Drachma reintroduction ‘would mean social explosion’

A renowned economist has warned from reintroducing the drachma in Greece.

Greek economic expert Miranda Xafa said such a step would cause “economic chaos and a social explosion”. She told profil that no one could guarantee the stability of the currency.

Xafa added: “No Greek exporter, hotelier or restaurant owner would change their Euros for Greek drachmas. This is why the drachma would mainly become the currency of public servants and pensioners.”

Xafa said she was convinced that the immensely indebted country would only carry out the promised economic and structural reforms if the European Union, the International Monetary Fund (IMF), the European Central Bank (ECB) and foreign creditors keep up the pressure.

Asked whether Greek banks were also to blame for the country’s dismal economic condition, Xafa said this was not the case. “Compared to Irish finance institutes, they provided credits in careful manner. If they go bust today, this happens because the country is bankrupt.”

Meanwhile, Nobel Memorial Prize in Economic Sciences recipient Joseph Stiglitz said: “European politicians developed a method to kill the Euro. Europe is committing suicide with its austerity course.”

The American economist told profil: “The order is wrong. Growth must happen first. After that, the deficit can be reduced. Austerity will not work out. No federal economy in the world has ever succeeded with savings measures.”

Stiglitz claimed that no one could say at which stage the current crisis was currently in. He said it was impossible to determine whether half of the time span of the recession the economy had been in since 2008 was already behind us – or less. “I would predict the Euro crisis to get worse if I had to bet,” he added.

Stiglitz said the Austrian economy – which grew by 0.2 per cent from the final three months of 2011 to the first quarter of 2012 – benefited from the strength and stability of Germany. The economist, who consulted Bill Clinton during his presidency, underlined the advantages of a neighbouring country’s solid economic position – and praised Austria for “keeping its industrial basis which is strongly connected with Germany.”

This analysis will have certainly pleased Christoph Neumayer, the general secretary of the Federation of Austrian Industries (IV). Only a few days ago, Neumayer called on political leaders to strengthen Europe’s industry.

The IV general secretary told the Kurier the EU must create ideal circumstances for its industrial sector in the crisis. Neumayer added that Europe’s industrial sector had to concentrate on being more innovate but also quicker than its Asian rivals.