By abandoning the euro, each country would regain control over monetary policy and could thus solve their own particular predicament. Some, such as Greece, may default, but its central bank could limit the damage by purchasing the dud bonds from banks at face value and keeping them on its balance sheet without marking to market (central banks have this option, as the Fed showed again in October 2008). Banks would then have stronger balance sheets than ever, they could create credit again, and in exchange for this costless bailout central banks could insist that bank credit -- which creates new money -- is only allowed for transactions that contribute to GDP in a sustainable way. Growth without crises and large-scale unemployment could then be arranged.
But Dr. Werner acknowledges that this is not likely to happen soon. Brussels has been instructed by President Obama, no doubt instructed by Wall Street, to hold the euro together at all costs.
The Promise and Perils of Grexit
The creditors may have won this round, but Greece's financial woes are far from resolved. After the next financial crisis, it could still find itself out of the EU. If the Greek parliament fails to endorse the deal just agreed to by its president, "Grexit" could happen even earlier. And that could be the Black Swan event that ultimately breaks up the EU. It might be in the interests of the creditors to consider a debt jubilee to avoid that result, just as the Allies felt it was in their interests to expunge German debts after World War II.
For Greece, leaving the EU may be perilous; but it opens provocative possibilities. The government could nationalize its insolvent banks along with its central bank, and start generating the credit the country desperately needs to get back on its feet. If it chose, it could do this while still using the euro, just as Ecuador uses the US dollar without being part of the US. (For more on how this could work, see here.)
If Greece switches to drachmas, the funding possibilities are even greater. It could generate the money for a national dividend, guaranteed employment for all, expanded social services, and widespread investment in infrastructure, clean energy, and local business. Freed from its Eurocrat oppressors, Greece could model for the world what can be achieved by a sovereign country using publicly-owned banks and publicly-issued currency for the benefit of its own economy and its own people.
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