What some considered a joke could become reality – the Geuro, a temporary currency to run alongside the euro.
Financial experts chuckled when Thomas Mayer, then-Deutsche Bank chief economist, first proposed the idea in 2012.
But Greek Finance Minister Yanis Varoufakis and Prime Minister Alexis Tsipras of the left-wing Syriza party weren’t laughing in April when they met with Mr. Mayer – who last year was forced out of Deutsche Bank and founded his own research institute – to learn more about it.
Nor are Greece's international creditors, who are now taking the idea of a parallel currency more seriously, according to information obtained by Handelsblatt. “We've all been examining it,” a German government official said. This includes the European Central Bank and International Monetary Fund.
The promissory notes would be redeemable in full at a later date.
Mr. Mayer’s idea is essentially for Athens to issue a parallel currency in the form of an “I owe you” to pay bills, pensions and salaries of state employees. The promissory notes would be redeemable in full at a later date. Anyone using them to buy goods, however, would not get their money’s worth.
Under the scheme, deposits would also be denominated in Geuros and withdrawn at a 1:1 rate with the euro. Because the market rate of the Geuro would almost certainly be lower, savers would have an incentive to keep their money in their accounts, preventing a bank run.
The drastic devaluation, Mr. Mayer reckons, would strengthen the competitiveness of Greek exporters and boost the national economy. Athens would eventually be able to pay back the promissory notes and abolish the “Geuro,” returning to the euro as its sole currency and avoiding a much feared exit from the euro zone.
It’s all theory, but the clock is ticking for Athens to come up with a solution to avoid bankruptcy.
Video: Thomas Mayer hatched the idea of the Geuro back in 2012.
If the government is unable to clinch a deal for the release of €7.2 billion, or $8 billion, in bailout money, it will need a Plan B. Although experts believe Greece can make its €750-million payment to the IMF on Tuesday without outside help, Athens is expected to run out of cash sometime in June.
A meeting of euro-zone finance ministers on Monday is unlikely to produce anything more than a statement, insiders say. Germany's Wolfgang Schäuble has warned Athens against risking insolvency.
The ECB could offer a financial bridge by raising a €15-billion ceiling on short-term government bonds. But if the central bank refuses to make this concession, the introduction of Mr. Mayer's Geuro could help manage the ensuing turmoil.
Athens’ willingness to compromise is another sticking point. If the government cooperates with the euro zone and the European Central Bank during a hypothetical Geuro period, it might prove able to secure the bailout money after all. This would increase the Geuro's value, accelerating the repayment of the promissory notes.
But if Mr. Tsipras proves uncooperative, Mr. Mayer's Geuro plan would likely be for naught. In the event of insolvency, the E.U. bailout fund might demand immediate repayment.
The European Central Bank would then have to end the emergency liquidity assistance keeping Greece's banks afloat. The country's financial system would collapse and a return to the Drachma – the country's pre-euro currency – would be the likely outcome.
Some believe a Greek exit from the euro zone, the so-called “Grexit,” would actually give Athens greater fiscal flexibility to recover.
But Andreas Andreadis, president of the Association of Greek Tourism who also has a seat on the general council of Greece's central bank, isn't one of them. He believes a return to the Drachma would be a nightmare.
“Greece would fall into hyperinflation, recession and mass unemployment – we would be a ghetto of poverty,” he said. “Who wants to travel to a country where the people are poor and have fallen into a state of collective depression?”
Jan Hildebrand leads Handelsblatt's financial policy coverage from Berlin. Jan Mallien covers monetary policy for Handelsblatt in Frankfurt. Gerd Höhler, Handelsblatt's correspondent in Athens, also contributed to this story. To contact the authors: [email protected], [email protected]