Breaking: Greece Threatens To Leave Eurozone, Reintroduce Own Currency

Tyler Durden's picture
  • GREECE THREATENS TO LEAVE EURO AREA, GERMANY'S DER SPIEGEL SAYS
  • FINANCE MINISTER FROM EUROZONE AND EU COMMISSION HOLDINGS CRISIS MEETING TODAY IN LUXEMBOURG
  • MEETING AGENDA INCLUDES POSSIBLE NEAR-TERM DEBT RESTRUCTURING FOR GREECE
  • EUROGROUP CHAIRMAN JUNCKER "TOTALLY DENIES" MEETING TO BE HELD TODAY TO DISCUSS GREECE
    • And cue panic and furious denials:
  • French finance ministry official cannot neither confirm or deny Spiegel report of emergency Eurozone meeting
  • Austrian Finance Minister spokesman says Eurozone breakup "absolutely unthinkable"
  • German government source says theres no plan for Greece to leave the Eurozone
  • Senior Greek government official denies report that Greece raises possibility of leaving Eurozone
  • IMF SAYS IT HAS `NO COMMENT' ON REPORT OF GREEK EURO EXIT BID

Full google translated Spiegel Article:

Greece is considering withdrawal from the Euro-zone

The debt crisis in Greece is getting worse. The government of the country considered to information from SPIEGEL ONLINE, leaving the euro zone. The finance ministers of the monetary union and representatives of the EU Commission will meet on Friday evening secret to a crisis meeting.

Berlin - The economic problems of Greece are huge, almost daily protests against the civil government. Now Prime Minister Georgios Papandreou, apparently sees no other way: According to information from SPIEGEL ONLINE considered his government to abandon the euro and reintroduce its own currency.

Alarmed by the efforts of the European Commission on Friday evening an emergency meeting in Luxembourg has loaded. Apart from the possible withdrawal of Greece from the monetary union and a speedy rescheduling of the country is on the agenda. A year after the outbreak of the crisis in Greece this means for the European Monetary Union an existential turning point - regardless of what option they choose.

Because of the tense situation has been prescribed for the meeting in Luxembourg the highest confidentiality, only the Finance Minister and one close associate may. For Germany participate Finance Minister Wolfgang Schäuble (CDU) and Financial Secretary Joerg Asmussen.

Schäuble wants to hold the Greeks in all circumstances from € outlet. An internal presentation of his ministry, which he took to Luxembourg, warns of the consequences. "It will be a significant depreciation of the new domestic currency against the euro," it states. Was estimated using an exchange rate loss of up to 50 percent can be expected. This debt is growing dramatically in Greece. Schäuble experts expect that the national debt would increase following the devaluation of around 200 percent of gross domestic product. "A restructuring was inevitable," they warn. In plain language: Greece would be bankrupt.

Massive implications for the economy in Europe

While controversy is whether a Euro-Greece's exit would be legally possible at all - in the opinion of legal experts would have to leave the country for the same time the European Union as a whole. It is doubtful whether the other members of the Monetary Union of the government in Athens would preclude a unilateral withdrawal from the euro area actually.

This reveals that the measure had been estimated by the officials Schäuble massive impact on economic life in Europe. "The currency change would trigger a capital flight," they write. Greece may be forced to introduce capital controls. "This would be the fundamental freedoms of the single European market not to bring into line." Moreover, the country would be cut off for many years by the capital market.

Furthermore, would the withdrawal of a country from the monetary union, "damage the trust in the functioning of the euro zone difficult," it said. International investors have to expect that emissions in the future further € members wanted. "This would lead to contagion effects in the euro zone."

The German taxpayer would step dearly

Had a severe impact on the swerving of Greece still ailing banking sector, especially at home. By the currency cut "all of the equity would be eaten up the banking system, the country's banks would be instantly insolvent." But the banks in other countries would suffer. "German and foreign banks would have expected a substantial loss to their demands," says the paper.

The European Central Bank (ECB) would be affected. It would have "a substantial portion of their assets to write off as uncollectible. Among the loans to banks without counting the stocks added to Greek government bonds, which the ECB has bought in recent months. Their volume estimate Schäuble officials to at least 40 billion euros. "Germany would contribute according to its ECB capital share of 27 percent most of the losses."

The bottom line is an exit followed by Greece would bankrupt the country euro-zone countries and their taxpayers are even more expensive. Together with the International Monetary Fund, they have the land grant assistance amounting to 110 billion euros - around half of which was already paid. "The euro-zone countries would have to surrender to the bankruptcy of the country on some of their claims."

And the original version of the article in native English:

The debt crisis in Greece has taken on a dramatic new twist.
Sources with information about the government's actions have informed
SPIEGEL ONLINE that Athens is considering withdrawing from the euro
zone. The common currency area's finance ministers and representatives
of the European Commission are holding a secret crisis meeting in
Luxembourg on Friday night.

Greece's economic problems are massive, with protests against the
government being held almost daily. Now Prime Minister George Papandreou
apparently feels he has no other option: SPIEGEL ONLINE has obtained
information from German government sources knowledgeable of the
situation in Athens indicating that Papandreou's government is
considering abandoning the euro and reintroducing its own currency.

 

Alarmed by Athens' intentions, the European Commission has called a
crisis meeting in Luxembourg on Friday night. In addition to Greece's
possible exit from the currency union, a speedy restructuring of the
country's debt also features on the agenda. One year after the Greek
crisis broke out, the development represents a potentially existential
turning point for the European monetary union -- regardless which
variant is ultimately decided upon for dealing with Greece's massive
troubles.

Given the tense situation, the meeting in Luxembourg has been
declared highly confidential, with only the euro-zone finance ministers
and senior staff members permitted to attend. Finance Minister Wolfgang
Schäuble of Chancellor Angela Merkel's conservative Christian Democratic
Union (CDU) and Jörg Asmussen, an influential state secretary in the
Finance Ministry, are attending on Germany's behalf.

'Considerable Devaluation'

Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent
Greece from leaving the euro zone if at all possible. He will take with
him to the meeting in Luxembourg an internal paper prepared by the
experts at his ministry warning of the possible dire consequences if
Athens were to drop the euro.

"It would lead to a considerable devaluation of the domestic currency
against the euro," the paper states. According to German Finance
Ministry estimates, the currency could lose as much as 50 percent of its
value, leading to a drastic increase in Greek national debt. Schäuble's
staff have calculated that Greece's national deficit would rise to 200
percent of gross domestic product after such a devaluation. "A debt
restructuring would be inevitable," his experts warn in the paper. In
other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for
Greece to depart from the euro zone. Legal experts believe it would also
be necessary for the country to split from the European Union entirely
in order to abandon the common currency. At the same time, it is
questionable whether other members of the currency union would actually
refuse to accept a unilateral exit from the euro zone by the government
in Athens.

What is certain, according to the assessment of the German Finance
Ministry, is that the measure would have a disastrous impact on the
European economy.

"The currency conversion would lead to capital flight," they write.
And Greece might see itself as forced to implement controls on the
transfer of capital to stop the flight of funds out of the country.
"This could not be reconciled with the fundamental freedoms instilled in
the European internal market," the paper states. In addition, the
country would also be cut off from capital markets for years to come.

In addition, the withdrawal of a country from the common currency
union would "seriously damage faith in the functioning of the euro
zone," the document continues. International investors would be forced
to consider the possibility that further euro-zone members could
withdraw in the future. "That would lead to contagion in the euro zone,"
the paper continues.

Banks at Risk

Moreover, should Athens turn its back on the common currency zone, it
would have serious implications for the already wobbly banking sector,
particularly in Greece itself. The change in currency "would consume the
entire capital base of the banking system and the country's banks would
be abruptly insolvent." Banks outside of Greece would suffer as well.
"Credit institutions in Germany and elsewhere would be confronted with
considerable losses on their outstanding debts," the paper reads.

 

The European Central Bank (ECB) would also feel the effects. The
Frankfurt-based institution would be forced to "write down a significant
portion of its claims as irrecoverable." In addition to its exposure to
the banks, the ECB also owns large amounts of Greek state bonds, which
it has purchased in recent months. Officials at the Finance Ministry
estimate the total to be worth at least €40 billion ($58 billion) "Given
its 27 percent share of ECB capital, Germany would bear the majority of
the losses," the paper reads.

In short, a Greek withdrawal from the euro zone and an ensuing
national default would be expensive for euro-zone countries and their
taxpayers. Together with the International Monetary Fund, the EU member
states have already pledged €110 billion in aid to Athens -- half of
which has already been paid out.

"Should the country become insolvent," the paper reads, "euro-zone countries would have to renounce a portion of their claims."

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flacon's picture

...and the new currency is going to be backed by?..... Or put it this way: Who is going to buy the new Greek Currency bonds?

cossack55's picture

Tossup. Either The Bernank or Japan. LOL

TruthInSunshine's picture

Relax, everyone.

Eurogroup Chairman Juncker "totally denies" this.

Like, OMG, he totally denies it.

 

/sarc

Cheers to Iceland, Greece & Ireland - and I hope they wave the Big Bird to the Banking Cartel. They could lead by example.


An Irishman abroad tells it like it is

 

IBelieveInMagic's picture

PMs suddenly are off their highs -- did an international gold market close somewhere for the day?

DavidJ's picture

Why is this not good for PMs?  Shouldn't increased uncertainty about FIATs mean rise prices in PM prices?

tmosley's picture

Good for physical, bad for paper.

flacon's picture

Here's how I see it: PM prices are falling because of the "rally" in the USDX because of the falling of the Euro because of the threat from Greece to leave Euro and create it's own worthless paper currency....

 

What a mess...

TruthInSunshine's picture

I would really love to see the entire spool of lies and deception that is the Global Banking Cartel & its Fractional Reserve Fiatski Ponzi Scheme implode.

 

Bubbles the cat's picture
Bubbles the cat (not verified) TruthInSunshine May 6, 2011 12:46 PM

+1. Lookin forward to it.

jus_lite_reading's picture

DOES IT MATTER IF THEY LEAVE OR NOT? MAY 8TH IS THE REAL MAY DAY!

http://fiatsfire.blogspot.com/2011/05/fukushima-friday-redux-may-8th-may...

WHATS GOING ON?!?! COVER UPS AND LIES DAILY NOW!!

 

 

ambrosiac's picture

 

Oh come on.  Looking out my window Athens is still there, right smack in the middle of the Eurozone.

 

Most Greeks being Christian it is apt to paraphrase Augustine:

 

"Lord, make me virtuous... but not now"

 

Lord Welligton's picture

Nobody.

They'll just print money.

Whatta's picture

They'll just print money.

That is very fashionable these days. Backing for currencies is just sooooo lame.

The new Greek monetary slogan - "STFU and trust us!!!"

DocLogo's picture

que Al Quaeda in Greece.

SheepDog-One's picture

Anyone ask the same about Iceland? They told the banksters to shove dreadels up their poop chutes and never looked back....only ones hurt were the banksters dont believe the hype that unless you bow down to the cabal terrible things will happen to you. Theyve got bupkis.

gorillaonyourback's picture

the thought is they will repatriat the gold and back the new drachma with 10% gold.  this is good news for the fight against global banksters the imf and the ecb  WOW people finnally getting smart

bobby02's picture

Who bought Mexico's bonds in 1989?

 

No bid for Brazil40?

mogul rider's picture

It'll be backed by calamari

Don Birnam's picture

<<...and the new currency is going to be backed by? >>

Feta cheese ?

ZackAttack's picture

> Who is going to buy the new Greek Currency bonds?

Do you have a mirror handy?

And you don't even get to vote on it!

traderjoe's picture

@flacon - sovereign countries don't have to borrow. That's a privately-held central bank construct. See the Lincoln Greenback. Not without its problems but at least it was the people's money.

akak's picture

Fuck that statist tyrant traitor Lincoln and his fiat, inflationary Greenbacks.  They were in no damned way "the people's money" --- they were the GOVERNMENT'S money, never forget that.  Yeah, greenbacks were "the people's money" just like modern senators and congressmen are "the people's representatives". Don't make me laugh!

What we need is the separation of money and the state, NOT merely some tinkering around the edges of the statist, fiat monetary paradigm.  Stop the government from issuing ANY form of money --- it no more needs to be involved in dictating what individuals can and cannot exchange among themselves than it "needs" to dictate to us what we can and cannot voluntarily and freely chose to ingest.

The PolyCapitalist's picture

Hello accelerated bank run throughout the periphery, and Hello the only plausible response: capital controls.

http://www.polycapitalist.com/2011/05/breaking-greece-leaving-eurozone.html

nope-1004's picture

Eurozone is just a common currency agreement among too many different cultures.  The thing had failure written all over it from the beginning.

 

101 years and counting's picture

amazing this would come out on the 1 year anniversary of the flash crash.  AMAZING!

johngaltfla's picture

This pretty much makes all other news irrelevant barring a Bernank resignation.

If Greece does it to them, it means the Irish will also.

Reggie Middleton's picture

I don't know who here reads my stuff, but if Greece pulls out the European bankings system sill hit a ditch that would make Lehman look like a bond rally. May reference:

With Greek Debt Yielding 20%+ and Trading at Half Par Value, European Banks Are Trapped!

Monday, April 25th, 2011 by Reggie Middleton

Well, if Greece does default or restructure (and the market is telling us that Reggie is right in that this is a foregone conclusion), then…

 

falak pema's picture

The greeks and the germans are damned if they do and damned if they don't. So if they can't agree to a compromise : Haircuts + austerity strapping in Greece (killer blow to population), there is no satisfactory solution. Its a lose-lose by the looks of it.

Drachma's picture

Default and resurrection of the Drachma seems the most expedient way out of EuroHell.

Hephasteus's picture

Ya. But it opens up the fractional reserving genie and the fictional reserving genie and it forces banks to use accounting that's not Disney approved.

Still doesn't make it the wrong move. Greece needs to pop out the drachma.

tmosley's picture

I like your stuff, Reg.  Thanks for the explanation.  

hambone's picture

Senior Middleton,

enjoy your insights but far too honest - I prefer simple (non)solutions to complicated, interconnected problems.

Will continue to read your stuff and agree where we are today...but curious in regards to how you propose (in general) to protect wealth in this environment?  Given the world you paint of unrecognized losses and interwined liabilities...what has worth, value, utility in a deflationary world papered over w/ reflationary policies?

Take for example the REIT's (as you are well aware), these are trading at 2.5yr highs regardless the generally poor CRE and RE enviroment they exist within.  The unrecognized losses papered over w/ yields, low rates, and extend/pretend financing has put a floor under these entities.  Are they any different than the countries you describe in your presentation but only on a national instead of international level?  What is the linkage of the sovereign to the national CRE / RE market?

stormsailor's picture

reggie, i saw your article a couple of weeks back.  nice call as usual.

 

does this mean my srs i've been holding since oct 09 will stop shrinking? lol

 

hoping whatever new government we form after ours blows up will include you as the finance minister.

trav7777's picture

would prefer a guy who knew the meaning of "penultimate"

mick_richfield's picture

All right, that's the second-to-the-last time I'm ever reading one of your posts!

Zmelli's picture

I am also holding SRS! I will keep them until they go back to $200.00

The Ponz's picture

Whenever Greek default is back in the news, I feel the need for the wisdom of Nigel Farage.

http://www.youtube.com/watch?v=WkEY7_gDCTc

The Euro as Volkerkerker (had to look up that one).  They're all trapped inside an economic prison.  Aeeeyyyyyy!

Robbie4's picture

Everybody knows that 'der Spiegel' in Germany is absoltely not a respectful newspaper and mostly brings gossip about celebrities and most of what it writes is sensational articles?

Mountainview's picture

We will see....next Monday !!!

dugorama's picture

Wha???? no, Der Spiegel is somewhere between Time and The Economist.  Founded by a German POW who spent WWII in Florida and read Time, he wanted to do a German version.  They get as many scoops as Rolling Stone with Talibibi (sp?)...

Trillax's picture

err, No.  Der Spiegel is actually quasi reputable -- albiet 'Sturmgeschütz der Demokratie' in some fashion.  I've always found them to be somewhat balanced and reasonable;  however, there are times they try too 'hard' for a scoop and jump the shark a bit.  This might be one of those times.

depression's picture

Greece FTW Bitchezz !!!

glenlloyd's picture

Greece, always in for a good laugh.

cossack55's picture

Go Greece. Do an  Iceland on their banksta ass.

Cleanclog's picture

Greece has restructured (defaulted) many many many times before.  The country will go on. Most of the people there would rather default, have a currency that perhaps suffers inflation, and avoid the austerity measures they believe others have imposed on them.  They'll turn inward and hunker down in Greece. They won't be the last.