“Drachma Clauses”: Planning for Greece’s Exit from the Eurozone

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The largest banks in Greece—National, Alpha, Eurobank, and Piraeus—reported €28.2 billion in losses for the year 2011. Almost 13% of GDP! It included the bond swap that had saddled private-sector bondholders with a 74% loss. But no worries. Rescue funds were already lined up at the Hellenic Financial Stability Fund, which had received €25 billion in bonds from the European Financial Stability Facility the day before—part of the second bailout package of €130 billion that the Troika of the ECB, IMF, and EU had orchestrated. The banks, not the Greeks themselves, are getting bailed out. The big money is rolling in—and the ever wily Greek political elite have figured it out. Read.... They’re Not Even Trying Anymore.

But “solidarity of the union has its limits,” said even soft-spoken Jens Weidmann, President of the Bundesbank on Saturday. “That's why we linked the aid to conditions....”

A whole litany of them. And they have caused riots in the streets. But if they aren’t met, the bailout will stop. That’s the threat. A leaked report by European Commission President José Manuel Barroso includes a 15% cut in private sector wages and an overhaul of the system for collective bargaining—both of which will go over very well in Greece. It also calls for privatization of public gas and electric utilities, comprehensive reform of the tax system, reform of the pension system, including "fighting fraud in disability pensions," and a "radical" overhaul of public procurement which is inefficient and costly.

And corrupt: former Defense Minister Akis Tsochatzopoulos was thrown into the hoosegow just before the Orthodox Easter weekend, having been accused of extensive defense procurement fraud and money laundering that he’d conducted for years via a network of people and off-shore companies. Corruption on all levels haunts Greece. In the Corruption Perception Index, Greece is in 80th place, sharing that position with the likes of El Salvador. It is worse than China whose corruption is legendary. It is in last place within the Eurozone. But something unexpected happened. For this astonishing change in a society that hasn’t seen a glimmer of improvement in years, read....  In Greece, even Corruption Is in a Depression.

Barroso’s report dryly summarizes the predicament: "Greece suffers from a lack of capacity to implement policy, manage public finances, collect taxes, open markets to competition, make public procurement work efficiently and innovatively, pay suppliers, or offer timely judicial review to its citizens." In other words, not much is working in Greece.

A month after the elections on May 6, the Troika inspectors will return to check on progress in meeting the conditions spelled out in the bailout memorandum—only to leave angry again, as they’d done so many times before. The frustration is already breaking the surface. Poul Thomsen, head of the IMF representation on the Troika, warned on Friday that Greece would not be able to fulfill the conditions and fingered once again tax evasion. So far, he said, efforts to improve tax collections have failed.

Alas, Evangelos Venizelos, head of the PASOK, former Finance Minister, and master of the bailout extortion racket, is back in the game. He retorted in a TV interview the same day that Greece still hadn't emerged from the crisis; it could exit the Eurozone and reinstitute the drachma—a threat he’d made before. And then he announced that he'd delay even further the very tax collection measures that Thomsen had accused Greece of not implementing. There would be no extra tax burden and no cuts to pensions, he said, thumping his nose simultaneously at Thomsen and Barroso.

So the European Investment Bank, which was watching this imbroglio from the sidelines while shaking its institutional head, wised up to reality. For loans to state-owned enterprises in Greece, it started using contracts that are under British law and include "drachma clauses"—in case Greece were to exit the Eurozone, or in case the Eurozone itself were to break up. The first such contract was used two weeks ago for funding a natural gas power plant of the Public Power Corporation. Planning for Greece’s exit from the Eurozone has now seeped down into the language of contracts. Thus, the drumbeat of Greece’s economic horror show continues in its own manner and to its bitter end. For that unrelenting debacle and its consequences, read.... “A harder Default To Come.”