Douglas Carswell's Blog

How to exit the Euro (in eight simple steps)

Apparently lots of expert economists are pondering how to quit the Eurozone.  There is, I’m told, even a prize being offered for anyone who can work out how it might best be done.

Given that this monetary mess was largely the product of expert economists and technocrats, they are, I fear, the last people we should defer to in order to fix it.  So here are my suggestions on how to exit the Eurozone in eight easy steps;

1. Wait for the banks to close on a Friday afternoon.

2. Have the governor of the central bank call each retail bank boss and explain you are sending over an official with a rubber stamp. Just like the Slovaks did when they broke their monetary union with the Czechs, the man with the rubber stamp is going to spend his weekend stamping every Euro bank note in the bank with a symbol that will denote that it is henceforth a new drachma, or escudo, or punt or whatever.

3. On the Monday morning, start to issue actual new drachma, escudos or punts, in exchange for the stamped Euro notes.

4. Monday lunchtime, declare that the laws of legal tender have been abolished. Make it clear that your country will, henceforth, be a jurisdiction with competing currencies. 

If you are a country like Ireland, you have lots of multi nationals doing zillions of dollars, yen and pounds worth of trade each week.  There'd be nothing to stop them paying staff in all kinds of currency - and it might suit the work force, too. You could have a lot of economic activity conducted in “safe” currencies very quickly.

5. Monday afternoon, ask the IMF - and friendly neighbouring countries who want to see you prosper – to support your new fledging currency. The new drachma, escudo or punt would lose 20 to 40 percent if its value right away. But other nations could give it a bit of ballast by, for instance, agreeing to hold a certain portion of their foreign exchange reserves in the new currency. 

Doing so would cost Britain and the IMF. But paying to fix the problem is a smart move. Paying to make it worse the way we have been is not.

6. Tuesday morning, call up the banks who bought all those IOUs, and tell them that they have a problem. Not you. Make it clear that they might get some of their money back in new drachmas, escudos or punts. But they again, they might not.

When they get huffy, tell them to blame the clowns on their fixed income desks who spent years earning massive bonuses making stupid and greedy investment decisions.

They might get hystrical and shout stuff about failing banks being the ruin of everyone - much the way nationalised industries in search of a handout used to yell dire warnings.  Respond politely by saying that if the only thing keeping them alive is the fiction that they'll be getting their money back from you, they are living dead financial institutions already - zombie banks.

Incidentally, I gather that one of Ireland’s largest "zombie banks" has property assets in London worth over £19 billion. Selling that off could buy them a lot of cash.

7. No one will want to lend you money for a long, long time. But it is not as if anyone was willing to freely lend to you anyhow, was it? 

So on Wednesday, make it clear that you think this is a good thing. Issue a budget in which the government lives within the tax base. Instead of working out what you want to spend, and then raising taxes, try doing it the other way round.  See what money is raised from taxation - then work out what you can afford.

8. With a massively devalued currency, you are well placed to export you way back to prosperity in the years ahead.  International investors will soon clock the fact that money invested in export industries could actually yield a pretty good return. Help the process along by announcing on the Thursday that corporation tax has been abolished, and all tariffs on all imports scrapped.

What do you think? Not perfect.  But what is your alternative? To remain in a currency union that makes your economy uncompetitive, guarantees no one will want to lend to you and increases your debts?

PS.  I've submitted this blog entry to the Wolfson Prize  

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