The European financial disaster (after two years it can hardly be called a crisis anymore) continues to get more complicated and more dire. With the world watching the election in Greece, matters in Spain and Italy are going from bad to worse.As national and local governments from Cyprus to Portugal come under greater pressure, we could soon see them resorting to a very old fashioned expedient: issuing scrip. Scrip is paper that, technically, isn’t money, but it looks like money and circulates like money. Think of it as an IOU: the Greek government could issue small denomination bearer bonds that would not be euros. They would be promises by the Greek Central Bank or the government to pay the bearer five, ten or whatever number of euros on some date in the future.The government could offer its domestic suppliers and employees a choice: get paid in scrip now, or stand in line to get paid five or ten years down the road. What past experience with scrip has shown is that most will take the scrip because something is better than nothing; most stores will also accept scrip from their customers as otherwise they can’t do business at all. Depending on how dire things are, government employees could get anywhere from ten to one hundred percent of their salaries paid in scrip, and to sweeten the pill, the government could require its own offices to accept scrip in payment of debts — at an appropriate discount.Scrip would be worth less than euros. Nobody is going to swap a real five euro banknote for a “promise to pay” five euro certificate from the government of Greece. But the scrip wouldn’t be worthless, and its value would fluctuate depending on peoples’ perceptions of the situation in Greece. If the government were careful and restrained in its use of scrip, and if it continued to pursue economic reforms and if tourism and the economy begin to recover, scrip could even increase in value as confidence returned.Since few people outside of Greece would accept scrip, oil and other items would have to be paid for in international currencies at international prices. The government might well choose to impose capital controls and, for example, convert what few deposits remain in the domestic banking system to scrip at an inflated value, conserving the euros to cover necessary imports.This would be a colossal mess, but so what? Greece has no course open to it today that doesn’t result in a colossal mess with lots of suffering all round.When and if Italy and Spain find themselves at a dead end similar to the one now facing the Greeks, they too may find that for national, regional or local governments to issue scrip is a way to cushion the impact of austerity without formally breaking with the euro.This is a very Mediterranean solution to a problem. You don’t formally break with the old system; you merely improvise around it. It is a way of devaluing but not devaluing, of blurring the line between leaving the euro and staying in. Europe would still have one money, but the different European countries would have different relations to the single currency.It may not work, but we should not be surprised if it is tried. The inability of European institutions to resolve the euro’s problems by ordinary methods is driving people everywhere to embrace more heterodox approaches. Scrip has appeared at other times of monetary meltdown, and it could easily reappear now.
Coming Soon To Club Med: Scrip?