David Brancaccio: Spain will formally ask the European Union for money to bail out its banks tomorrow, according Reuters news agency sources. On Thursday, Fitch Ratings cut the Spanish government’s creditworthiness three notches, given its banks exposure to bad mortgages and contagion from Greece.
With the Greek general election set for later this month and the possibility that country could stop using the euro, Marketplace’s Jeff Tyler looks at the mechanics of rolling out the replacement currency, the drachma, if it ever comes to that.
Jeff Tyler: When Greece adopted the euro, its old currency — the drachma — was collected and destroyed. Plus, the machine that printed those notes is out-dated. It now sits in a museum. Getting a new, modern currency designed and printed would take weeks, if not months.
Marios Efthymiopoulos: So we’re going back to the very basic, simple idea of exchange. You give me milk, I give you water.
Marios Efthymiopoulos is president of Strategy International, a research firm based in Greece. While waiting for a new currency, he says the country would need a temporary substitute.
Efthymiopoulos: We will be working with coupons. Also, everything sold now in euros would need a new price tag.
Jacob Kirkegaard: You would basically need to put new prices on everything, and into every computer system. And this again is something that would take some weeks.
Jacob Kirkegaard is a research fellow at the Peterson Institute for International Economics. He says the shift could cause hyperinflation.
Kirkegaard: The cost would be catastrophic. Greek living standards would fall by a third — maybe half.
He says many of the country’s trading partners would likely refuse to be paid in the new currency. Making a new drachma effectively worthless outside of Greece.
I’m Jeff Tyler for Marketplace.
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