Solutions from Slovakia on the Eurozone Crisis

Solutions from Slovakia on the Eurozone Crisis

Directed utilization of a mix of instruments

1.) Restructuring parts of debt forgiveness (15-20%)

2.) Internal devaluation (20-25%)

3.) Measures by the Greek government for more effective tax collection and elimination of unproductive expenditures.

4.) Bridging loans from Eurozone mechanisms and the IMF.

Bratislava Castle (c) The Daily

Together the above form a model which proves capable of solving contemporary problems faced by public finances in Greece. And by adjusting the parameters, it can also aide other countries in southern Europe. Internal devaluation of the Euro closer reflecting its real exchange value has a greater potential of markedly eliminating the so-called problem of a two-speed European economy.


In order to renew investors trust, which will enable Greece to access standard financing rates on international markets, it is necessary for them to present the capacity to pay the principal loans in the short term, in other words, achieve a budget surplus. Of course, this is no longer possible without economic growth and with it controlling government revenues in relations to expenses. The aforementioned is only possible by increasing the competitiveness of Greek productivity on both the domestic and international markets. This requires the elimination of the euro exchange rate burden which is creating a discrepancy between market accepted productive utility value and the price of labour expressed in common currency. One approach is the devaluation of the currency which can be achieved without their exit from the Eurozone.

“Internal” devaluation by means of a single-handed reduction of all salaries and retirement pensions will result in practically the same effect as currency devaluation but without the many negative consequences for the population and financial sector. The noticeable decrease of the quality of life of the population will only be a short term phenomenon since the reduction in labour costs will be quickly reflected in the deflation of prices of domestically produces goods. This will lead not to the decrease but to the increase in the value of savings and thus reducing the likelihood of a bank-run. Only single entities and loan payments will find themselves at a disadvantage.

The present situation in Greece is so serious that it warrants the use of the complete catalogue of the abovementioned instruments. It is not advisable to omit any of them.

1.) The forgiveness of a certain amount of debt mitigates current pressure and partly eliminates the level of consequent decreases in the capacity to pay loans resulting from reduced nominal production.

2.) Internal devaluation will enable Greece to increase its competitiveness and achieve real economic growth with all the accompanying positive effects (including on the unemployment rate which is currently increasing)

3.) Measures by the Greek government in the sphere of more effective tax collection and elimination of unproductive expenditures will increase the ratio of government revenue to GDP.

Loans from Eurozone mechanisms and the IMF will enable to span the rough period until the Greeks will be able to renew investors’ optimism and regain access to standard financing rates on international financial markets.

Only a process managed along such agreed upon parameters can bring about the following:

– reduce overall the damage threatening the bankruptcy of a whole country in case of poor management.

– Renew citizens trust in other Eurozone member states in Greece’s ability to pay back the loans.

– Fairly resolve expenditure problems (damages) of all groups involved.

The Eurozone finds itself in an evolutionary phase where it must look into the past and admit its mistakes so that it can address them. Without it the common currency project will not renew trust which is the building block of its existence. The application of the given catalogue of steps enables this to quickly take place and for a price covering only the present problems. In such a manner can the Eurozone become stronger in a year from now than it has ever been in the past.

By Ladislav Vozárik


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