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2010-05-25

IMF has no innovative solution to Greek problems

Comments on John Irish of Reuters “Doubts over Greek aid package remain: IMF”, 25/05/2010, http://www.businessspectator.com.au/bs.nsf/Article/IMF-chief-economist-doubts-over-Greek-aid-package--5RP3D?OpenDocument&src=hp5

It appears that few top economists or government officials have come up with a credible and innovative solution to the problems of some euro members are having.

That is unfortunately a pity.

To me, there is an alternative to the conventional austere approach to Greek and Spain.

That alternative is to allow temporary intra-euro trade measures to be introduced to increase the relative competiveness of those weak euro economies against those strong ones, within the framework of monetary union and independent fiscal sovereignty.

Greek and Spain should be allowed temporarily to impose a tariff on imports from strong euro members and use the revenue to subsidise their exports to those strong economies. Their competiveness is improved and other members will enjoy lower prices of imports from Greek and Spain.

The temporary trade measures should be scheduled to be removed, either gradually over a number of years or at once at some time in the future.

That is no different from currency devaluation when a country has its own currency.

As long as it is restricted within the eurozone, it will be an “internal” issue and should not cause any issue with WTO rules.

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