For governments with little fiscal space and trapped in what can properly be termed a depression, the decision to adopt the euro as currency has turned out to be a questionable one in retrospect. The worsening debt dilemma and the growing demands for bailouts has led political commentators, including economists, to predict and/or advocate a dissolution of the eurozone. At least, this is true as far as it concerns heavily indebted nations such as Spain, Greece, Portugal, et cetera. A return to a national currency would, in theory, allow these respective governments to essentially reduce the cost of their debt by increasing increasing the quantity of money in circulation. Differences in theoretical understanding aside, few economists seem to have considered the difficulties which characterize such a transition.

The situation in Greece seems to approach its dramatic climax — the IMF declared it will no longer fund Greek expenditure. The German vice chancellor very seriously considered the possibility of a Greek euro exit; Krugman rightly, but for the wrong reasons, suggests that the attached terror hasn’t dissipated. The latter argues that a withdrawal from the euro will lead to a loss in confidence in the government’s debt and its banking sector, which will lead to the related contractions. In other words, the situation in Greece is bound to get worse. But, I doubt the ability for a short-term withdrawal in the first place.

Currency transitions require something to transition to. For instance, the transition to the euro required some sort of peg or conversion rate (from drachma, peseta, franc, et cetera, to euro). The transition to fiat currency from the gold standard was more gradual, but the eventual break away from gold was made possible because there was an exchange rate of sorts between money substitute and gold. After the transition, the value of the once money substitute held, largely because there was no uncertainty with regards to the currencies acceptability. Right now, though, Greece doesn’t enjoy any relationship between the euro and an alternative currency (such as a return to the drachma). Returning to the drachma would require a gradual re-circulation, perhaps stimulated by a change in the preferred currency for tax collection. This would take years; years Greece doesn’t have.

What if the transition occurred suddenly? Either it wouldn’t, because people would simply continue to circulate euros, or there would be chaos. But the latter requires that the euro lose value, and I’m not sure a debt collapse or simple government decree would accomplish this. For empirical evaluation, just look at historical examples of sudden changes in currency circulation: Zimbabwe, Somalia,… These changes occur because of a loss in value of the local currency and an influx of more stable foreign currencies. Also, all these countries are relatively poor. Greece is not in a similar situation, largely because the so-called “problem” is actually the result of a public debt constrained by the inability to reduce the value of the circulating money.

In other words, a simple currency transition does not seem a likely solution or ending to the Greek debt crisis, or any other European debt crisis for that matter. Instead, what will occur is either the beginning of a more serious liquidity accommodation by the ECB, more bailouts — although these must have their limits —, or a Europe dealing with the consequences of sovereign bankruptcy. But, switching to a national currency is an impossible task in the short-term, and in the long-term it is largely inconsequential within the context of the current crisis.