Simple solution for Greece: Adopt the dollar

Γιατί; Το ρούβλι τι έχει;

By Matthew Lynn LONDON (MarketWatch) — The story that Iceland might ditch the krona and adopt the Canadian dollar instead was one of the more intriguing news items of last week. But it didn’t seem to have much support. The sensible Canadians, who came through the credit crunch with hardly a scratch,

quickly decided they didn’t want to take on responsibility for Iceland’s financial “innovators,” even if they might be more chastened these days than they were for most of the last decade.

There is, however, a dramatic currency switch that might just work: Greece ditching the euro EURUSD -0.08% , and adopting the dollar instead.

Crazy? Not completely. In fact, it might well be one of the few viable ways to get Greece out of its current mess. And if President Barack Obama could pull a plan to save Greece, and with it a fragile global economy, out of the hat in the autumn it wouldn’t exactly hurt his chances of re-election.

Despite a temporary stay-of-execution with its latest debt restructuring, Greece is no more fixed than it has ever been.

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Spain looks to ease austerity plans

Spain is in a war of words with Brussels as it looks to gain some leeway on on its budget deficit for this year but would keep a tough deficit target for 2013. Dow Jones’s Terence Roth has the latest developments. Photo: Reuters

True, no less a person than French President Nicolas Sarkozy has assured us that with the latest debt restructuring the crisis is over and we can all start worrying about something else. But of course it isn’t fixed at all. Greece is still in a deep economic hole. Its economy may shrink by another 6% this year. Youth unemployment is now above 50%. There is zero sign of stability let alone growth, which means the debt burden keeps rising. Elections are on the horizon, which could well see extremists come to power. If the new government starts to renegotiate the terms of the bailout package, as it might well, the whole thing could unravel and everyone would be back to square one.

Meanwhile, the Greek economy continues to slip into an abyss. The latest bailout deal salvages some money for the banks but does nothing for Greece itself. As part of a fresh round of austerity measures demanded by its euro-zone partners, the government is pushing through cuts in government salaries and in the minimum wage. As people’s pay goes down, they going to spend less money, more businesses will go broke, and unemployment will keep rising. In reality, Greece is being forced to double-up on the same austerity, zero-growth policies that got it into this mess in the first place. It seems precisely nothing has been learned from the last two years.

But actually there is a simple solution that few people have yet considered. I am indebted to Georgios Gialtouridis for making the suggestion to me. Greece could simply swap the euro for another big global currency — the dolla