Preventing a humanitarian catastrophe in Greece – by issuing state IOUs

Whatever the arguments about the long term advantages or disadvantages of a particular course of action you can simply run out of time. You can fail to convince others and/or there is simply not enough time to consider options and agree them among multiple parties. Even if it were possible to arrive at agreement it would take days to do so and years to implement it but this is no help if there is a crisis to fix within hours.

People require food, water, shelter and in modern society electric power, routine medicines and many other things. Organisations run using stocks of materials paid for out of “stocks of money” and if they are not replenished they run out – the money and then the material stocks. When they do if the organisations and their operations stop functioning you cannot re-wind the clock. You can never go back because time keeps running forward. If and when Greece runs out of money it will run out of stocks of materials and stocks of everything. Then everything will grind to a halt. At that point considerations of long run policy become irrelevant because at this point some people will start dying. A financial crisis will become a public health crisis. In fact responsible government should be able to anticipate this and act before such a stage is reached.

Thus when Yanis Varoufakis said that last week Greece should have looked at a parallel currency to keep exchanges and economic activity going a week ago he was dead right. It is already very late to be thinking about such things. The problem here can be that politicians can fail to notice that the time and the tasks at hand have changed, changed dramatically, because they are still mentally arguing over the long run policy options and are reluctant to admit that the time for that is over. Now it is about survival. If it is true that Tsipras wanted Varoufakis to go partly because Varoufakis was talking a parallel currency which was unacceptable to the creditors then this might have been a bad mistake.

The role of the European Central Bank in cutting the financial support to the Greek banks is the complete opposite of what a central bank should do. Financial stability, banking stability, is a core function of a modern society. Without it is impossible to conduct any transactions – and without transactions shops empty and everything closes. The ECB must have known this and this was an act of financial war. Not to take steps to replace that absent financial liquidity with IOUs is to risk a humanitarian catastrophe of incredible proportions.

Whatever the arguments the Greek government have run out of time. There is a point where they must act to create substitute financial instruments – if they are called IOUs it is up to the ECB to prove that they are another currency and against the rules. The state of California issued IOUs but this was not called a competitor to the dollar. In any case all governments have the right and the responsibility to act to avert a humanitarian catastrophe.