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Top German Economist
'It's in Greece's Interest to Reintroduce the Drachma'

By Alexander Neubacher
Is reintroducing the drachma the only way for Greece to save itself?


Economist Hans-Werner Sinn is the president of the Institute for Economic Research (ifo), a leading German think tank in Munich. He spoke to SPIEGEL about the euro crisis, the growing uselessness of a bailout and a possible way back to the drachma for Greece.
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SPIEGEL: Mr. Sinn, the Greeks have decided not to hold their referendum. They want to keep the euro and allow themselves to be rescued by Europe. Can we all breathe a sigh of relief?

Sinn: What politicians refer to as a "rescue" will not actually save Greece. The Greeks won't ever return to health under the euro. The country just isn't competitive. Wages and prices are far too high, and the bailout plan will only freeze this situation in place. So it's in Greece's interest to leave the euro and reintroduce the drachma.

SPIEGEL: How would that work?

Sinn: It must happen quickly. Greek banks will have to close for one week. All accounts, all balances and all government debt would have to be converted into drachmas. Then the drachma would depreciate.

SPIEGEL: In that case, Greek citizens would try to empty all their bank accounts as quickly as possible. There would be chaos.

Sinn: One would have to manage. Granted, there will be a localized storm; but, afterward, the sun will shine. Wealthy Greeks transferred their assets to safe havens abroad long ago. The money will come back to Greece only once Grreece has re-established its competitiveness.

SPIEGEL: What sort of exchange rate do you envision between the euro and the drachma?

Sinn: If Greece depreciates (its currency) by around 44 percent, the nation will be about as expensive as Turkey. Then Greek products will start selling again, and tourists will start returning.

SPIEGEL: The money foreign banks and governments have already loaned to Greece would be gone. Are those losses bearable?

Sinn: Creditors would lose about half of their investments, but they've already accepted such losses (with the recent decision to give Greece a debt "haircut"). It wouldn't be more than that.

SPIEGEL: What about European governments? What sort of losses would they face?

Sinn: Economically, they would actually see some benefits. Creditor nations would have to contribute less (to a rescue) because Greece would be helping itself. It would be considerably less expensive for them -- and also for the other euro-zone countries that have lived beyond their means -- to face up to the seriousness of the situation and finally try to save themselves.

SPIEGEL: Do you seriously think the Greeks will manage to repay their debts, which are denominated in euros, with a weakened national currency?

Sinn: They will only be able to generate foreign trade surpluses if they abandon the euro. And only then will they be able to pay anything back. Otherwise, they will forever remain dependent on others.

SPIEGEL: If Greece abandoned the euro, who would follow?

Sinn: Portugal is at risk. Italy will be able to manage if it not only announces reforms, but also implements them.

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