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JPM's Walk Through What Greek Capital Controls Would Look Like
Once upon a time, merely suggesting that a Eurozone country may be kicked out, let alone suffer capital controls, was enough to get one sued by the Hague for crimes against humanity, if not outright droned. Now, and as has been the case for the past 4 months, that it is the Troika's explicit intent to foment a depositor panic and instigate a bank run in Greece with the hope of overthrowing the Tsipras government, everyone is allowed to chime in.
So, without further ado, here is what the next steps for Greece may be as well as a walk through of its capital controls, courtesy of JPMorgan.
Capital controls, ECB rules, and bellicose rhetoric
There are increasing media reports that capital controls are being prepared for implementation possibly as soon as this weekend should the discussions with Greece not generate a deal. This raises a number of questions about how capital controls would work, and how their imposition would effect the negotiation process.
The practicalities…
On some of the practicalities of capital controls, Cyprus provides a template, and we have written up some of the lessons from that experience in the research note linked to below. The table below, reproduced from an IMF program review, summarises the measures that were put in place in Cyprus and their subsequent removal. In this instance, capital controls should be thought of as a set of administrative constraints which seek to prevent deposits leaving the banking system while still attempting to allow “normal” economic activity to continue. Hence limits are imposed on the ability of households and firms to withdraw their deposits in cash, or to move them out of country concerned. Firms who need to transfer funds abroad as part of their normal business (consider, for example, a Greek auto dealer importing German cars) have to provide documentation to show those movements are indeed related to commercial activity rather than a portfolio shift.
And the politics...
The decision to impose capital controls ultimately lies with the Greek authorities, and would generate a need to pass legislation through the Greek parliament to give those controls the full force of legislative backing. A key issue is the extent to which the Greek authorities would cooperate with the rest of the region on imposing capital controls. Although the decision on capital controls is ultimately taken by Greece, decisions on the provision of funding to the banks are taken by the ECB. If the ECB decides to raise haircuts on collateral significantly, or not to raise ELA to meet deposit outflow, then the Greek banks will find themselves in a position where they cannot meet requests for withdrawals. The banks themselves would then either have to come up with a scheme for rationing access to deposits, or (more likely) shut their doors. The imposition of capital controls can be thought of as trying to make that rationing process orderly, with the denial of unlimited liquidity from the ECB the key force acting in the background. If that makes the ECB look like the bad guy, remember that from the point of view of the central bank and the rest of the region, each increase in ELA facilitates an increase in the region’s exposure to Greece via Target 2.
The ECB’s rules...
Against this backdrop, one can understand why yesterday Draghi was keen to state that the ECB is a rules-based institution and that the key decisions would be taken by politicians, not central bankers. On this, we will simply repeat what we have written before. If one thinks of rules in the sense of vaguely specified guidelines with scope for multiple interpretations at differing points in time, then Mr Draghi is correct that the ECB is rules based. The ECB might have hoped that the accumulation of precedent would create conventions about its behaviour through time. But there has been enough variation in how the ECB has handled specific situations for the idea of settled rules and conventions to be challenged. In the ECB’s defense, it has often had to think on its feet during the crisis, and many of the decisions it has taken have appeared reasonable to us in real time. In this particular instance, however, we doubt that the ECB will do anything without their being clear political backing from both the Eurogroup and from Merkel and other European leaders.
An anti-euro Tsipras?
There are reports that the Greek government is threatening action via the European Court of Justice should the region take action which inhibits bank’s access to liquidity and hence force the imposition of capital controls or the closure of its banks. We very much doubt any such legal action would be successful, and it would take a while before that case came to be heard. But more important is the signal that the Greek authorities may depict capital controls or the closure of the Greek banks as unjustly imposed upon them by the rest of the region. And meanwhile, the rhetoric from Tsipras is increasingly bellicose, with references to the “pillaging” of Greece, and of a need to avoid national humiliation.
One particularly ugly scenario would be if the Greek authorities resist the imposition of capital controls, claim that restrictions on bank access to liquidity have been unjustly imposed, and then seek to use the antipathy that creates among the Greek population to begin to argue toward an exit from the euro. This is a scenario we have accorded a low probability to, on the grounds that it is not clear that the Greek population would follow the script and regard the situation as primarily the responsibility of the rest of the region. But the increasingly hot rhetoric has us more concerned about this than we have been hitherto.
Note on lessons for Greece from Cyprus
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I gotta admit I'm not following along at home with this Greek saga.
I should be but I have cows to milk and hay to bail.
Plus its Europe. What self respecting Amish gives a hoot about the old country?
Not me. Let it all burn for all we care. We came to this new country to get away from the jews.
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.earnmore9.com
You are underpaid. go on strike. Please.
Always talking about your sister. Why?
And is your name really "Rolling Thunder"? What trustworthy company advertises for business under an obviously fake name?
actually its his sisters friends father, who heard from his dentist, whose sons best friends daughter knew a guy who said a seagull told him this was a way to make cash FAST
You bail water.
You bale hay.
You're a farmer?
No he's not a farmer but he is an idiot.
AMEN. Why are American taxpayers paying for tanks in eastern Europe? Let Europeans can pay. Europeans are such geniuses. They have their own European Union, and it is so wealthy and powerful that it can tell Greece what to do. Let it pay for the tanks it wants. Or is America nothing but a hired mercenary for its European Masters? Americans can't even afford to fix their own Schools, Bridges, or Health Care. Americans certainly can't afford to fix all the things Europeans keep breaking every day.
Europeans overwhelmingly do not want to go to war with Russia, it is the US of A (the bankers and the "deep state") that want war to keep US Dollar reserve status alive (you know, the thing US can print out of thin air and exchange against real value using its military force around the world ...)
"US Dollar reserve status alive (you know, the thing US can print out of thin air and exchange against real value using its military force around the world...)"
YES INDEED. But every dollar "the US" (in reality, NOT the US, but actually the Manhattan Federal Reserve PRIVATE BANKERS) prints out of thin air is actually, by creating inflation, and thereby reducing the purchasing power of every dollar saved by USA workers.
why should europeans pay? its the USA's design and dream. the weak euro leaders are just cowtowing to kissinger et al. the usa is preading its poison all over the globe. no one can afford this crap. its the only way to keep the charade going, buy expensive shit with unpayble debt, blow it up, rinse and repeat.
deleted
Please... not "the USA", but, rather, "the USA military industrial banking congressional complex". USA citizens do not want wars any more than European citizens want wars.
If you are trying to escape massive amounts of Jews running your country, then I would suggest Germany -- for obvious reasons.
We Amish people fear the resultant vector of a world gone jew. The outcome will without a doubt foul the earth, our fertile farmland, our traditional way of life.
We don't want it, we don't need it.
Pitchforks, check:
Torches, check:
Rope? Who was supposed to bring the rope?
...someones gonna have to head back to town and get a shitload of dimes..
trees?
>>> One particularly ugly scenario would be if the Greek authorities resist the imposition of capital controls, claim that restrictions on bank access to liquidity have been unjustly imposed, and then seek to use the antipathy that creates among the Greek population to begin to argue toward an exit from the euro.
Try - resist the imposition of capital controls and not move towards an exit of the Euro.
The inevitable result is that the banks go bust and their buildings, computers etc can be put into service with new sovereign owned banks. Don't nationlize their banking assets, merely compulsory purchase their buildings and hire their clerical workers. Alternatively allow foreign banks from friendly nations to open branches to provide retail banking. Like Iceland, legally and technically new banks but the same old buildings and the same people working at the local branches.
How does Greece have capital controls imposed on it and still be in the euro?
This would make Cyprus look like a moderate act I imagine where the Greeks in Greece are only allowed to withdraw 100 euro's a week or something.
This problem does not exist in Cyprus.
Firms who need to transfer funds abroad as part of their normal business (consider, for example, a Greek auto dealer importing German cars) have to provide documentation to show those movements are indeed related to commercial activity rather than a portfolio shift...
Today it's all gone. You got a whale show up with four million in a suitcase... and some 18 year-old hotel school kid is gonna want his social security number... [/Ace, Casino]
Some pics of truck loads of new dracma would be nice to flash around about now?
What happened when the US went off the gold standard? Roosevelt forced everyone to turn in their gold coins in exchange for "Federal Reserve Notes" and it was no longer possible to withdraw gold coins from banks. You may have deposited gold, but you could only withdraw paper.
The Greeks probably won't outlaw possession of euros. And in fact some of the government comments seem to be encouraging Greeks to withdraw their euros before the ELA goes away. But once it does, they could simply proclaim that you cannot withdraw euros from your bank anymore, you can only withdraw something like "Hellenic Reserve Notes" instead. So really, the government only needs to print up a bunch of these notes and distribute them to the banks. Then, one Monday morning Greeks would wake up to discover that they could no longer withdraw euros from the bank (or transfer funds to a non-Greek bank).
So the transition doesn't need to be chaotic (although it probably will be).
The transition would be chaotic in the sense of hyperinflation for the Greeks.
And with something like this the unintended consequences are incalculable. Greece isn't that big but what if Spain, Portugal, or whoever wants to leave the Euro? What if Putin or China get involved? I mean anything can happen. It's not like getting kicked out of class, this has foreseeable but also unforeseeable geopolitical consequences. Think butterfly effect.
Well, yes. In the long run things could become very interesting. But I was just talking about the immediate step of Greece leaving the euro. I think countries like Spain, Portugal and maybe Italy will watch to see what happens in Greece. If Greece is better off (or at least not any worse) after a year or two, pressure to leave the euro might become very strong in those countries as well.
How do we know that Greece will experience hyperinflation?
How do we know that if Greece leaves, Spain and Portugal will leave?
How do we know that would be "bad"?
"Bad" for whom, exactly?
What does "get involved" mean?
Don't Russia and China already sell stuff to everyone in Europe, and buy stuff from everyone in Europe? So aren't they already "involved"? Haven't they ALWAYS been "involved"? Isn't EVERYBODY ALWAYS "involved"?
Take deep breaths. Relax. The boogeymen are the television talking heads, saying "be vewy afwaid".
Reading between the lines, Greece giving an FU to Brussels would cost JPM a huge chunk of cash.
JPM is forensically leaking and projecting.
It's the EU oligarchs who want to put the screws to the Greek people to gin up antipathy against the current politicians in exchange for more compliant puppets. The banks fucked up in 2008 and still refuse to take their lumps.
The people should be rising up and nationalizing the banks, breaking them up, making them highly controlled utilities, and locking up the current bankers to make examples of them. That banks are still calling the shots is remarkable and it's going to get blood-in-the-streets ugly.
Fact check: Greece is bankrupt for over 7 years at least and EU denial of this broadly known fact in a sign of collective psychopathology of calcified or rather mummified EU bureaucrats and banksters.
And Syriza is or act as powerless so far:
The Syriza violated their own manifesto hundreds of times during last 5 month proving that it is a fake political entity negotiating cash deal for their own leaders while collapsing their own country.
It’s pure political theater for “benefit” of raped Greek peasants.
As I said before on ZH no Greek blood on the street no revolution against EU totalitarianism disguised as brotherly love.
Capital controls is the problem? Are you kidding me?
Greece really needs to go all Nuland up the EU's collective asses!
"Hi Virginia, it's me. Now listen closely. When we hang up, I want you to go to the closet, get a suitcase, and get to the bank."
-- Rollover (1971)
"The more the deposit flight goes on, the easier Grexit will be," said one Syriza MP. "It is a trump card," said another.
-from an AEP article in the Telegraph.
Did JPM mention
10 to 2 banking hours
It's time for the military to step in and replace Tsipras.