Commentary: Move Over, D Mark Here Comes The Drachma!

MEMO TO: Costas Simitis

Prime Minister of Greece

Mr. Prime Minister:

So I've been thinking about this European monetary union situation, and it seems to me your country is missing a great opportunity. Right now, when pundits draw up an A list and a B list of countries that will reap the fabulous benefits of a single currency in 1999, Greece appears way down in the alphabet. But with a little creative thinking, there's no reason the drachma can't be taken just as seriously as the Deutschemark in world markets. All you need is a little bit of self-promotion, some fiscal sophistication, and the right allies.

Let's face it, the numbers don't matter as much as positive spin. A day rarely goes by without another European fiscal basket case announcing that it wants to be among the first to inaugurate the new single currency, the Euro. Never mind that most of the hopefuls come nowhere near meeting the standards. Instead of wondering how countries with gaping budget deficits and overvalued currencies will get their economies in shape by the turn of the century, the Europhoric bond market gives its blessing.

O.K., most argue that Greece is no Germany. The drachma isn't even part of the European system of managed exchange rates. And Greece has some dubious distinctions: the worst tax collection, the most days lost to strikes, and the most egregious misappropriation of EU funds of any country in the union.

Sometimes when I ask economists whether Greece could get its budget deficit, debt, and inflation rate in line with the single-currency criteria by the millennium, they ask which millennium I'm talking about. After all, at 7%, your projected budget deficit as a percentage of gross domestic product for 1997 is the highest in the EU. Government debt, at about 110% of GDP, is third-highest. In fact, an EU diplomat once snickered that Greece's role in the EU was to give the Spanish someone to look down on.

But Greece has done as good a job as anybody in the new European pastime of fiscal tightening. Actually, you've shrunk your budget deficit faster than most in the last three years. And the only two countries whose debt level is higher than Greece's, Italy and Belgium, both expect to be charter members of the single-currency club.

That's why Greece shouldn't sell itself short. The first thing to do is make a big speech, announcing formally that you plan to be one of the "in" countries when the EMU club gets formed at the end of next year. This is what the leadership of Italy and Spain did recently. Italy has even said it would cut its budget deficit as a percentage of GDP from 7% to 3% in one year. Bond traders, those fearsome vigilantes of fiscal carelessness, just yawned.

Next, you need to put your hands on some fresh cash. With all those national treasures (think Parthenon), you must have one somewhere like France Telecom that could fatten your 1997 budget. Look at France: With a stroke of the plume, Paris picked up a $7 billion windfall from France Telecom in return for assuming pension liabilities after Telecom is privatized. Maybe you could collect royalties from future Olympics. No matter that some German hard-money men call the French move "window dressing."

BATTERED. But watch out for French President Jacques Chirac. When he first gets wind that you want to be "in," he's sure to give a speech in some region of France that's getting battered by cheap Greek imports. He'll argue that letting you into the monetary union at the beginning is a terrible idea because you'll weaken the Euro. That's exactly what he did with Italy.

But simply point out that for France, the best EMU is the biggest possible one. That's because once French citoyens realize that their federal budget will be written in penny-pinching Frankfurt, Chirac will want all the partners he can get to fight the Germans. So Chirac will eventually come around and defend Greece's early membership--just as he did with Italy.

That's all there is to it. Of course, Europe could face a reality check in coming months, if those bond traders decide that the numbers really do matter. If that happens, you might want to have your personal savings in Swiss francs. But in the meantime, you can put the drachma right up there with the mark--and stop taking a back seat to those arrogant Italians.

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