Options for a country exiting the Euro

[JRH]

This is a question of economic theory, something I have been scratching my head on.

 

Why would a country that was re-introducing its own currency need to redenominate any existing assets?

 

I hear this a lot lately, given the Eurozone situation (and maybe it is just incompetent journalism).  Greece (or Spain, or Germany) can leave the Euro, but they have to have a bank holiday in order to introduce the new currency and redenominate all Euro assets, and it will be a mess for financial institutions, existing contracts, etc...

 

Here's an alternate idea from Warren Mosler (MMT):

http://moslereconomics.com/2011/11/17/my-big-fat-greek-mmt-exit-strategy/

 

Basically, let anything Euro-denominated remain so, and just start deficit spending and collecting tax in the new currency.  In other words, the only thing re-denominated are fiscal actions taken by the government.

 

The first time I read it, my mind jumped to some rather "trained" conclusions that don't hold up under closer examination.

 

Of course, the key is what happens to the national banks holding the Euro-denominated sovereign debt.  Equity + some or all debt probably gets wiped out and recapitalized with the new currency.  Could all this currency creation produce hyperinflation?  Well, if civil unrest led to a collapse of the productive economy, yes.  In Greece, then?  Possible but unlikely even there, I think.  In Spain?  I can't imagine.  In Germany?  Quite the opposite, the DM would probably soar in value.

 

Agree/disagree?  Think I'm insane?

 

Thanks in advance.