16 September 2015 · REGIOS

he crisis in Greece is now ente-ring its eighth year. Per capitaGross Domestic Product (GDP)in 2008, the first year of reces-sion, was about 23,200 euros.

Taking into account taxes and duties, a Greek earned an average of 1,000 euros permonth. In the wake of the economic crisis,GDP fell to just 16,500 Euro in 2014 and dis-posable income to about 700 euros permonth. If the price of goods had fallen at thesame rate, that would not be worth mentio-ning. However, a look at the cost of living in-dex in Greece for the same period shows anincrease in prices. By comparison, the aver-age German income for 2008 was about 1,500euros and is currently at about 1,600 eurosper month.

Economic Crisis Past And PresentWhat would happen in Germany if the aver-age income dropped (at constant prices) to1000 euros? We have to look back a longway before we find something comparablein Germany: the economic crisis of 1929 to1933. During this period, per capita GDP al-so fell by a third. Most Germans lost patien-ce after four years and chose Nazism, whichboth economically and morally completely

wrecked the state within twelve years. InGree ce, however, people have now trustedthe established political parties for eight yearsbut the rapid drop in income has left a deepmark on the people of Greece. Parents whocannot feed their children and have to sendthem to SOS Children's Villages, sick peoplewho are not treated anymore and many other

examples show that a decrease in income le-vels of 30 percent has caused a number ofhuman tragedies. At the end of 2014 the

Greeks brought the left-wing Syriza party topower and set high hopes on the new go-vernment. Premier minister Tsipras appoin-ted economist Yanis Varoufakis as finance mi-nister of the new government. This is re-markable for in February 2014 Varoufakisposted a proposal for a parallel currency forGreece at his blog (http://yanisvaroufakis.eu).What was this proposal?

Proposal By VaroufakisFor Varoufakis the starting point is the down -ward trend of the Greek economy and defla-tionary tendencies in the Euro area since2013. In his view, the monetary expansionof the European Central Bank was too small

in contrast to the US, which has respondedvery expansively since 2008. While the US Fe-deral Reserve printed dollars to buy large

quantities of US government bonds, the Eu-ropean Central Bank only reacted slowly toeconomic weakness and falling prices. Thesouth of Europe was particularly affected. Va-roufakis draws an interesting comparison tothe crypto-currency Bitcoin. The amount ofBitcoins is absolutely limited to 21 million.There is no possibility of achieving growthmomentum by increasing the money supply.Similarly, the money supply is fixed in the sou-thern countries of Europe. The strength of thenorthern economic regions draws money outof the southern regions, which is lacking the-re more and more. Varoufakis did not consi-der in his analysis that the European CentralBank has also greatly increased the quantity

Give Greece a chance –with a parallel currency that stays

T

In 2011, Christian Gelleri and Thomas Mayer proposed a second currency for Greece. Since then

the Greek problems have not been solved and have instead become worse. The country is still

enduring severe economic problems and national bankruptcy remains dangerously close. A parallel

currency »NEURO« could help to avoid the worst and act as a leverage for the better.

»The limitation of

cash outflows should

have the highest priority

for Greece.«

REGIOS · September 2015 17

Varoufakis’s suggested parallel currency thushas strong disadvantages:1. In an atmosphere of impaired trust the

newly created parallel currency would bechanged back in no time.

2. The bonus indeed benefits honest taxpay-ers but if the overall willingness to pay ta-xes does not significantly increase then apoor state will get even poorer throughthe FT-Coin. This increases the probabilityof bankruptcy and the preference to chan-ge the FT-Coin into Euro immediately.

3. The FT-Coin tends to slow velocity of cir-culation because it is more likely to be hoar -ded due to the tax credit.

Through this proposal we can well see thata parallel currency is not automatically an im-provement. It depends very much on the spe-cific design. A bad design can not only fail toachieve its intended effects but even causethe whole thing to backfire. In technical termsit is called a negative money multiplier whenthe new money set into circulation causes areduction in economic performance. In thiscase, Goethe's »force which always wants eviland yet creates the good«, would be exact-

ly reversed. But can we not perhaps also wantthe good and then create the good?

Panicked Greeks Drain CashBack to the diagnosis of the patient: It is ob-vious that the Greek patient is terminally ill.Economic output has fallen by one-third. Fac-tories are shut, workers sit at home and young people have the choice between un-employment in their own country or uproo-ting by emigration. Does the problem may-be lie in wages or the economic structure? In2013, Greece was the no. 1 in terms of re-forms and reduction of labour costs (study bythe Lisbon Council). Nevertheless, the eco-nomy did not recover. In the media it was saidthat the reforms must continue and that thecuts were not deep enough. But if unit la-bour costs compared to the Euro area havefallen by 15% over two years (2011 to 2013),then the problems in Greece do not havemuch to do with the allegedly high labourcosts, but with a profound crisis of confiden-ce. This can be seen very well from the cur-rency measures:

Between 2009 and 2014, the money supplyper capita was increased in the Euro area to

5,600 Euros per capita. Even more of this in-crease remained in Germany, namely 6,700Euros per capita. In Greece there was nothingleft of this increase. On the contrary a se-rious outflow of funds at the rate of 2,900Euros per capita was measured. The »freemovement« of the Euro had a positive effectfor Germany. For Greece, however, the Eurois a disaster. From the German perspective,the current situation in the Euro area can ea-sily be handled. The German economy con-tinues to benefit from the cash inflows andthe received loan guarantees for the southernEuropean countries currently do not (yet) leadto payment obligations for the German go-vernment.

Parallel Currency For GreeceThe limitation of cash outflows should havethe highest priority for Greece. A possible par-allel currency must therefore be designed toprevent leakage. In the first proposal for aNEURO (see Gelleri / Mayer, 2011 »Expressmoney for Greece« and Gelleri 2012 »NEU-RO for Greece« under www.save-the-eu-ro.org) an exchange fee of 10 per cent forthe exchange of a parallel currency into Eu-

ros was advocated. This proposal is usefulfor crisis-hit countries such as Italy, Spain andPortugal, who can still hold plenty of Euro re-serves. This was also the case in Greece inthe years 2011 and 2012. Meanwhile, the eco-nomic and political situation has become soacute that the original proposal has had tobe modified until the situation stabilizes. Itshould also be noted that the impression isthat the child has already fallen into the fo-untain. But let’s imagine that the Greek cen-tral bank, the Greek government, the Euro-pean Central Bank and the Euro partners ag-ree on the following schedule:1. The Greek central bank is given permissi-

on to emit a parallel currency to the amo-unt of twelve percent of Greek GDP. Thiscorresponds to a value of about 22 billionEuros.

2. The parallel currency is named NEURO, thenew Euro for Greece.

3. The parallel currency is published purely el-ectronically and is not convertible into Eu-ro. There is no cash.

4. The Greek State guarantees the acceptanceof NEURO for the payment of taxes, dutiesand benefits 1 to 1 against the Euro. Theofficial value of 1 NEURO is 1 Euro.

of money, similar to the US Federal Reserve.None of this increase has arrived in Italy, Spainand Portugal yet. On the contrary, moneyhas even flowed away from there. The mostmassive drain, however, happened in Gree-ce. Thus an even greater influx of Euros wouldnot have reached the Greeks either. Despitehis incomplete analysis, Varoufakis came toa correct conclusion, namely that the intro-duction of a parallel currency could help tostabilize cash flows.

Inspired by the debate about the crypto-cur-rency Bitcoin, Varoufakis developed the con-cept of »FT-Coins«. FT stands for Future Taxes. Money is created in expectation of fu-ture tax revenues. Varoufakis was awarethat paying taxes is not particularly popularin Greece, so he tried a stimulus: »You pay,say, 1,000 Euros for 1 FT-Coin issued by theSpanish, Greek, Italian or Irish Treasury etc.This process is connected with the followingagreement: The FT-Coin can be redeemedat any time in 1,000 euros or, after two years,it induces a tax credit of 1,500 Euro. EachFT-Coin carries a time stamp, which ensuresthat the additional taxation value will takeeffect no earlier than two years later. After re-demption of the FT-Coins new FT-Coins canbe issued. This ensures that the total amountof FT-Coins is no higher than, say, 10% ofGreek GDP. »

The concept reveals much about Varoufa-kis’s thinking. The guarantee to redeem FT-Coins without deduction in Euros at all timesdepends on a high level of trust. If this trustwere tested in practice and many participantsexchanged the FT-Coins for Euros, one wouldprobably discover that not so much liquidityis available. The second assumption is thatthe 50% bonus increases the willingness topay taxes. The danger is that those who still

pay taxes take the reduction of one-thirdand that those, who pay no tax today willnot do so in future either. This would there-fore potentially reduce the state budget fur-ther. The third issue is the appeal of hoar-ding money for those who have to pay taxesin the near future.

»With such a parallel

currency, the money

supply is increased

per capita up to

2,000 NEURO.«

M1 end of 2009 per capita 12.100,00 € 14.800,00 € 11.300,00 €

M1 end of 2014 per capita 17.700,00 € 21.500,00 € 8.400,00 €

Difference + 5.600 € + 6.700 € - 2.900,00 €

Eurozone Germany Greece

Table 1

18 September 2015 · REGIOS

tion incentive rate flows to the commerci-al banks for the operation of the accoun-ting system. There are 200 million NEUROsavailable to cover costs of an estimate offour million accounts, each with a cash-less payment card. The commercial banksare not allowed to charge any additionalfees for account management and the is-suing of debit cards. One third of the in-come from the circulation incentive rate flows to the Greek central bank for the development of infrastructure for the par-allel currency. If a drop in the velocity ofNEURO money occurs, the central bank canincrease the circulation incentive rate.

8. By law, all (domestic) creditors of the Gre-ek state will be obliged to accept NEUROat a fixed ratio. The initial rate for the firstsix months is 10%. As soon as the moneycirculation has accelerated in Greece, therate is gradually increased. Members of Par-liament and government officials get paidfrom the start 75% of their net salary inNEURO.

9. Much of the NEURO is used for invest-ment and social programs. An examplewould be the reactivation of night allo-wances for police officers. Another exam-ple would be interest-free loans for smalland medium businesses. Even social pro-grams to alleviate the worst misery couldbe subsidised in NEURO.

Positive EffectsThe NEURO strengthens the community inGreece. With such a parallel currency, the mo-ney supply is increased per capita up to 2,000NEURO. The expected high velocity of NEU-RO could stop the economic decline in theshort term. The NEURO would primarilystrengthen the revival of the domestic eco-nomy. Farmers, crafts, transport operators,retailers and domestic service providers and

producers would benefit most. Through el-ectronic payments all transactions are accu-rately recorded. To avoid the circulation in-centive fee, NEURO would preferably be usedfor tax payments. The NEURO would not besuitable for hoarding, but only for paying, in-vesting and giving. It would create an »ea-sy« money, which would be spent willinglyand quickly. Once the tax bill arrives, NEUROare immediately transferred. The Euro would

5. Trading of NEURO is allowed. The exchan-ge rate develops according to supply anddemand. For each trade transaction a taxof 3% is payable.

6. The NEURO is provided to the Greek go-vernment interest-free for three years. Af-ter two years, the results are evaluated.The rules are optimized and a new opti-mal money supply is determined for a fol-lowing period.

7. In parallel to the existing Euro accounts,commercial banks keep NEURO accountswith a circulation incentive (storage fee)of initially 3% per year. This “storage fee”stimulates the circulation of the currencybecause the earlier the money leaves theliquidity account for payment or lending,the less costs arise. Transactions to Euroaccounts should at first be made techni-cally impossible. One third of the circula -

»The expected

high velocity of NEURO

could stop the

economic decline

in the short term.«

»If eleven million people in

Greece were to accept the

NEURO, they would take

their fate into their own

hands again.«

Back to Drachma or forward to Neuro? Money can be improved and become a solution. The Greeks could be pioneers of a new economy.

REGIOS · September 2015 19

remain strong in tourist regions and in ex-port-oriented companies. But in the area ofdomestic economy the NEURO could becomea popular means of payment because it wouldbe available for the majority of the popula -tion and not scarce like the Euro.

The Problem With Paper MoneyA major issue are the Euro banknotes andcoins, which have become very popular inGreece since the Euro was introduced. In 2007about 1,000 Euros per person were in circu-lation, in 2014 it was more than 2,000 Eu-ros. However, average Greeks do not have2,000 Euros in their wallets, but less than 100Euros. So where is all the cash? A small pro-portion circulates in the black economy, alarge proportion is hoarded in vaults. This isreflected in the high number of 500-Euro no-tes, which are rarely used by the normal population for day to day payments. The Greek government has proposed to limit pay -ments in Euro banknotes and coins to a ma-ximum of 70 Euros per transaction. Paymentsbeyond that would be punishable by law when

using cash. Whether such a ban can be im-plemented and monitored, however, is verydoubtful.

The Harvard professor Kenneth Rogoff callsfor the abolition of cash, because therebythe black money economy and crime couldbe reduced and secondly, the introduction ofcirculation incentive rates would be facilita-ted. In 2009, he was still ridiculed for this pro-posal. Meanwhile, he receives prizes andawards, most recently in December 2014 asa »Distinguished Fellow« in Munich. Greecealone can not solve the Euro banknotes andcoins issue. Therefore, the development ofthe Euro banknotes and coins must be clo-

sely monitored. As the largest economic play-er, the Greek State can significantly contri-bute to the promotion of cashless payments.All expenditures in NEURO and Euro couldbe made without cash. On the revenue side,the state may charge a transaction tax forcash payments. Thus, paying taxes with Eu-ro cash would become more expensive thanwith NEURO and NEURO salaries would be abit higher than the Euro salaries, which would

mean further incentives for the use of the par-allel currency. Another aspect is effective ta-xation. Which taxes are bypassed and whichare effective for all? Maintaining social balance is the task of a more just political system.

Create A Positive AtmosphereMost important, however, is the creation of apositive mood and awareness in the popula-tion that only by rapidly spending the meansof exchange will there again be revenue forentrepreneurs, citizens and the state at theend of the day. If eleven million people inGree ce were to accept the NEURO, they wouldtake their fate into their own hands again.

Germany could contribute to a positive moodby restructuring the claims against Greeceas follows: Germany waives interest and of-fers postponement of debt repayments until2020. From 2021, Greece would be obligedto pay 5% redemption per annum, pay ablein NEURO. This conscious step would preventa disorganized bankruptcy and would ensu-re that the Germans receive repayment fortheir years and decades long export servicesto approximately the same degree from Gree -ce. For this purpose, however, it is first of allnecessary to consolidate the structures in Greece and rebuild the domestic economy.This type of restoration from the inside withthe outside only assisting could serve as amodel for other countries in crisis.

In conclusion, a small model calculation shows which value added effects a parallelcurrency might have. The effects would bebuilt up gradually. After two to three years,GDP could again reach the level of 2008.

A parallel currency would cost the individualcitizen an average of about 50 Euro per year,but on the other hand, a value of 6,000 Eu-ro-equivalent is generated. This is such animpressive ratio between expenditure and re-venue, that the question arises why such ameasure has not already been implementeda long time ago. z

www.save-the-euro.org

Translation from German into English by Jens Martignoni, Daniel Wittig and John Rogers

Christian Gelleri, born1973, is a trained gradua-te teacher of trade andMaster of Business Ad mi -nistration. He is the initia-tor of the Chiemgauer, themost successful regiogeld(local currency) in Ger ma -ny. As a founding boardmember of the Regiogeld

Association Germany he has significantly sha-ped the dissemination of local currencies inGermany and has a broad knowledge of thestatus and prospects of new currencies.

Government expenditure per month 8 Mrd. € 2 Mrd. NEURO

Average money supply 90 Mrd. € 22 Mrd. NEURO

Money supply multiplier 2 x 4 x

GDP currently 180 Mrd. €

GDP after the introduction of the NEURO 160 Mrd. € 88 Mrd. NEURO

Tax revenues + 22 Mrd. NEURO

Cost of negative interest 0,6 Mrd. NEURO

Model calculation EURO NEURO

Table 2

Thinking differently is exhausting.But it is worthwhile to reflect on the

development of our money.