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“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.”

 

 

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Sun, 04/22/2012 - 14:05 | 2364918 carbonmutant
carbonmutant's picture

Well the Greeks could do what the US does, claim they have a multiBillion euro gold horde which no one one is allowed to inspect. Then they could switch to a gold standard. In a fiat challenged market that would seriously disrupt the game.

Sun, 04/22/2012 - 11:59 | 2364791 JohnKozac
JohnKozac's picture

How about their record exec Bonuses despite their losses? Anyone want to report those generous numbers?

Sun, 04/22/2012 - 11:21 | 2364746 brettd
brettd's picture

Anyone want to go in with me to hire a private-investigator to 

see when the Germans start ordering ink and paper for new Marks?

Sun, 04/22/2012 - 11:54 | 2364783 MeelionDollerBogus
MeelionDollerBogus's picture

A few months ago I heard the order was made so they are ready to go any time.

Sun, 04/22/2012 - 11:15 | 2364736 ATM
ATM's picture

Greece will never leave the Euro. Portugal, Spain, Italy will never leave either. The Germans will never allow them to obtain their own printing presses again. The Germans will not allow the PIIGS to screw them by paying their debts is worthless paper the Germans themselves are not printing.

That was the whole point of the Euro in the first place - to stop the Greeks et al from borrowing from the Germans then debaising and doing it again. 

Nobody is leaving the Euro - ever. The ECB prints the money and the Germans control the printing press and that's they way they will go down, with the Germans in control.

 

Sun, 04/22/2012 - 12:06 | 2364807 jomama
jomama's picture

that article is almost five months old.

Sun, 04/22/2012 - 10:48 | 2364704 markar
markar's picture

Let's face it. As long as the Fed(and China) keep the Euro propped up it's way too rich a currency for a country like Greece & the rest of the PIIGS. If they took the life support away, it might crash to levels which might keep the union together, but I doubt that will happen before someone major leaves and the whole thing unravels.

Sun, 04/22/2012 - 09:39 | 2364627 lakecity55
lakecity55's picture

Wehrmacht conquers Greece again.

Sun, 04/22/2012 - 08:18 | 2364532 Sudden Debt
Sudden Debt's picture

I recently paid 60 euro for a silver 5 drachma coin! So the drachma isn't that bad of a idea i guess :)

Sun, 04/22/2012 - 10:23 | 2364672 covert
covert's picture

the greek people have a hard way togo. greece is a great place to vacation.

http://expose2.wordpress.com

 

 

Sun, 04/22/2012 - 06:37 | 2364476 AnAnonymous
AnAnonymous's picture

Are the Germans supposed to be the ones leaving the EMU?

Noticeably, if they kick everyone out but themselves, it will be a bit like they left the zone.

Or something like that.

Sun, 04/22/2012 - 07:56 | 2364511 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Are the Germans supposed to be the ones leaving the EMU?

Noticeably, if they kick everyone out but themselves, it will be a bit like they left the zone.

Or something like that.

Your ability to use many words to say nothing is somehow very something.

 

Sun, 04/22/2012 - 12:45 | 2364849 AnAnonymous
AnAnonymous's picture

I learned the verbose art from US citizens.

Reading their papers, so many words for telling nothing.

Good teachers make good students.

Sun, 04/22/2012 - 12:49 | 2364854 GeneMarchbanks
GeneMarchbanks's picture

Wow, that is actually true. +1

Sun, 04/22/2012 - 13:43 | 2364898 TheFourthStooge-ing
TheFourthStooge-ing's picture

Agreed. He must be sobering up.

+1 for AnAnonymous.

 

Sun, 04/22/2012 - 04:22 | 2364433 Barometer
Barometer's picture

Just press the reset button already

Sun, 04/22/2012 - 03:59 | 2364424 Rick64
Rick64's picture

  I can't believe the audacity of Greece! Why won't they accept cuts to pensions and higher taxes to help bail out German and French banks? Why do they resist privatization which would allow Multinational Corp.s to come in and buy their assets for pennies on the dollar (euro)? Not supporting politicians that are buying much needed weapons from coincidently Germany and France to defend against all their enemies? They won't pay their taxes to support corrupt politicians? What are they thinking?

Sun, 04/22/2012 - 04:17 | 2364432 Sandmann
Sandmann's picture

You have a point Rick but it is cuts to the Pensions Budget that is required in a country paying Inherited Pensions to unmarried daughters of Civil Servants; generous pensions to Political Insiders........as is typical of Bureaucracy - whenever it is proposed skimming the cream from the fat cats they turn around and take away the milk from the mangy cats.

It is a game. The Orders are sent to the Controllers and they sandbag before impoing arbitrary punishment on the lower ranks to instigate riots.

The Greek People and the European Taxpayers need to remove the top levels of Politician-Civil Servant and jail them....not just in Greece. The Greek People have been taken hostage by a Corrupt Elite

Sun, 04/22/2012 - 11:39 | 2364753 brettd
brettd's picture

This issue will soon hit the USA:

Are Americans who are 20 or 30 years old, (born in the 80's and 90's)

obligated to pay debts ---agreed to in the 60's and 70's---over which they had no (vote) say?

Is it not likely that 20,30,(40?) year olds will say "you created this mess,

it should come out of your hide!"

I'm pretty sure the law in most (American) situations cannot enforce on a child the collection 

of a debt incurred by a parent (ie: mortgage, gambling, medical costs....).

 

Sun, 04/22/2012 - 04:49 | 2364439 Rick64
Rick64's picture

 Pensions represent 30 billion euro of Greece's 312 billion debt, and out of that 30 billion how much falls into the catagory of unmarried daughters of civil servants? As far as the bureaucrats and political insiders I'm all for cutting their pensions.

Sun, 04/22/2012 - 08:48 | 2364560 Marco
Marco's picture

I've said this before ... the European bailout fund should just guarantuee personal savings up to some reasonable amount (~100k Euro, per person and not per bank account) as well as pensions (although only up to a rather spartan pay out per month).

Let the financial system and governments go bankrupt ... and save the little guy (who happens to be the consumption class and far more important to the functioning of the economy than a financial system which manages to knock a few percentage points off loan costs by building ponzis).

Bailing out the little guy is feasible in the Eurozone as long as we still have a functional economy production wise (which for the most part we do). The rich however are a bottomless pit.

Sun, 04/22/2012 - 11:18 | 2364741 ATM
ATM's picture

The rich wont allow themselves to go and they do hold all the cards until the masses decide they don't.

Sun, 04/22/2012 - 06:35 | 2364474 AnAnonymous
AnAnonymous's picture

Too much.

Signed: a US citizen

Sun, 04/22/2012 - 08:02 | 2364516 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Too much.

Signed: a US citizen

Post word count: the term US citizen comprises 33 percent of entire post.

Analysis: typical result for this particular Chinese citizenism citizen.

 

Sun, 04/22/2012 - 12:46 | 2364851 AnAnonymous
AnAnonymous's picture

Too many words or not enough?

Maybe time to choose the dance to dance.

Sun, 04/22/2012 - 13:27 | 2364886 JOYFUL
JOYFUL's picture

Allow me to recommend the "Danze of the Red Death" for thee, Marvin.

Sun, 04/22/2012 - 11:21 | 2364747 JOYFUL
JOYFUL's picture

Fourth said...

BTW, did your order from AACME Industries arrive?

 Deed it did, and I believe we enjoyed 4(four)blissfull days of non-chinese citizenism....but as is apparent, the majic is worn off, or they've gotten even faster at retooling their bot to simulate human dialogue and evade AACME's control methods...

on the other hand, they may have bought AACME and are laughing at getting us comin n goin! 

Damn capitalist roaders!

Sun, 04/22/2012 - 03:36 | 2364416 Dick Darlington
Dick Darlington's picture

EIB... If You can find more leveraged institution than this, please advise.

Sun, 04/22/2012 - 03:19 | 2364411 Ghordius
Ghordius's picture

The horror! Wages coming down 15%! instead of 30% for starters by switching to the drachma!

Joyful, you hit the nail on the head...

Sun, 04/22/2012 - 02:09 | 2364390 JOYFUL
JOYFUL's picture

...There would be no extra tax burden and no cuts to pensions, he said, thumping his nose simultaneously at Thomsen and Barroso....

ahhh, those crazy snout-thumping Piigs! Another endearing Mediterranean idiosyncracy, which causes dour drones like Wolf to be dumping in their hosen, at the thought of those profligate, fun-luvin, tax evadin Greeks gettin brown in the sunshine while the thaler-hoarding Teutons drown themselves in beer n bratwurst and die off early from despair and distemper at the unfairness of it all!

Next at 11: Git the Spics!....followed by Wops needs a Whuppin!    Only on the new  all talk WUFL....all guff...all zee time!

Sun, 04/22/2012 - 11:38 | 2364765 Nukular Freedum
Nukular Freedum's picture

I think Wolfs point is they all bein assholes. Quit whalin on him for even handedness eh?

Sun, 04/22/2012 - 12:26 | 2364828 GeneMarchbanks
GeneMarchbanks's picture

Even handedness? That is poor comedy, friend. The contributors portion of this site is deteriorating faster than the concept of trading on fundamentals.

Steadily we are seeing increasingly poor psy-ops articles with blatant disinformation.

Sun, 04/22/2012 - 12:36 | 2364841 Nukular Freedum
Nukular Freedum's picture

Well its all a mess isnt it Gene?

Sun, 04/22/2012 - 12:42 | 2364845 GeneMarchbanks
GeneMarchbanks's picture

There I concur.

Sun, 04/22/2012 - 12:33 | 2364838 Nukular Freedum
Nukular Freedum's picture

Oh, we seem to have cross posted on different threads. How odd!

Sun, 04/22/2012 - 07:53 | 2364507 TheFourthStooge-ing
TheFourthStooge-ing's picture

JOYFUL said:

...There would be no extra tax burden and no cuts to pensions, he said, thumping his nose simultaneously at Thomsen and Barroso....

OMFG!!!eleven! Nose thumping?! Let's hope this doesn't escalate into directed thumb biting. If that happens, it's just one short step to the nuclear option: roadside crapping!

BTW, did your order from AACME Industries arrive?

 

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