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If Greece Exits, Here Is What Happens (Redux)
Now that the possibility of a Greek exit from the euro is back to being topic #1 of discussion, just as it was back in the summer of 2012 and the fall of 2011, and investors are propagandized by groundless speculation posited by journalists who have never used excel in their lives and are merely paid mouthpieces of bigger bank interests, it is time to rewind to a step by step analysis of precisely what will happen in the moments before Greece announces the EMU exit, how the transition from pre- to post- occurs, and the aftermath of what said transition would entail, courtesy of one of the smarter minds out there at the time (before his transition to a more status quo supportive tone), Citi's Willem Buiter, who pontificated precisely on this topic previously. Three words: "not unequivocally good."
What happens when Greece exits from the euro area?
Were Greece to be forced out of the euro area (say by the ECB refusing to continue lending to Greek banks through the regular channels at the Eurosystem and stopping Greece’s access to enhanced credit support (ELA) at the Greek central bank), there would be no reason for Greece not to repudiate completely all sovereign debt held by the private sector and by the ECB. Domestic political pressures might even drive the government of the day to repudiate the loans it had received from the Greek Loan Facility and from the EFSF, despite it having been issued under English law. Only the IMF would be likely to continue to be exempt from a default on its exposure, because a newly ex-euro area Greece would need all the friends it could get – outside the EU. In the case of a confrontation-driven Greek exit from the euro area, we would therefore expect to see around a 90 percent NPV cut in its sovereign debt, with 100 percent NPV losses on all debt issued under Greek law, including the debt held, directly or directly, by the ECB/Eurosystem. We would also expect 100 percent NPV losses on the loans by the Greek Loan Facility and the EFSF to the Greek sovereign.
Consequences for Greece
Costs of EA exit for Greece are very high, most notably the damage done to balance sheets of Greek banks and nonfinancial corporates in anticipation of EA exit.
We have recently discussed at length what we think would happen should Greece leave the euro area (Buiter and Rahbari (2011)), so we shall be brief here. Note that we assume that Greece exits the euro area and does not engage in the technical fudge discussed in Buiter and Rahbari (2011), under which it technically stays in the euro area but introduces a second, parallel or complementary currency.
The instant before Greece exits it (somehow) introduces a new currency (the New Drachma or ND, say). Assume for simplicity that at the moment of its introduction the exchange rate between the ND and the euro is 1 for 1. This currency then immediately depreciates sharply vis-à-vis the euro (by 40 percent seems a reasonable point estimate). All pre-existing financial instruments and contracts under Greek law are redenominated into ND at the 1 for 1 exchange rate.
What this means is that, as soon as the possibility of a Greek exit becomes known, there will be a bank run in Greece and denial of further funding to any and all entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law want to avoid their conversion into ND and the subsequent sharp depreciation of the ND. The Greek banking system would be destroyed even before Greece had left the euro area.
There would remain many contracts and financial instruments involving Greek private and public entities denominated in euro (or other currencies, like the US dollar) that are not under Greek law. These would not get redenominated into ND. With part of their balance sheet redenominated into ND which would depreciate sharply and the rest remaining denominated in euro and other currencies, any portfolio mismatch would cause disruptive capital gains and losses for what’s left of the Greek banking system, Greek non-bank financial institutions and any private or public entity with a (now) mismatched balance sheet. Widespread defaults seem certain.
As discussed in Buiter and Rahbari (2011), we believe that the improvement in Greek competitiveness that would result from the introduction of the ND and its sharp depreciation vis-à-vis the euro would be short-lived in the absence of meaningful further structural reform of labour markets, product markets and the public sector. Higher domestic Greek ND-denominated wage inflation and other domestic cost inflation would swiftly restore the old uncompetitive real equilibrium or a worse one, given the diminution of pressures for structural reform resulting from euro area exit.
In our view, the bottom line for Greece from an exit is therefore a financial collapse and an even deeper recession than the country is already experiencing - probably a depression.
Monetising the deficit
A key difference between the ‘Greece stays in’ and the ‘Greece exits’ scenarios is that we believe/assume that if Greece remains a member of the euro area, there would be official funding for the Greek sovereign (from the Greek Loan Facility, the EFSF and the IMF), even after the inevitable deep coercive Greek sovereign debt restructuring, and even if NPV losses were imposed on the official creditors – the Greek Loan Facility, the EFSF and the ECB. The ECB probably would no longer engage in outright purchases of Greek sovereign debt through the SMP, but the EFSF would be able to take over that role following the enhancement and enlargement of the EFSF later in 2011.4 If Greece remains a member of the euro area, the ECB would likewise, in our view, continue to fund Greek banks (which would have to be recapitalised following the Greek sovereign debt restructuring), both through the regular liquidity facilities of the Eurosystem and through the ELA.
In the case of a (confrontational and bitter) departure of Greece from the euro area, it is likely that all official funding would vanish, at least for a while, even from the IMF (which would, under our most likely scenario, not have suffered any losses on its loans to the Greek sovereign). The ECB/Eurosystem would, of course, following a Greek exit, cease funding the Greek banks.
This means that the Greek sovereign would either have to close its budget gap through additional fiscal austerity, following its departure from the euro area, or find other means to finance it. The gap would be the primary (non-interest) general government deficit plus the interest due on the debt the Greek sovereign would continue to serve (the debt issued under foreign law other than the loans from the Greek Loan Facility and the EFSF, and the debt to the IMF), plus any refinancing of this remaining sovereign debt as it matured. We expect the Greek General Government deficit, including interest, to come out at around 10 percent of GDP for 2011, while the programme target is 7.6 percent. General government interest as a share of GDP is likely to be around 7.2 percent of GDP in 2011, which means that we expect the primary General Government deficit to be around 2.8 percent of GDP. We don’t know the interest bill in 2011 for the IMF loan and for the outstanding privately held debt issued under foreign law. If we assume that these account for 10 percent of the total interest bill on the general government debt – probably an overestimate as interest rates on the IMF loan are lower than on the rest of Troika funding – then we would have to add 0.72 percent to the primary deficit as a percentage of GDP to obtain an estimate of the budget deficit that would have to be funded by the Greek government, say 3.5 percent of GDP. We would have to add to that any maturing IMF loans and any maturing privately held sovereign debt not under Greek law. This is on the assumption that even those creditors under international law that continue to get serviced in full, would prefer not to renew their exposure to the Greek sovereign once they have been repaid. In addition, future disbursements by the IMF under the first Greek programme would be at risk following a Greek exit. This would create a further funding gap.
Assume the Greek authorities end up (very optimistically) having to find a further 5 percent of GDP worth of financing. This could be done by borrowing or by monetary financing. Borrowing in ND-denominated debt would likely be very costly. Nominal interest rates would be high because of high anticipated inflation – inflation that would indeed be likely to materialise. Real interest rates would also be high.
Although the Greek sovereign’s ability to service newly issued debt would be greatly enhanced following its repudiation of most of its outstanding debt, the default would raise doubts about its future willingness to service its debt. Default risk premia and liquidity premia (the market for ND-denominated Greek debt would be thin) would raise the cost of borrowing in ND-denominated debt. Even if the Greek authorities were to borrow under foreign law by issuing debt denominated in US dollars or euro, default risk premia and liquidity premia would likely be prohibitive for at least the first few quarters following the kind of confrontational or non-consensual debt default we would expect if Greece were pushed out of the euro area.
So the authorities might have to finance at least 5 percent worth of GDP through issuance of ND base money, under circumstances where the markets would inevitably expect a high rate of inflation. The demand for real ND base money would be very limited. The country would likely remain de-facto euroised to a significant extent, with euro notes constituting an attractive store of value and means of payment even for domestic transactions relative to New Drachma notes. We have few observations on post-currency union exit base money demand to tell us whether a 5 percent of GDP expected inflation tax could be extracted at all by the issuance of ND – that is, at any rate of inflation. If it is feasible at all, it would probably involve a very high rate of inflation. It is possible that we would end up with hyperinflation.
The obvious alternative to monetisation is a further tightening in the primary deficit through additional fiscal austerity (of something under 5 percent of GDP), allowing for some non-inflationary issuance of base money. Because Greek exit would be in part the result of austerity fatigue in Greece, this outcome does not seem likely.
A collapsed banking system, widespread default throughout the economy, a continuing non-competitive economy and high inflation with a material risk of hyperinflation would make for a deep and enduring recession/depression in Greece. Social and political dislocation would be certain. There would, in our view, be a material risk of a downward spiral of dysfunctional politics and economics.
Consequences for the remaining euro area and EU member states of a Greek exit
For the world outside Greece, and especially for the remaining euro area member states following a Greek exit, the key insight would be that a taboo was broken with a euro area exit by Greece. The irrevocably fixed conversion rates at which the old Drachma was joined to the euro in 2001 would, de facto, have been revoked. The permanent currency union would have been revealed to be a snowball on a hot stove.
Not only would Greek official credibility be shot, the same thing would happen for the rest of the EA member states in our view. First, monetary union is a two-sided binding commitment. Both sides renege if the accord is broken. Second, Greece would only exit from the euro area if it was driven out by the rest of the euro area member states, with the active cooperation of the ECB. Even though it would be Greece that cuts the umbilical cord, it would be clear for all the world to see that it was the remaining euro area member states and the ECB that forced them to wield the scalpel.
It does not help to say that Greece ought never to have been admitted to the euro area because the authorities during the years leading up to Greek membership in 2001, knowingly falsified the fiscal data to meet the Maastricht criteria for EMU admission, and continued doing so for long afterwards.6 After all, what Greece did was just an exaggerated version of the deliberate data manipulation, distortion and misrepresentation that allowed the vast majority of the euro area member states to join the EMU, including quite a few from what is now called the core euro area7. The preventive arm of the euro area, the Stability and Growth Pact (SGP) which, if it had been enforced would have prevented the Greek situation from arising, was emasculated by Germany and France in 2004, when these two countries were about to be at the receiving end of its enforcement.
Euro area membership is a two-sided commitment. If Greece fails to keep that commitment and exits, the remaining members also and equally fail to keep their commitment. This is not just a morality tale. It has highly practical implications. When Greece can exit, any country can exit. If we look at the austerity fatigue and resistance to structural reform in the rest of the periphery and in quite a few core euro area countries, it is not plausible to argue that the Greek case is completely unique and that its exit creates no precedent. Despite the fact that both Greece’s fiscal situation and its structural, supply-side economic problems are by some margin the most severe in the euro area, Greece’s exit would create a powerful and highly visible precedent.
As soon as Greece has exited, we expect the markets will focus on the country or countries most likely to exit next from the euro area. Any non-captive/financially sophisticated owner of a deposit account in that country (or in those countries) will withdraw his deposits from banks in countries deemed at risk - even a small risk - of exit. Any non-captive depositor who fears a non-zero risk of the future introduction of a New Escudo, a New Punt, a New Peseta or a New Lira (to name but the most obvious candidates) would withdraw his deposits from the countries involved at the drop of a hat and deposit them in the handful of countries likely to remain in the euro area no matter what - Germany, Luxembourg, the Netherlands, Austria and Finland. The ‘broad periphery’ and ‘soft core’ countries deemed at any risk of exit could of course start issuing deposits under English or New York law in an attempt to stop a deposit run, but even that might not be sufficient. Who wants to have their deposit tied up in litigation for months or years?
Apart from bank runs in every country deemed, by markets and investors, to be even remotely at risk of exit from the euro area, there would be de facto funding strikes by external investors and lenders for borrowers from these countries. Again, putting under foreign law (most likely English or New York) all cross-border (or perhaps even all domestic) financial contracts and instruments could at most mitigate this but would not cure it.
The funding strike and deposit run out of the periphery euro area member states (defined very broadly), would create financial havoc and mostly like cause a financial crisis followed by a deep recession in the euro area broad periphery. The counterparty inflow of deposits and diversion of funding to the ‘hard core’ euro area and the removal (or at least substantial reduction) of the risk of ECB monetisation of EA sovereign and bank debt would drive up the euro exchange rate. So the remaining euro area members would suffer (at least temporarily) from an uncompetitive exchange rate as well from the spillovers of the financial and economic crises in the broad periphery.
As noted by the new IMF Managing Director, Christine Lagarde (Lagarde (2011) and confirmed by Josef Ackerman (Ackermann (2011, p.14)), the European banking sector is seriously undercapitalised. It would not be well-positioned, in our view, to cope with the spillovers and contagion caused by a Greek exit and the fear of further exits. Ms Lagarde was arm-twisted by the EU political leadership, the ECB and the European regulators into a partial retraction of her EU banking sector capital inadequacy alarm call.10 However, this only served to draw attention to the obvious truth that despite the three bank stress tests in the EU since October 2009 and despite the capital raising that has gone on since then both to address any weaknesses revealed by these tests and to anticipate the Basel III capital requirements, the EU banking sector as a whole remains significantly undercapitalised even if sovereign debt is carried at face value. In addition, the warning by Ackermann that “… many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels…” (Ackermann (2011), see also IMF (2011, pp. 12 -20)) serves as a reminder of the fact that Europe is faced with a combined sovereign debt crisis in the euro area periphery and a potential banking sector insolvency crisis throughout the EU.
A banking crisis in the euro area and in the EU would most likely result from an exit by Greece from the euro area. The fundamental financial and real economy linkages from the rest of the world to the euro area and the rest of the EU are strong enough to make this a global concern.
***
Ok, now we get it... all the worst bits of the bible...
But, of course, we will be told how it's all so different now just 3 years on. How it will be "contained" and managable... so rest assured and listen to Jean-Claude Juncker.
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Big war in Ukraine to excuse "whatever it takes" for Euro collapse.
“How did you go bankrupt?"
"Two ways. Gradually, then suddenly.” -- Ernest Hemingway, The Sun Also Rises
The time is at hand...
Why would I care what the 6000-year-bubble shill says?
Greece is going to exit because they know it is the only weapon with a final solution in dealing with the EU.
I don't know why they even bothered to elect this new guy...
Freedom will happen, then Justice.
Is this good for American stocks? AAPL, TWTR, GMCR, BABA?
Article:
If Greece Exits, Here Is What Happens
Greece will make a kill taxing foreigners and tourist to death.
Oops! Bankers will be jealous.
you all wrong, as ND will be cheap for tourist they will make a solid boom in tourism.
this is all what they offer anyway... they just have to set a uber rich tourism circuit then they will be alright, there is always a fucking bilionnaire american to go every where to display his fucking dollars...
but prior to this debate, i repeat, THEY CANNOT EXIT AND WON'T EXIT.
if they do so, this is total end of eurozone... this is not allowable.
Austerity is the only answer. All other answers are kicking the can answers. Fiscal responsibility for countries and individuals is the goal. Ultimately, human behavior has to change. Such change is not impossible for intelligent but fearful and greedy creatures who are the glory, jest and riddle of the world.
"make a kill taxing foreigners and tourist"
And it will still be the cheapest vacation on the Med.
There is also the possibility of an exit and doing a interest free drachma, and the real bills doctrine to keep the vitals going, along with common sense matters, like eating, or perhaps the CHS idea.
An interest free drachma????
https://realcurrencies.wordpress.com/interest-free-economics/
https://en.wikipedia.org/wiki/Real_bills_doctrine
A sane policy.
On how to tax property...but not income!
https://www.youtube.com/watch?v=zxsmNRZz5FM
What Looks Crazy at First Might Be the Ideal Solution: Meet Greece's New Currency, the U.S. Dollar (February 9, 2015) http://www.oftwominds.com/blogfeb15/USD-Greece2-15.html
Plan C : Save us Brian!
Or gold!
Greece should repudiate ALL foreign debt and go into the gold standard. Would work for them in the long run.
In Ecuador, in 2002, the new socialist government, under Morales, was elected and two senior Ecuadorian central bankers stole 6 billion of the local currency, the Suger I believe, and fled to Switzerland. The Ecuadorian govt. to thwart the thieves, switched the next week to American dollars as their currency.
Greece might do the same. A new Drachma will be despised, puked upon and have no credibiltiy whatsoever.
Not dollars... Yuan. (or Rubles). New Drachma would be really difficult.
The yuan is a better choice
Greece should go with US Dollar or Swiss Franc as an interim currency, or even Russian Ruble, as it is probably undervalued at the moment. Any currency they choose will work better than the Euro, which is going to get hammered the moment they leave. Things could get ugly during the transition: how do you sell that many Eoros when their value is plummeting?
"PHRASING!" - Sterling Archer
I don't think it will happen, The international banking cadre will deal directly/personally with those in Greece or any other "sovereign" entity that have the power and compunction to endanger this house of cards by Grexit. Look for more key people to be disappeared, suicided, and heart-attacked in very public ways. This tool is one that the world banking system organized crime never hesitates to wield when the stake are high enough.
One thing for sure: If Greece threatens to exit, the Greek President and Finance Minister are both dead men, either beforehand to prevent it, or afterwards as revenge. Time for special ops forces to gear up.
Alexis, JUST FUCKING DO IT... Fuck the EURO and Draghicula the pimp. Merkel may own the BROTHEL but she can't make you stay and play.
Goldman Sachs should do the right thing and make Greece whole. Get Hank Paulson on the phone ASAP.
Yea, that's the ticket. Oh wait...
lol - read this - particularly the last sentence
http://www.cnbc.com/id/102407488?__source=yahoo%7Cfinance%7Cheadline%7Ch...
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
Can we astop this trash?
No mention at all to what would happen to all the financial institutions holding that Greek debt and facing a 90/100% haircut?
Glad to hear that any problem will be limited to Greece. /sarc
Isn't that what Credit Default Swaps are for?
2012. Centuries ago. Why is todays Tyler posting old stuff? The banking system is fire walled. Most of the Greek debt is under English law, the Greeks can simply not default on. The Greeks are trapped, they have to do what ever they are told.
why should anyone outside of England give two shits about English law?
He has a point. With a judgement from an English court, you could possibly seize Greek flagged or owned ships at sea.
Hell of a reality series;)
yeah it would. so much so, the Greeks could install webcams on the vessels and do a livestream PPV, episodes payable in drachmas ;~)
Is that all? I thought maybe something bad might happen if Greece took out the trash. Most of the problem would be confined to those who bought Greek debt. About time someone pay a big "stupid" tax for holding crappy paper.
Debt paper yielding 10% or more is BS. In this day and age if you don't understand that high yield means high risk...
I am sure the banks that hold that crap will be made whole by the European Central Bank. What a circus.
LOL
I'm ready for Hillary!!
what mAKES YOU SO SURE?
duped
You might be on to something.
I heard the English have a new secret plane called the spitfire 2.
The greeks have the Gyro (0) already; under wraps of course.
But seriously, restructuring is a must for the rest of the world as well, so we should try to learn and be ready with answers.
May knowledge, wisdom, and balls prevail ZH'rs.
Not the battle of Malta or Crete.
Because they will need new bonds after they trash these ones. What rate would you set for those bonds.... think 25%
Because A loan taken out under English law is unable to be restructured or altered by any Greek change of law. The loan will follow the country until paid, not just for the current gov but for every gov to come until paid with interest. To default on a loan goverened by another countrys law would render Greece pretty much unable to borrow at all.
Hence the recent honouring of their 2012/13 English Law bond at 100% whilst their own law bonds took a massive haircut.
No one can make greece do anything that they dont want to but consequence will be dire for the people but as one wise man said man does not work man does not eat someone needs to show the greek people how to produce a days labor so they will not depend on enyone ever again. Sitting on the beech in a spedo is not work
Agreed, we will have to too, but this system needs a lot of change to get righteous. http://www.henrygeorge.org/isms.htm
Actually, those are the American and German tourists. The Greeks are all washing sheets, cleaning toilets, cooking dinners, driving taxis, and crewing sailboats for them.
Last time I checked Greece wasn't an English colony, but instead is a sovereign country. It might or might not be the best thing for Greece to do a sovereign default, but they ceratinly have the ability to do a sovereign default regardless of what the UK wants.
"Soverign Country" ain't what it used to be...
Iceland told them to go fuck themselves !
I'll bet Diesel'Boom and Junker are working over time? F**king clowns. It's too late...
Like looking at my lotto ticket...hoping wishing its gonna happen, but...it ain't gonna happen im afraid.
Pretty good summary of the effects.
I still think a "Southern Euro" will develop from the departing countries plus Turkey and maybe two or three more nations.
That would mitigate many problems, and create a liquid, if much less valuable currency. Also a better bargaining position. Greece has the GDP of Vermont, rapidly declining to the GDP of Killington Ski Resort, so who cares?
Southern Euro countries + Turkey cant organize a piss up in a brewery...
Develop? into what? Bangladesh?
Of course bankers fear Greek default. Hence the polarised article this post quotes. But it's what is coming, there will be a year or two of upheaval then a new start, with new friends on the horizon looking east. Greece should stay in the EU, just leave the euro, default and start again. They have 60% youth unemployment right now, what is to fear?
I suppose the fear is, they don't produce much apart from tourism. And that's not great when everyone is broke.
Did Iceland produce something that allowed them to free themselves from world banker oppression and domination?
Tell me the reason Greece cannot do the Iceland...
Iceland has more and tastier fish
Plus they have adundant supplies of thermal energy.
Did Iceland produce something that allowed them to free themselves from world banker oppression and domination?
The Rule of Law?
"Did Iceland produce something that allowed them to free themselves from world banker oppression and domination?"
They jailed the thieving bastards!
Have you forgotten the .01%
There is no staying in the EU without the Euro. The whole point of th EU is getting all the countries over a barrel by lending in the Euro. This is the way the EU causes all the countries to lose their sovereignty. If the individual countries have loans in their sovereign currency, their treasures would be able to create an inflation to make it easy to pay off sovereign debt. The individual country can't do that when all debts must be paid in Euros, which is under the control of the ECB and not the individual country's central bank. A country that leaves the Euro automatically leaves the EU. There is no other way.
The big point is this: after a 'Grexit' there would be HOPE...and eventual improvement.
There isn't any chance of that under the present system.
"There isn't any chance of that under the present system."
Under the present system their under financial rape and repression by the western banksters.
Hope is such a language...
So Greeks elected a new gov in hope of a successful negotiation with ECB?
And in hope of keeping the life style, even though it means slavery under the present system...
Look where hope and change got the US....
The possibility that Greece could become a Russian satellite cannot be ignored.
While Greece has said it would not ask for financial aid from Russia desperate times require desperate measures.
Using the ruble instead of the drachma would be a good move for Greece.
They said they will not ask. They did NOT say they will not take aid if offered. Wiggle room ! usual stuff for a politician.
Use the yuan. China is farther away.
The sooner it starts the sooner it ends.
Greece, be like Iceland and free yourself from the ECB bankster shackles.
The rest of PIIGS need to do this.
Is all of Europe out of "other people's money"?
If so, it is the end of European Socialism. What comes next?
WW3
Fiat: a command or act of will that creates something without or as if without further effort.
For our effort (our labor) we are paid in something created by dictate without effort.
When that fiat remuneration loses value - so do our efforts.
Unvalued effort finds actions worthy of effort.
The Euro is not worth the effort.
Exit! Stage left!
When a Greece exits in the EU does anybody notice?
No. It's a tiny, little, podunk, country who's main industry is tourism. NOBODY CARES!!! Exit and make your own living. Stop borrowing money and defaulting. Stop spending your country into oblivion.
It is clear that your assumption is based on a head-in-the-sand view.
if it didn't matter and nobody cared then it wouldn't matter and nobody would care. Even YOU don't believe your comment. perhaps you're hoping people will chime in with support for your comment and then you will get that fuzzy warm feeling that will help you sleep at night.
If the euro collapses it will bring one of the largest economies that is already in trouble to collapse. Europe goes down and so does the globe. Thinking that the globe is isolated from a Grexit is simply flawed thinking.
I disagree. It is clear that your assumption is based on running in circles screaming as a "thought" process. Even YOU don't believe your comment.
Fantasizing that the tiny country of Greece, who contributes roughly zero to the EU's GDP, will heavily impact the EU if they exit, is simply flawed thinking.
Oh, dear... we seem to have a stalemate.
Based on the time difference, it's obvious the [article] is being read by my European friends.
London has grown obese with all the "free" paper, and ZERO interest rates.
It's a good thing the UK didn't join the EU.
When all those expensive London Flat's crash in value, I won't have to worry about {Pari Passu}
You see, not so bad...LET'S DO IT BOY'S!
easy for me to say
Screw the EU/USSA, Greece should totally abandon the EU and the Euro and join the BRIC's, becoming BIG RC.
Actually, the main "industry" in Greece is probably government. And why should an ND be issued at 1:1 with the Euro? Why not issue at a realistic exchange, whatever that might be, so Greeks don't immediately lose X% local purchasing power, and the country can retain its attractiveness for tourists - and maybe even a few investors? That sounds way too simple and obvious, so there must be a fatal flaw in there somewhere.
Because whatever ratio is set by the government, the market will just discount it. There is no realistic ratio they could possibly set it at. Once word gets out that you're taking a haircut, you're going to try to pull money out before.
If they issue at a realistic rate the Greek Government cant rip off working Greeks with savings.
There was a Greece before the EURO (BE).
There will be a Greece after the EURO (AE).
YES! I can't believe how deep the TROIKA had it's hooks into Greece. That idiot
George Papandreou should be hung!He was on the verge of selling out the sovereignity of Greece. The Greeks need to stand strong and use this unique opportunity to rebuild their resource rich economy.
Olives & Figs, Geece is a non-event country.. Should get some domino's falling soon for the other weaker players in the Euro Madoff Scam.
Greece has excellent (warm water)port access and new found Nat Gas reserves. Greece also has a vibrant tourism and agricultural GDP potential.
If Greece reverts back to the Drachma, they will be flooded with tourism!
It could also provide gas transit from the TurkStream project into Europe.... lots of nice revenue there too. Comes with a no charge terrorist protection force from Russia too.
Seriously, as much as I am a fan of ZH, I fail to see why they would print(or in this case re-print) anything by Willem Buiter.
Remember good people, Mr Buiter is the analyst who stated late last year, just prior to the Swiss referendum on gold, that gold was not money, was worthless, and that central banks shouldn't own it. He is obviously a well paid cheerleader for the status quo, and given the absolute rubbish he wrote about gold, has no credibility whatsoever.
So whatever analysis this man comes up with it should end up in the same rubbish bin as the Stolper recommendations.
Gold will have value long after people are burning Euros and Dollars for heat.
eh article says euro would go up if greek exit? that doesnt seem intuitive...someone explain that one to me..
European Union Dominos
This article doesn't mention a Gold Drachma, perhaps the studies refer to it, I don’t know?
Spot gold is currently 35.10 Euros per gram, so introducing a domestic Gold Drachma exchangeable for 1% bullion, with a 1 to 1 Euro exchange rate, would be a promissory note for 0.000285g of gold, without any need for gold currency at all. There would have to be a minimum exchange of 1g of gold at Greek banks, at of course 35.10 Gold Drachmas.
The Gold Drachma (GD) could not devalue against the Euro (it would likely appreciate against all fiat currencies) and for a Greek average M1 (money supply) of 50bn Euros, that’s only 14.2 metric tonnes of gold, of which Greece already has 122 metric tonnes.
Greeks would not want to give away their GDs, rather there would be a rush to exchange Euros into GDs, and a desire to trade them within Greece.
The central bank would have to be nationalized, and sovereign debts renegotiated, with a much longer maturity, within the means of a normally functioning Greek economy, just like a house mortgagee, who can no longer afford the full repayments, due to negative changes in circumstances.
Capital controls of some sort might be necessary, until the international exchange rate is stabilized. Russia have already said they would provide financial help and presumably China too. It may also be necessary to have internationally tradable instruments, perhaps denominated in an international Drachma, which may or may not be gold backed, depending on the circumstances of trade, volume and transaction size.
The Greek FinMin will of course be considering this in great detail, and if Russia, China and India do something similar, and they certainly seem to be working on it – a defacto return to the gold standard, the possibility of easier direct exchange arises, and an end to the fiat currency system.
If there is anybody who knows more about the best practice of introducing a gold standard currency, feel free to comment.
An end to the fiat currency system. Hmm, interesting. Would you go on further to guess where the USA would be if such a senario were to play out?
OK Rusputin, I like your idea but, what happens to the Gold Drachma when speculators come in and buy billions of Drachma's and then want to cash them in to get zee gold? Wouldn't this be another way to steal their gold supply? Forgive me for being stupid on this subject but inquiring minds need to know....
Wouldn't pay much attention to Buiter because his story is very disingenuous and meant to scare the sheople into submission. He's just an other bankster minion. The truth of the matter is that if Greece does its GREXIT then derivatives will blow up the entire globe. It means that the entire 320 billion euros of debt will blow up along with around 3.4 to 4 trillion of derivatives on Greece and interest rates on Greek bonds etc. Lying SOB Buiter is hired to prevent that.
2012? C'mon get something in the last 30 days or so. It isn't Greece folding but the precedent it sets and what happens when a country that matters and their financial insitutions (Italy/Spain) comes back to the table to bargain for new terms.
Still think in the end it is just more 'extend and pretend' with current debt levels being flattened out (Greeks are actually running a decent account surplus) a bit and the debt load being flung far into the future. Just want to see how creative the ECB is going to get and what kind of crazy terms the newly extend debt obligations will have.
Buiter is speaking on behalf of a bank and there is nothing that a banks hates more than the instant loss of all loans. A state is the sum of all households. It is educative to imagine the consequences of an insolvency on one household and draw conclusions for the sum of all households. A Greexit and reset would be by far more successful for Greece than outlined by Buiter.
Iceland did fine, and all the same warnings were in place. Drop the Euro and move on, it didn't work, it was never going to work, because Europe is not integrated, and that's what makes it Europe. It's diverse, it's different, it's not the US. I love Europe, and long may it stay in all its quirky and different currencies. The idea that one currency would unite such a diverse and large area was just fool hardy at best, and more about control at worst. Roll on Greece ride it out, and I shall soon be down for a holiday.
"just as it was back in the summer of 2012 and the fall of 2011,"
I won some gold from a friend (an American) in fall 2011 after I bet against a Grexit. We then double or quit the bet and I won more gold in fall 2012 when there was still no Grexit. Like candy from a kid. haha.
Cheers!
should have updated the article, the greek gouvernment now has a primary surplus, not deficit. Which is actually an incentive for exiting the EMU...
this writer must have missed the Russian gambit..makes most of this mute.
There......fixed it for ya...
Draghi at Goldman. Greece enters EMU 2001 using scam forex derivatives to cloak debts. Time to pay the piper and no one mentions Goldman's fraud in selling these derivaives then simultanously shorting greek sovreign debt. You can't make this stuff up. $340 billion how many olives and metaxa will that buy?
Warren Buffet insured all that Greek debt with his derivative operations. Everything will be fine.
If the EU gives in to Greece, they have to give into Spain, Italy, Ireland, and Portugal, so this is a nonstarter. We shouldn't forget that the EU has led a number of institutions to believe the EU would make good on Greece's debt which encouraged them to hold it. Best to simply recognize what Greece was paying toward outstanding debt held by the TBTF institutions and design a path to ease the burden while also forcing these same institutions to accept enough of the price of default to shoulder them with the desire to continue to work toward a settlement with Greece. In the meantime, Greece is out.