Final Call: 3 Options For Greece

Secular Investor's picture

greece options

According to Reuters, “Greece and its creditors were continuing talks on a cash-for-reforms deal, but are expected to miss a self-imposed Sunday deadline for reaching an agreement to unlock aid.” Here we go again ...

It has become clear in the last weeks that Greece does not have the money to pay back its creditors, first and foremost the IMF. It's even worse, as minister of Finance Mr. Varoufakis keeps on stressing that his country is simply not capable of ever paying back the accumulated debts.

Recent figures have pointed out that Greece's government expenditures have decreased with 6.2% year-on-year! That is highly unusual for a country which is governed by a far left-winged government. It only confirms that Athens is desperately hoping for a solution. Time is up, by all means. Because of that, few options are left.

Greek Options

We see three options for Greece, going forward.

1. Additional emergency funds

The first option is that the Troika unleashes the pressure. If that were to happen, Greece could get access to additional emergency funds. However, it is not likely that Europe, the ECB and the IMF will relax their requirements vis-à-vis Greece. The opposite is likely to happen: new funds will come with new requirements. It is a matter of giving and taking.

Greece is really not able to adopt additional measures. It is even not capable to respect the current agreements.

This first option seems not interesting, nor feasible. It is a form of kicking the can down the road, without solving any problem. There is plenty of proof for that as evidenced by developments over the last couple of years.

The truth is that the Greek economy is still falling off a cliff, even with all the savings and other measures taken since the crisis hit the country.

Greece-GDP

Source: Tradingeconomics.

2. Grexit

Another option is a Grexit in which Greece would leave the Eurozone. That would allow the Greeks to introduce the drachma and manage their own monetary policy. If that were to happen, the country would immediately strongly devalue its newly introduced currency. As a result, a devastating hyperinflation would hit the country. The Greeks would suffer even more than today, but it would likely be a short pain, followed by a gain.

History has shown that a strong devaluation often results in an economic boom. In the case of Greece, its products and services would become very cheap for foreigners. Especially tourism, export products and other segments of the Greek market should benefit from a boost in demand.

The drawback of a Grexit is that the international relationships will be severely compromised. Cutting of the ties with Europe is not really desired by the Greek population. In addition, the country would be more vulnerable to pressure from the Middle East, Turkey or Russia.

In sum, this option is far from ideal.

3. Northern euro and southern euro

A third and last option is some sort of consensus. Greece would stay in the European Union, but would have its own currency which it can be devalued if required.

This concept has been discussed in the past, and would split the monetary union in two areas. Practically, it would probably mean there would be a “northern euro” and a “southern euro”. That idea was prone to a lot of criticism, but is getting increasingly more proponents.

Surprisingly, it was German finance minister Schäuble who had put this option forth, according to sources close to the minister. He referred to Macedonia, a small country north of Greece, that is using the euro but is not part of the European Union. Mr. Schäuble concluded that the opposite would be possible as well.

This type of consensus solution is being increasingly accepted, given Greece's extreme financial situation. In such a case, it would not be of primary importance whether Greece would still be part of the European Union.

Iceland

The third option discussed above would not be a bad deal for Greece. It was less than a decade ago that Iceland was experiencing a similar situation: no money and too much debt.

A strong devaluation of the Icelandic krona made the financial crisis at that time even worse. But Iceland recovered quickly, and a couple of years later it had the highest growth figures in Europe.

ICELAND GDP

Source: Tradingeconomics

A Perfect Storm

A Greek devaluation process would put the future of the euro at risk. It is not only Greece which is waiting to be rescued, as there are more European countries who would be happy to adopt a similar “solution.”

These events will put additional pressure on the euro compared to its competitors (i.e., the U.S. dollar, yen, yuan, and the likes). European leaders are really between a proverbial rock and hard place. It is worth noting that financial markets are hardly impressed by the upcoming changes in Greece particularly, and European Union in general.

This has the potential to cause a perfect storm in the markets. Fears around Greece have a tradition to send gold prices higher. We expect investors to choose for gold when the Greek situation escalates.

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p00k1e's picture

Not a woman in the pic.  Jesus is judging Greece and their whippet ways.

Polymarkos's picture

Icelanders will work, Hellenes won't. The Icelandic model of responsibly taking it on the chin won't work in the Mediterranean.

RaceToTheBottom's picture

Start hanging Banksters...
Regardless of who is at more fault, motivation among the Bankster set would suddenly surface with deals that are best for the Greekster set.

Blopper's picture

There will be No Grexit ever.

Peter Pan's picture

Three options for Greeks:

Bend over forward

Bend over backwards

Live and die with dignity

 

Cpl Hicks's picture

I think they have already made their choice.

It's option 4- extend and pretend.

SnatchnGrab's picture

Option 5 - Violence?

p00k1e's picture

Violence is unlawful. 

Oscar Mayer's picture

All the Greeks have to do is print up drachma at par value of the debt and pay it off.

Then the Geek economy gets a boost when all that drachma returns in search of value...

Win, win.

And if the Greeks really want to win, declare their country a tax free trade zone.

GuusjA's picture
GuusjA (not verified) Oscar Mayer Jun 1, 2015 6:43 AM

Danny Jordaan, de voorzitter van de Zuid-Afrikaanse Voetbalbond Safa heeft in zijn leven nog nooit 'smeergeld betaald of ontvangen'. In het systeem 'Liegen om te Leven' krijg je namelijk alleen geld voor 'waar je geen zin' in hebt. 

 

http://www.volkskrant.nl/politiek/fyra-verhoren-ansaldobreda-voerde-tone...

 

In het systeem 'Leven en Laten Leven' daarentegen wordt de toewijzing van een WK niet aan een private partij zoals de FIFA overgelaten, maar aan de VN. Natuurlijk gaat netwerk @SuperWil dit nog niet aan de grote klok hangen, maar heeft het Amerikaanse gerecht toestemming gegeven om de Zuid-Afrikaanse regering en het WK-organisatiecomité te beschuldigen van onregelmentair waarheiddelen. 

 

http://www.volkskrant.nl/politiek/fyra-verhoren-ansaldobreda-voerde-tone...

 

Kwaliteitsinspecteur Tinus Jonkers van Lloyd's Register Rail Europe heeft ook veel geld gekregen om de parlementaire enquêtecommissie de wijsheid te geven dat hij 'acht jaar van zijn leven was betrokken bij deze treinen en dat het dan jammer is om ze nooit door het Nederlandse landschap te zien rijden'. 

 

http://www.volkskrant.nl/binnenland/imams-uit-marokko-invliegen-niet-de-...

 

Wat we tijdens de islamitische vastenmaand Ramadan, die op 18 juni begint, wel zullen zien is dat 45 imams uit Marokko in Nederland 'de definitie van de absolute waarheid' moeten gaan uitdragen!?!?!?

optimator's picture

Preview of coming attractions.

Coming to a theatre near you.

Joebloinvestor's picture

4th option:

Government collapses, new government requests "honeymoon" period to sort things out.

New government sues GS for conspiring to defraud and starts arresting old government officials for EU fiasco and corrupt activities.

Corruption disappears, people start paying taxes and the unicorns return. 

 

wstrub's picture

Just print more money......that will fix it all.


Paveway IV's picture

Option 4: The Greek people did not benefit a bit from the billions of loans - it was all stolen or mis-spent by an illigitimate, unrepresentative government.

The Greek government (like any other government) is a foreign corporation. The people of Greece have absolutely ZERO obligation for it's debts. The bankers like to imply the connection, but there is none. The average Greek has NO obligation to ever pay back a dime stolen by it's government from foreign banks. I applaud the Greeks for not paying taxes. Fuck the Greek government - it's an extortion and Ponzi scam, not a government

But won't this interfere with the trust the Rothschild banks have for governments to pay them back? If the people can't ultimately be forced to make good on government debt, then nobody will loan to untrustworthy, unrepresentative governments... <== DING DING DING. Wake the fuck up - that's where this should be going.

I feel absolutely NO moral obligation to pay back debt that I never voted for or benefitted from. I never appointed the U.S. government as my personal loan shark. They are a foreign corporation, not an appendage of ME. Fuck any money they supposedly owe to anybody - no loan sharking without representation. The oligarchs owe it, not me. Take that, bitch!

Nobody should be stupid enough to loan money to any government - ever - because the citizens could eventually be pissed off enough not to pay. I hope all the Greeks stop paying taxes, the government fails and nobody will ever loan the Greek government another dime for all eternity. That's the way it should be in Greece and every other country on earth.

Next up: The U.S.A.

Monty Burns's picture

"The Greek people did not benefit a bit from the billions of loans.."

Not true. While much of the money was stolen and mis-spent it was done by a representative Government which used most of the ill-gotten loot to feather-bed a giant public sector and give up on tax collection.  The crimes of the politicians and banksters should not distract from the fact that the ordinary Greeks partied as well. And voted in politicians who promised even more free shit.

Paveway IV's picture

"...The crimes of the politicians and banksters should not distract from the fact that the ordinary Greeks partied as well..."

Fuck that, Monty. Greek Oligarchs parties were a bit more opulent than some Greek civil servant 'partying it up' by paying rent that month. ZERO MORAL RESPONSIBILITY. 

"...And voted in politicians who promised even more free shit..."

You sound far more interested in punishing Greek peons for a broken, non-representative government than you are in holding the oligarchs who made and stole millions responsible. Foreign corporation governements colluding with other foreign corporation governments in a criminal debt-fueled Ponzi.

The music has stopped and there's no chairs left for the oligarchs. The average Greek had no responsible political representation.ZERO MORAL RESPONSIBILITY. No government on earth should be allowed to borrow money. FUCK THEM ALL if they can't live within their means.

marathonman's picture

I like the cut of your jib sir.

geno-econ's picture

Option 3 does not explain how debts are to be repaid on schedule, extended or to be forgiven in a devalued currency.

kaiserhoff's picture

Northern Euro/Southern Euro.

Some of us have pointed out for years, that was the inevitable outcome.

It's more about history and culture than economics.