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Why Grexit Is The Most Likely Outcome
Submitted by Pieter Cleppe, initially published on the European Leadership Network
Why Grexit is the most likely outcome
Ahead of Greece’s referendum on a bailout plan in early July, EU decision makers, including Eurogroup Chairman Jeroen Dijsselbloem, warned a “no” vote might lead to Greece’s exit from the Euro. After Greece’s overwhelming “no”, and Eurozone leaders’ latest ultimatums, there are a number of factors that indicate that “Grexit” may indeed be the most likely outcome.
1. Greece is already in default to the IMF
Last week, Greece defaulted on its obligations to the IMF, even if we technically would need to say it was put in “arrears”. Greece is the first developed country to do so. Currently, the Greek banking system is dependent on the ECB allowing the Greek Central Bank to issue loans to Greek banks through a scheme called Emergency Liquidity Assistance (ELA). As the name suggests, this funding can only be provided to deal with liquidity problems, so it cannot prop up insolvent banks. Greek banks are intimately linked with the insolvent Greek state, meaning they are insolvent themselves, meaning in turn that the ECB would need to cut off funding.
The necessary two thirds majority needed within the ECB Governing Council to block the Greek Central Bank from creating euros to lend to Greek banks under ELA hasn’t been reached so far. As a result, the ECB has had to come up with all kinds of excuses, the latest being that it will only cut off ELA funding for Greek banks in case there is “no prospect of a deal”. The ECB’s excuses are likely to run out soon, especially if the Greek government defaults on payments to the ECB on 20 July. This week, the ECB restrained ELA a little more, but it’s expected to provide ELA funding at least until Sunday. Political cover would be needed for any further actions though.
Greek pensioners are meanwhile standing at the gates. A logical outcome would be for the Greek government to pay them in “IOUs” or in a parallel currency, which could be used to pay for government services, for example health care, something which the outgoing Greek Finance Minister already suggested.
Another problem is that Greek banks will be running out of actual physical bank notes, possibly by the end of this week. Closing banks is bad enough, but closing ATMs is a recipe for chaos. It would force the Greek government to print Drachmas, while uncertainty would reign during the transition period.
2. Greece and the rest of the Eurozone are further apart than ever
Given that Greece’s finance gap will only have grown bigger as a result of the economic damage inflicted by capital controls, Greek politicians likely will need to accept even more “austerity” than was on offer before the talks with creditors broke down. German Chancellor Merkel stressed earlier this week that Greek measures will have to “go beyond” what was demanded by the creditors before the referendum. How likely is this to happen in the face of the massive “no” vote? Costas Lapavitsas, the leader of the radical wing of Syriza, already warned that "the referendum has its own dynamic. People will revolt if [Tsipras] comes back from Brussels with a shoddy compromise." Some Greek analysts think Tsipras doesn’t actually want a deal.
It must be said that the so-called “austerity” was always more a synonym for monstrous tax hikes than for actual spending cuts. One of the recent Greek government’s proposals, for example, was to unleash 2.69 billion euro in tax hikes on the Greek private sector this year – perhaps hoping the money wouldn’t be raised anyway – while only cutting spending on “pensions” (which more than often seems to mean the pension administration, not actual pension payouts)– by 60 million euro.
There is still a chance that Greece will back down completely in the next few days, giving up its demand for debt restructuring, which Merkel has called “out of the question”. The result of this would be that Greece would enter a new European Stability Mechanism (ESM) programme. So far however, it looks like the Greek government hasn’t come up with detailed proposals, apart from a general request for ESM support.
It’s therefore more likely that the EU Summit this Sunday decides to exclude the country from the Eurozone and provide funds to make the transition to Drachma through the so-called “Balance of Payments” facility for non-euro states which has been used for Romania, Hungary and Latvia. The invitation of all EU member states to this Summit is already a sign that Grexit is likely, given that they would be needed to sign off on this scenario. In any case, whatever happens next, the fact that EU Commission President Juncker declared that “We have a Grexit scenario, prepared in detail” proves for the first time that the euro adoption is not irreversible.
3. Capital controls are notoriously hard to unwind
According to official Greek data , there was still almost 130 million euro deposited in Greek banks before capital controls were announced. If Greek banks were to reopen, few might trust they wouldn’t close again soon, potentially causing a run. As the ECB is unlikely to provide enough ELA funding for banks to open without a deal, and a deal itself still seemingly unlikely, the government in Athens will have to seriously consider printing its own currency should it ever want to open its banks again.
4. The “no” vote protects the Eurozone’s politicians from looking like they pushed Greece out
In the event of a Grexit, prepare for more blame games between Greece and the rest of the Eurozone. Now that the Greek people have sent a powerful signal that they desire a full-blown “transfer-union”, which is not on offer, it will be much harder to blame Eurozone politicians for refusing more transfers than the ones already conducted, through the ECB and bailout loans with low interest rates.
How might Grexit playout?
Eurozone countries could fly in periodical shipments of euro bank notes until the end of summer, in order to avoid a risk of social breakdown. This special “transition bailout” – possibly financed by future cuts to EU subsidies for Greece - could be decided, as a means of raising hopes for an orderly transition to the Drachma. There is also an alternative scenario in which Greece – after having defaulted and restructured its banks - uses the euro but doesn’t enjoy the cheap money from the ECB, like Montenegro.
This would give Greece an incentive to stay in the EU – and NATO – and to play along when it is legally relegated to the “euro derogation” (the status of Bulgaria, Sweden and Poland) i.e. obliged to join the eurozone in the future. The fact that German Finance Minister Schäuble mentioned ahead of the referendum that a Greek “no” may lead to a “temporary” Grexit may refer to this potential scenario. The IMF and European Parliament President Schulz have been making noises about “IMF assistance” and “humanitarian aid”.
It looks like this is finally it.
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"Why Grexit Is The Most Likely Outcome"
Because the debt is unpayable and the Euro and the E.U. are doomed.
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Tsh, Phil, Phil, Phil, you're way off the mark there son...
It's 'Chicks with guns' and it's 'other people's feces'.
Pfft, Amateur.
Worthless piece. What happened so far doesn't matter much. What the powers that be want to happen (and don't want to happen!) is what counts. And here a grexit is the least preferable outcome for them. While merkel/Schaeuble and some other bloodsuckers surely want syriza to get humilated as much as possible they do know pretty well that a grexit speeds things up considerably - for the endgame of the eurozone, that is. Any problem that can be solved by throwing money at it will ultimately be solved that way. It's the problems that can't be solved with money that will ultimately bring the whole system down. So there will be a deal, make no mistake. The can getsn kicked for a couple quarters more and syriza will hold the bag having to implement lots of more austerity measures and 'reforms' most of which they do not want to do. In turn they may get some face-saving concessions even if only to prevent the political situation in greece from spinning out of control.
I've been working online for years and have lost hundreds of thousands of dollars. My mistake is believing in gold and silver stocks when I should be doing what?
embrace your USURY
A Greek jeweler, George Papalexis, said a customer had approached him on Wednesday wanting to buy a million euros — about $1.1 million — worth of merchandise. But Mr. Papalexis, the chief operating officer of Zolotas, said he had refused because he was more comfortable holding on to the jewels than having money in Greek banks.
http://www.msn.com/en-us/news/world/greeks-spend-in-droves-afraid-of-los...
Greeks holding gold and/or silver are big winners since the future of their currncy is very uncertain and will most likely lose much of its value as this disaster progresses.
confidence, ah, the final blow. divorce. debt or death. once lost rarely is it regained, ha...
ffs is this guy for real? Get a job a Goldman lol....
Isn't there a way to report the spammers and get them deleted? Why are they allowed to pollute this forum?
Greece is in arrears to the IMF and soon to other creditors. Why don't they have money to backstop the banks themselves???
From Section 3 above:
"According to official Greek data , there was still almost 130 million euro deposited in Greek banks before capital controls were announced."
A google search shows there are 11 million Greeks. So the average Greek has about 10 Euro in the bank. That doesn't sound like a lot to me....
That was probably the day before. Question is what are large companies doring with their deposits ?
Honest and to the point. I like it.
not completely honest. a small example:
"...when it is legally relegated to the “euro derogation” (the status of Bulgaria, Sweden and Poland) i.e. obliged to join the eurozone in the future."
sounds so... forceful. obligation!
fact is that both the UK and Denmark have an official opt-out. which makes "forceful" already less of an option
but the best example is Sweden. the boys at the Riksbank, the Swedish national bank, were quick to point out that any currency that is "obliged" to join the EUR can't do that as long as the technical prerequisites aren't fulfilled
and so they have made sure that one of the smaller technical prerequisites is not fulfilled, and so they don't join
many ways to skin a cat when you are a sovereign, or that sovereign's national bank
just saying. we are in the middle of a currency war
gord, nearing the end, confidence, going, going, gone...
They could start selling islands. 10B for Crete anyone ?
They could sell their children, surly they'd fetch something?
https://en.wikipedia.org/wiki/A_Modest_Proposal
Cool, thanks for that. From the article: "In English writing, the phrase "a modest proposal" is now conventionally an allusion to this style of straight-faced satire." Funny thing is Varoufakis' whole program for Greece and Europe is called exactly that, A Modest Proposal.
Dennis the Menace? Worth something? Whoa!!!!!
Island of Lesbos? Priceless
I agree. Exit is the probable outcome. Except, Washington has a very deep interest in Greece as a linchpin NATO nation. Greece must be a NATO force, an anti Russian puppet state. If somehow the Greeks exit the Euro, Washington will be firm in that Greece stay in the EU and stay as a firm NATO military. This might mean Greece as an EU outcast within the EU system. Sort of special status. Washington will never allow Greece a path outside direct US control, the EU is Washington's hand in Europe.
Economically Greece can be out of the Euro.
Geopolitically, Greece must be a Washington client state and NATO military force.
Even as Greece collapsed, new tanks, submarines, fighter planes and anti aircraft weapons were added to Greece's NATO forces, all at tax payer expense. All borrowed money.
Make it the Commonweath of Puerto Rico de Mediterranean.
You're right Jack. But the way the US will do this is Nuland style "revolution". In Greece, it will take form as planned chaos. Then "order" will be restored by the Greek military establishment, who will install a military junta government. That's how democracy "wirks" under US hegemony.
Nuland is already on the case:
http://www.nakedcapitalism.com/2015/07/nulands-nemesis-will-greece-be-de...
The US will certainly try its best, but for how long? It has failed to stop Britain, Germany, France etc from joining the AIIB. How much longer can the petrodollar last?
So they are Militarizing NATO with OTHER PEOPLES MONEY?! shock!
"the EU is Washington's hand in Europe"
ah, what utter simplification. either a slave or a foe, eh? black or white, there is no such thing as a zebra or a wolf
reminds me of the shocking words from Bush Junior: "either you are with us or against us"
guess you did not belong to the shocked, when he said that
meanwhile, Brussels is still smarting for all that spying that went on, and this very scandal is still clinging like a dark cloud over Berlin
Why Grexit is NOT the most likely outcome:
Full credit to Dr. Paul Craig Roberts for germinating the idea; makes a lot more sense to me than believing that TPTB are stoopid in addition to being evil.
Editted to add: Looks like Jack Burton is a faster typist. ;)
this I could agree with
Greek exit is probable because the world will be in a severe and long lasting global economic depression--- all bets are off --- nobody wins --
SWCroaker wrote: Greece's whole debt is something like $309 billion. The EU is currently QE'ing around $60B a month. The US/EU could wipe the debt out by farting; ergo the debt is not the issue.
That's a total nonsense.
Not quiet sure where the "total nonsense" comes from. Greek debt estimate as of June 2015 was 323B Eu; not exactly 309 which was figure I quoted from a different source. But both are in the ballpark.
There are only about 974,000 google hits on "eu qe size" quoting 60B eu a month. So I have to guess that isn't nonsense.
US takes in 2T in taxes, spends about 3.7T to 4T "officially" (doesn't include NSA, CIA, ISIS, payments to Apple/Google/Intel/AT&T/Verizon and other corporate friends for information "services" etc). So 300 ish Bbux is less than 1/13th of what US admits to spending annually. Compare Geece's total problem to the 12T the Fed worked behind the scenes in 2007 when Paulson was doing the $750B holdup of Congress, and it kind of looks like a Fed fart to me. Particularly when the ECB hasn't even entered into the calculations yet.
Exit is the most probable outcome but not for any of the reasons mentioned.
Europe has already announced that it will provide a large glut of "humanitarian" funding in such a case.
Greece can obtain urgently-needed funds faster by getting aid than it can in negotiating a deal to stay.
The need for speed is starting to rule the decision-making process in Athens.
What did Greece put up as collateral way back when? Throw it all on Ebay.
The steam off Varoufakis's piss.
Listen, you guys. Man up. We must bomb Greece to save Greece.
Identifies the true challenge that Syriza and the Greeks refuse to face and makes them no more righteous than any EU politician.
https://mises.org/library/greece’s-biggest-problem-its-anti-capitalist-culture
You can't have your cake and eat it!
Iz we in or iz we ain't?
I wish ZH would instead write about the sentiment in the Baltic, ex-soviet and nordic countries, where poor countries ask themselves why they need to support Greece, a far richer country with double pensions and low taxes. Instead, it's always Germany's fault, or the banks, or the ECB. Those countries made through far worse by themselves, without the whining and socialism and solidarity. But.. but .. just don't look into the mirror when looking for whom to blame for your own misery!
So the Baltic, ex-soviet states jumped into the EU thinking they were going to be given some goodies, just like Greece did, and now find they're expected to pay for Greece. Who coulda seen that coming?
Obviously no one explained the greater fool principal to those good Baltic people -- or were their politicians on the take to expand the EU just like previous Greek politicians were?
Tell me when did Estonia or Slovakia cry for help? See, that's the point. They didn't join the Euro (you write about EU which (with its subsidies is a different story) to pay for others to have a merry time, or to get such benefits themselves.
Please notice the difference between the EU and the Euro Currency.
They cried for help when joining the EU. Note the net suppliers of money to the EU. Germans, British with Dutch and Finnish. The UK isn't a member of the Euro, but still pays to the EU which controls the Euro.
Both Estonia and Slovakia benefit from their membership of the EU all paid for by others. Note the only difference between the Euro and the Eurozone is very little, in monetary terms.
It is why the UK wants a referendum to leave. There is no real benefit. Just money going round and round to others getting bigger and wasted, whilst the money going round and returned to the UK gets smaller.
The difference between Euro and Eurozone????
WTF? The Euro is the currency of the EuroZone.
The EU and Eurozone are different entities although they are intertwined politically.
The Eurozone is a subset of the EU.
It is possible that the politicians were bribed to join the EU but very unlikely.
The citizens of former Soviet block countries looked at Western Europe's prosperity and wanted the same.
What almost not one realized is that prosperity was build upon a foundation of ever expanding debt.
It's your fault TIMBEEER that i'm all agitated.
Every politician that signs up for this Euro malarkey should be shot as they're committing TREASON. End Of.
maybe china will save greece after-all ... if shit-comp, or whatever it's called, keeps crashing there's no way merkel have big enough balls to kick greece out of euro ...
There will be NO GREXIT ever or else the Rothschilds would fail in bringing in their one world government.
Teacher, Teacher I have a question. No not that.
Could Greece become a sister state of Iceland and begin the formation of a group of nations free from the tyranny of the NWO?
To cut it short: The Icelandic people have a Nordic mentality and culture, thus they work hard and pay their debt. You can guess the rest. Greece on the other hand is like a sister addicted to a drug. She needs more money, either you give it or..
Dear Mr. Tsipras,
If your government will issue Yuan denominated sovereign bonds we will buy some each week.
However, payment will not be by the usual electronic funds transfer, rather we will pay you in the form of physical banknotes delivered by air freight. Russian Ruble banknotes actually, banknotes that we obtained recently from Moscow in a currency swap.
We expect you to say to your people "Greece has money and Greece is not bankrupt; but Brussels will not buy our sovereign bonds and give Greece the Euro banknotes that you the Greek people need. We do have money in that we are able to sell our sovereign bonds outside the EU and gain Russian Ruble banknotes. Therefore since Brussels has blocked us from obtaining Euro banknotes you will find our ATMs filled with Russian Rubles and you can make a foreign currency transaction at the ATM to buy some of those Rubles with the Euros in your account as an ordinary foreign exchange purchase at ordinary rates. We understand you would prefer Euro notes to Russian Ruble notes but we can only give you what we have and Brussels has tried (but failed) to destroy our banks. We know you would rather have Rubles than no cash at all. The Rubles can be sold at foreign exchange merchants in the ordinary way and we ask shops to offer Ruble prices for their goods. Greece remains in the Eurozone and we hope that our use of Russian currency is temporary, but we are forced into his action by Brussels blocking us from issuing more Euros. As to our foreign debt, we do not repudiate it, instead we say we will pay our sovereign debts off when we can and that is not now."
We extend this offer in friendship from
The Peoples Republic of China.
SWCroaker wrote: Greece's whole debt is something like $309 billion. The EU is currently QE'ing around $60B a month. The US/EU could wipe the debt out by farting; ergo the debt is not the issue.
That's a total nonsense.
Claiming something as fact doesn't make it so. Total nonsense is a nonsensical opinion.
The plain fact of the matter is that most of the "French Banks" which were holding Greek Debt Instruments have since been Capitalized. The former Greek Debt is bought with QE money from ECB, and then the instrument is transferred. Once at the ECB, they can then fart, and claim that Greece no longer has to pay.
IMF loan money also bought Greek Debts, mostly out of the private hands. IMF could fart too, after all the new Euros were simply ledger entries.
Wall Street Market Predators have bought Greek Debts hoping to make 100% on their "investment."
The Euro peon 1% elites have been hoping to harvest Greece and take all of their natural resources/islands/infrastructure for pennies on the Euro. Austerity drives prices down, making it a great deal for bear raiders to swoop in. All the raiders have to do is take out a loan themselves, or use their Euro savings to buy up permanent "cash" producing assets.
Germany still has some Greek debts on their books. No doubt a lot of creditors are being bailed in the background by QE mechanisms.
The people who run the banking and finance Casino are being paid off for making their bad bets.
It is time to dump the fraudulent credit money system into the trash can of history. A bad system will always have bad outputs.
www.sovereignmoney.eu
No no, you got it all wrong, it's just that the Greeks are lazy! /sarc off
Nigel Farage, the best British Political Orator, speaks about the Greek Crisis brilliantly and movingly, in the EU Parliament yesterday!
https://www.youtube.com/watch?v=94UcyJnRcGU
Harry
We expect you to say to your people "Greece has money and Greece is not bankrupt; but Brussels will not buy our sovereign bonds and give Greece the Euro banknotes that you the Greek people need. We do have money in that we are able to sell our sovereign bonds
Why the hell should a sovereign country have to use somebody elses money? NEVER LET YOUR DEBT POINT OUTSIDE OF YOUR LAW.
That is how this whole affair began. That is how most wars start. Foreign denominated debt is a really bad idea.
If you want to buy something from a foreign economy then trade goods. A bancor system is a goods exchange system.
Hjalmar Scacht of Germany used a Credit system to trade goods. Germany would simply credit the account of their trading partner and an equal credit in Germany. Goods would then move back and forth between Germany and their partner. This was outside of the "international" jew money system, and is one of the main reasons for that war. The various Versaille creditors wanted to dismember Germany and take all of its Colonial possessions.
When will those idiots at CNBC realized that It doesn't matter whether Greece stays in euro or not. Greece is already bankrupt, broke, finished, kaput.
Germans are an honorable people, who were bailed out TWICE for their debts in the 20'th century.
The money system can be complex, and certain groups can make debt instruments grow exponentially, and outside of nature. They then expect much more back than the original contract required.
This is usury, and is considered a mortal sin.
The debt money system has usurious mechanisms. So, saying that something should be paid back is part of man's evolutionary history - and that sentiment is honorable.
But, ignoring how the money mechanism works, where it harvests innocent people, is immoral. One cannot point the finger at the Greeks and claim they are deadbeats.
The Greek people got snookered by financial sharks. Yes, some of the guilty were Greek Oligarchs. The other guilty parties were the IMF, ECB, Wall Street, Obama and Geithner, Sarkozy, Strauss Kahn, Goldman Sachs.
Pleanty of blame to go around. But, the average Greek Person had nothing to do AT ALL with the maneuvering of thieves in suits.
I don't think so. Empires do not want to loose territory.
they keep Greece, add Ukraine and loose central bank credibility.
no problem they think if other currency blocks also loose cb credibility.
Can someone confirm my thinking please!
Germans don't want to write down Greece's debt as stated in many articles because there are leveraged to hell.
They're going to push Greece out resulting in a hard default.
Both mean debt is now a risky asset, and hence why bonds sold off.
Question
Is the German stance, go for default as well get some CDS money back, where as a write down means total loss?
debt to other EU members have a first tranch maturing in 2023. meanwhile, interest rate is at 3%, hardly a penalty. a 50% haircut would cut interest expense for Greece by 1,5% of GDP, which given their public finances is like cutting your nails to lose weight.
So, the other countries do not want to go down that route because it's immaterial in the grand scheme of things. where it gets material is that if this information sank in at the general EU voter level [a.k.a."the great unwashed"], they'd realize that they ALREADY sank 300 bn. down the greeek drain 5 years ago, with the politicians knowing the fact and not mentioning it. and every state has had an election since. the only purpose of holding Greece in debt was to AVOID populist politicians from restarting the handout process again, an giving the 10 years to adjust to living within their means.
That dirigistic course failed. if the guy at the end of the line has false or limited information, he makes wrong decisions. that's what happened.
Z. Germans can't write down Greek debt because then Italy and Spain will want theirs written down. It is better to take a tiny loss on Greece and make a really good example of them, than it is to be nice and be confronted by the Italians with their hands out. Greece represents a loss of billions, Italy trillions.
There will be NO GREXIT, this would eventually lead to WAR... wait... That's what we need to solve this global crisis... so... GREXIT has been planned all along ! OMG !
There will be certainly no Grexit. Cause Merkel's boss, Obama, wants usa interests in Europe being protected.
They haven't built, after chasing the Serves out of their territory, camp Bondsteel ( second largest after he one in Germany) in Kosovo just for the fun of it.
So Greece, if the Greeks like it or not, will stay in NATO and therefore in EU. And even in the eurozone.
IMF will jump in.
Greece isn't running out of money. at daily base cash is being heaped up outside the banking sytem. Yes the banks will run out of paper+inkt, but compagnies, civilians will have more cash than under normal circumstances. Already employees are being paid with cash. Pensioners could be paid at police stations.. There will be a growth of clearing sytems and barter trades.
A complete aternative monetary system is rising out of nothing, leaving the banks idle.
Furthermore Greece has goldmines and 450 billion of gas and oil reserves.
Willl Greece leave the EU ? Maybe, before or after the collapse of Brussels?
While the EURO is nothing more than toiletpaper, they keep on printing that stuff.
A Gold Drachma might drive the euro, as a reliable way of payment, out of Greece and much much further than its borders.
Putin happy.
Obama sour.
Nigel Farage, the best British Political Orator, speaks about the Greek Crisis brilliantly and movingly, in the EU Parliament yesterday!
https://www.youtube.com/watch?v=94UcyJnRcGU
Nigel Farage, the best British Political Orator, speaks about the Greek Crisis brilliantly and movingly, in the EU Parliament yesterday!
https://www.youtube.com/watch?v=94UcyJnRcGU
"According to official Greek data , there was still almost 130 million euro deposited in Greek banks before capital controls were announced."
That'll work!
Onward to the collap$€!
MSM Greece. 7 families own it all. You want the truth read this:
http://www.thepressproject.gr/details_en.php?aid=79064
https://goo.gl/AgTCFE - Bernie Sanders isn't going to save America, for that matter, neither is Rand, but I'd take Rand's medicine over Bernie's