well the G-Euro will work?
We should be honest here, we will not have any idea how well this will work exactly. But it is the first programme which will put additional spending power into the economy in a long time – the Troika has so far always removed it.
Unemployment will go down due to government action and the G-Euro. For the first time in 5 years.
I cannot see why it should not work, but if anybody of the blog readers finds a gremlin somewhere, please let me know!
Finally, do the calculations change, if there is a Grexit?
Should Greece be forced out of the eurozone, Greece should still use the Euro as its currency. Just as Montenegro does now. And it could continue to use the G-Euro as an additional currency, of course
Summary of benefits
The government creates the “Greek G-Euro Bank” which sets up just one unique account for each Greek, based on their ID card.
30 G-Euro a month will be credited to each account by the government
Payments can be made, based on the ID card and a PIN number at any Greek retailer who will accept G-Euro
G-Euro can be used by small retailers instead of Euro cash and notes
Greeks can credit the G-Euro accounts with money from their own bank accounts, giving them an opportunity to get money out of their bank accounts and into the shops
G-Euro accounts cannot credit Euro accounts
G-Euro can be used by retailers to pay their taxes, starting a year from now
The creation of 4.3bn of extra spending power per year for the Greek economy does not cost the Greek government anything.
An estimated 75,000 jobs could be created through the 4.8% additional GDP growth
The Greek government could set up a “employer of last resort” programme. It could create 500,000 30-hour week jobs at 500 Euro month (minimum wage, pro rata) in the public sector. Environmentally useful “public sector works” projects could be financed that way. The cost of this would be 3bn G-Euro a year.
Based on a multiplier of 2, and a 50% tax take from the economy, no additional taxes would need to be raised to pay for the G-Euro programme.
A small amount of additional taxes (1bn or 2bn Euro?) might need to be raised, if the multiplier turns out less than 2, or the tax take of the economy is less than 50%, to avoid larger budget deficits.
In summary, the G-Euro meets all requirements of money as we defined it above. The G-euro creates money for the government, gives Greek citizens spending power, and it puts people to work. Just as wooden tally-sticks used to do.
If everything goes to plan, the Greek government could create 575,000 jobs, virtually halving unemployment, at a cost of 7.3bn G-Euro.
The cost in Euro could be a big fat 0, zilch, nada!
A miracle indeed.
the folks of Positive Money in the UK, and
the MMT contingent, such as Billy Blog, New Economic Perspectives of the University of Missouri, or Warren Mosler
and, of course,
King Henry I of England, who thought of tally-sticks as a means of payment back in the year 1100)