The catch is that it takes visionary, brave and out-the-box leadership, something which is sadly in short supply these days no matter where in the world you find yourself.
Greece is saddled with un-payable debts, inadequate fiat paper currency, a flawed banking system and a huge nanny state. It is also in a demographic death spiral, much like the rest of Europe. But let’s not just focus on the negatives. It also has intelligent, industrious, tough people, a proud history of progress and enlightened thought, stunning real estate, and a natural advantage in things maritime.
Some say Greece is a ticking time bomb. That explosion doesn’t have to be calamitous. It could be an explosion of prosperity, of growth, of progress.
So how does Greece get there? We have already mentioned Greece’s five monsters:
The banking system
Greece is only forced to live with the last one for now, and even that one can be turned around eventually. But the first four are rectifiable quickly and with surprisingly less pain than many imagine.
So here is my 7-step plan to fix Greece, in roughly this order.
1. Monetary Legislation – Abolish Legal Tender
The first and most important decision to be made in Greece is for legislators to de-nationalise and de-monopolise currency and declare the geographic area of Greece a laissez faire currency zone with absolutely no capital controls. Any and all types of money from euros to dollars to Turkish lira to seashells can be used in any transaction based on mutual contractual agreement.
2. Liquidation of state assets
The Greek government puts up for auction all state assets, including land. Initial prices are set and a grand auction is held in Athens. Greek nationals are given the right of first refusal in each auction lot. No foreign state or sovereign wealth fund may bid for assets – only private bidders – and contractually no private buyer may ever on-sell to a foreign state or sovereign wealth fund. If no Greek nationals show interest in an asset at the initial ask price, the bidding floor opens up to foreigners. Bids have to be settled in physical gold specie only.
3. Banking Reform
It is estimated that Greece can raise over €300bn worth of gold from an asset sale, plus it has around €5bn of gold reserves, bringing the total gold stock belonging to Greek citizens to over €300bn. Total un-backed bank deposits in commercial banks are around €300bn. Every Euro deposit is immediately converted into the equivalent weight of gold at market prices and the gold is transferred proportionately into the commercial bank vaults. All commercial bank deposit liabilities, denominated in gold, are now fully backed by gold in vaults. Bank run risk (the kind that causes bankruptcy) is eliminated since all fractionally created bank money is immediately eliminated. All outstanding commercial bank loan assets will remain denominated in euros. Banks become holders of deposits in multiple currencies and can facilitate loans in any currency depending on the requirement of the borrower and availability of the currency. Depositors can choose to keep or sell their gold for alternative currencies and remain fully in the banking system. The Greek branch of the ECB is closed down and all ties with the ECB are formally ended. All bank start-up and operating regulations are abolished, save for ordinary juridical requirements of commercial law, including the requirement to hold full reserves. Banking is legally delineated into pure deposit banking and pure loan banking. Banks may not lend out money on deposit, only funds placed with them on loan by yield seeking investors. Greeks can choose for example to shift their gold on deposit into gold or other currency loan accounts to earn yield (but concede to forgo the use of those funds for the term of the loan and accept higher risk).
4. Cessation of state services
Fourth, government declares a 6-month notice period for the complete cessation of all state services and closure of all tax collection offices. All non-wage expenses are to be phased out in 3-months, pension payouts in 6-months. After 6 months all state wage expenses are phased out. The state budget falls to zero, with zero tax receipts. The primary budget is therefore balanced. The executive and the legislature may remain intact but members must fund their own salaries from voluntary donations from their constituencies or from their own personal wealth.
5. 100% Debt Default
Immediately following the announcement to fully end state services and taxes, all Greek sovereign debt obligations are declared an illegitimate burden on future taxpayers and Greece announces without delay a 100% default on all outstanding public debt and interest obligations. Its debt problem is wiped away. Greece now has a fully balanced budget, zero national debt, a privately owned economy, a dynamic monetary system, and a sound, solvent banking system.
6. Private Security
The now abolished police and security services move into private security, paid for by private property owners to protect private property from any potential rioters. State weapons sold in the asset auctions could be used in such defensive efforts. The private security industry booms.
7. Wholesale Deregulation
All price and wage controls are abolished and any state restriction on legitimate private contracts is removed. All trade tariffs, industrial subsidies, and red tape is removed.
Crazy right? No. Necessary. Short of something this radical Greece faces a grim future.
Capital would soon begin flooding into Greece. Chronic malinvestments would liquidate rapidly. Greek citizens would be forced to sell their labour at a market rate to a willing employer in the private sector. Requiring physical gold as payment for the asset sales would likely raise the global price of gold in nominal and real terms, adding to the wealth transfer to Greek citizens. National debt obligations no longer drain the life of the Greek economy.
Private property rights, flexible labour markets, no taxes, and the completely free movement of capital with no business regulation, save for ordinary traditional commercial law, would see boom times rapidly return to Greece. This time it would be a sustainable boom. Since all land would be owned privately, private property owners would set ‘immigration policy’ individually. Private defence and security services would aid private property owners in protecting their land from unwanted guests.
Greeks would be unable to rely on the nanny state any longer. Instead they would need to form stronger community bonds again with vibrant, localised commerce flourishing. The value of family and long term planning would rise. The wealthy and large Greek diaspora as well as wealthy local Greeks (and anyone else for that matter) could set up private, well-administered funds to help pensioners with little or no support. Natural local authority would replace unnatural centralised state authority. Marriage rates would likely increase and the value of offspring would be more greatly appreciated as time preferences begin to fall and saving rates rise. Greece’s fifth monster, demographic decay, would soon be thwarted as fecundity improves.
Radical problems require radical solutions.
This article was written in July 2012.