In Stunning Admission, Draghi Says A Country Can Leave Eurozone But Must "Settle Bill First"

Tyler Durden's picture

Less than 4 years ago, and shortly after his infamous "whatever it takes" threat to speculators, Mario Draghi responded to a question from Zero Hedge readers, saying "there is no Plan B" when it comes to contingency plans for a Eurozone nation leaving the monetary union. The reasoning was simple: the mere contemplation of such a scenario assigned a probability to its occurrence, which is why the ECB was desperate to give the impression that no matter what, Europe's cohesion is unbreakable.

Fast forward four years later, when not only has this particular strategy been thoroughly rejected, but for the first time ever the head of the ECB provided a framework, vague as it may be, laying out what a Eurozone exit would look like.

In a letter to two Italian lawmakers in the European Parliament released on Friday, and first reported by Reuters, Mario Draghi implied that a country could leave the euro zone - so much for "No Plan B" -  but first it would need to settle or debts with the bloc's TARGET2 payments system before severing ties. 

"If a country were to leave the Eurosystem, its national central bank's claims on or liabilities to the ECB would need to be settled in full," Draghi said in the letter. He did not specify in what currency the "settlement" would have to take place. It was also not clear just what the ECB would do in response if a country did not "settle its claims in full": at last check the ECB did not have a policy-enforcing army.

As Reuters confirms, the comment by Draghi is "a rare reference by Draghi to the possibility of the currency zone losing members." We would say not just "reference" but admission that a Italexit is all too possible, however the only way the ECB would allow it, would be for Italy first to pay its €357 billion TARGET2 bill (which various confused and clueless tenured economists over the past five years claimed would never be used by the ECB as a bargaining chip in "exit" negotiations and has no political implications; oops).

To be sure, the beneficiary of such a transfer payment would be the country most reliant on the perpetuation of the status quo: Germany, which has some €754 billion in Target2 "assets" which could be nullified should one or more Eurozone countries exit without satisfying their payment obligations.

In the letter, Draghi reiterated that the imbalances were due to the ECB's own bond buying-program, where many of the sellers are foreign investors with accounts in Germany, and ensuing portfolio rebalancing.

Draghi's admission that "QuItaly" or UscIta as it is known domestically - is an all too real possibility coincides with a groundswell of anti-euro sentiment in Italy and other euro zone states, fueled in part by last June's unprecedented decision by Britain to leave the European Union.

The threat of defaults on cross-border debts has often been credited as one element keeping the euro zone together throughout the financial crisis. As these payments are not generally settled, weaker economies including Italy, Spain and Greece have accumulated huge liabilities towards Target 2 while Germany stands out as the biggest creditor with net claims of 754.1 billion euros.

Target 2 imbalances have worsened in recent months, with Harvard economist Carmen Reinhart warning of capital flight from Italy. This can be seen in the chart below, which confirms that below the calm surface portrayed by low - if recently rising - Italian bond yields, tremendous capital imbalances are piling up.

Draghi's admission, which is meant as a quasi-threat to Italy, may have opened up a whole new can of worms for European stability in addition to concerns about Trump, because not only has Draghi confirmed that an exit from the Eurozone has been explicitly modeled by the central bank, but also lays out the conditions under which it would be considered and permitted.

More importantly, it also once again provides the basis for an aggressive "negotiation", potentially escalating to rancorous bargaining between Italy and Germany, as suddenly the ECB has made it clear that Italy's gain in a "hypothetical" Euro zone exit would be a tremendous loss for Berlin and Merkel. We are confident that the question of "how much" preventing such a loss would be worth to Merkel, will emerge in very short order. As for what Draghi's statement means for countries with a far smaller Target2 liability which may also consider exiting the monetary union, the answer is two words: "green light."

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wisehiney's picture

Ya hear that Jerry Brown?

tmosley's picture

EU: "You can't leave unless you pay us first!"

Greece: "Hold my Ouzo."

BaBaBouy's picture

See~Yaa ... Pay Ya Back Laterrrr...

xythras's picture
xythras (not verified) BaBaBouy Jan 21, 2017 1:03 PM

So they indebted the countries just to keep them tied to the center. Typical kikery

NOT for long:

Pinto Currency's picture

Making up rules now.
Where did Mario get the power?

Bumpo's picture

Member states have no vote in the EU, they are just supposed to take whatever decrees come reigning down from Brussels. I doubt this was ever agreed upon. If an EU member wants to leave, just leave. These Fuck Heads deserve whatever they get.

JRobby's picture

I see a great consulting opportunity for Randy and Evgenia Quaid here.......

J S Bach's picture

Pay the usurers their blood cut... that's all that matters to them.

auricle's picture

Dine and dash. It happens all the time. You can't expect sovereigns to behave any differently.

imaginalis's picture

Monetize the bill. Up your's Mario

BurningFuld's picture

Lend lend lend til nobody can pay pay pay. Been happening over and over all throughout history.

Made me formulate a new complex economic equation worthy of the nobel prize in economics I'm sure:

Debt money = Bad

MEFOBILLS's picture

Pay the usurers their blood cut.


One of the great tricks usurers do is magickal swaps.  They pretend they make the rules for swapping unlike things, then taking the gains.

The threat to "pay up now" before you can leave is a swap.  The previous debt agreement is to pay over time, and the usurer gets a cut on the interest.

The new threat still allows the usury, only up front rather than over time.  

It is a simple matter to turn the tables.  A sovereign can issue a new legally derived paper in exchange.  In effect, the sovereign can and should use the same swap magick that usuerers profess as their "money power."

The sovereign produces a new instrument and claims it is tradeable for the old deal.  Then the sovereign does a magical swap.  The new paper will allow the former debt holder legal claims that are non usurious.  

In other words, extracting oneself from the union can be done with new paper and a new monetary system.  The new Sovereing can say, these new instruments are denominated in drachmas, or whatever national currency, and we will pay you X amount as part of the magickal swap.

 Our legal authorities have determined that the swap is even, and you - the ECB, will be paid.  The ECB would have to swallow and take their own medicine. 

Banker types only have money power by their usurpation of the law... and we give them that power by our acquiesence.

Swapping unlike things in exchange is an essential part of the usury game.


silent one's picture

Brilliant, play them at their own game.

HenryKissingerChurchill's picture

The new Sovereing can say, these new instruments are denominated in drachmas, or whatever national currency, and we will pay you X amount as part of the magickal swap.

 Our legal authorities have determined that the swap is even, and you - the ECB, will be paid.
and when was the last time the JEWS accepted that?

The Saint's picture
The Saint (not verified) Bumpo Jan 21, 2017 1:34 PM

Germany - Once a NAZI bully country, always a NAZI bully country.

We are talking soverign states not German colonies.



auricle's picture

The goal was never to have sovereigns pay the debt off, only to expand more debt to the point they can never repay it, thus enslaving the nation through debt servitude. Textbook banker playbook. Someone needs to explain to these sociopaths they serve at the pleasure of the people not the other way around. These bankers gave loans that cannot be repaid, the people are not liable for their blunders. Next time don't run a ponzi scheme disguised as a monetary system. 

Arminius Hermann's picture

Isn't it Germany's problem?

Say all nations except GER exit Euro and declare bankruptcy then Bundesbank has to pay the €700bn Target2 amount by booking a loss, hence the German taxpayer is screwed.

The Italiens and Greeks et cetera who in the past moved money to Germany can now exchange their Deutschmarks into worthless Drachmas/Lira and go on a shopping spree at home. Result: Economy in club med revitalizes immediately and Germany is the one who tanks.

Looks a bit like the 1920s right before Adolf took over.

HenryKissingerChurchill's picture

Germany - Once a NAZI bully country, always a NAZI bully country. We are talking soverign states not German colonies.

you learned that from the TeeeVeeeee?
please check 1934's "tomorrow's children"

and come back,
you are welcome

greenskeeper carl's picture

What they will get is repayment in rapidly depreciating drachmas when Greece leaves. Good. Fuck em.

cowdiddly's picture

Put it on my tab Bitchez, the crown jewels are'nt going anywhere.

heuvosYbacon's picture

He magiked it out of a hat, for the good of Europe.

zeroheckler's picture

the power Mario got from from GS

waspwench's picture

Mario hasn't noticed that the UK has paid in a great deal of money and got little or nothing in return. He will be most upset when they demand their money back. :)))))

Troy Ounce's picture


Stupid Draghi. 

Default, own currency and middle finger.

mofreedom's picture

Drag, I sure you owe me something. Pay me biatza!

eatthebanksters's picture

The EU experiment is over and the leaders of the wealthy countries know it.  They had their conversation with Draghi and told him they can no longer feed the failing experiment - they know there constituents won't stand for it.  So in a futile effort to remain in power they have told Draghi to dump the losers, as long as they pay up before they leave, knowing damn well none of them will pay up or they would be solvent enough to stay in the EU.  Its all lipservice to maintain the illusion so that TPTB can remain in power.  To bad the idiots in charge of the experiment decided to try and change the monetray union to a political union...they are the ones responsible for the failure.

Urban Roman's picture

OK, fine. We'll issue Drachmas. One Drachma = one Euro.

You are now paid in Drachmas. You can redeem them wherever Drachmas are traded.

No, we don't have a SWIFT number, and don't deal with the BIS. Good day, Sir.

Citizen_x's picture


So... Print new (old) currencies

1 Greek Drachma, Italian Lira, French Franc     equals    10 Euros now...maybe 50 Euros tomorrow ?

Mario, one is being fooled anymore.

Nobody For President's picture

Exactly. And One Italian Lira = One Euro.

We'll print 'em up and mail 'em to Brussels for yah,.

kellys_eye's picture

"You either let me leave or I default and take you all down with me.

What you gonna do about it?"



lucitanian's picture

Wow, a great remedy indeed. As the countries go for the exit the value of the fiat currency plummets, and as long as their debts are denominated as such, how great is that? A perfect way to right off the debts to a ponsy scheme.

Raffie's picture

But all the countries are locked into various types of debt, so what you are saying is "You can check out any time you like, but you can never leave..."

rlouis's picture

You can check out any time you like

But you can never leave.


Eagles/Hotel CA

Wulfkind's picture

The problem with settling a Euro-bill is that the bill keeps changing.....usually increasing.

The Central Bank abides.

Goldenballs's picture

We paid our dues in 1940 Draghi to save Europe from people like you.Without the UK Europe would have fallen and the US would have done a deal with Hitler.Come on the rest of Europe grow some balls and give the EUSSR the finger.

peddling-fiction's picture

Repudiate the debt.

Use freed interest payments to arm up.

New alliances as needed.

Laddie's picture

USURY, sending jobs outsourcing them, that is Capitalism.

Quote-Adolf Hitler on economic predators

tmosley's picture

Economically illiterate.

Capitalism died more than a century ago. The West has mixed markets.

If your interest rates aren't market based (ie based on supply and demand of savings and loans respectively), then you have a planned economy at the most fundamental level. The West has been saved to some extent by the limited amount of free enterprise that is allowed. Switch to Hitler's foolish system, and you will have the worst of both worlds. Nazis survived by issuing scrip for intranational trade, and stealing gold to settle international trade (what little there was). This system was only sustainable so long as there was gold to steal. It reached its end when they couldn't get at English nor Russian gold. They collapsed immediately after, and that would have been the case with or without the war.

War just gave Nazi revivalists an excuse for the failure of their economic system, which was nothing but Keynesianism writ large. As sustainable as Japanese economic policy has been--ie it creates a structural economic and demographic decline until the people can support themselves via subsistence agriculture.

MEFOBILLS's picture

The Nazi system was divorcing itself from international capital (Jewish usury).

Schacht created trading banks that operated in the other nations currency.  For example if they wanted Tin from Burma, then the Tin producers would be paid in Burmese money.  Then the Tin would transfer to Germany.  

The trading bank in Germany would allow Burmese to buy german goods of equivalent value.  The German manufacturers would be paid in Marks.

Germany also issued Mefobills into armament industries.  The bills would be converted to reichsmarks upon discount.  This then put new reichsmarks into money supply, which were then taken up with taxes.  The tax roles increased almost 3x between 33 and 38.

The Nazi's used to laugh at Gold hoarding countries.  The reichsmark was based on a unit of labor, which really was goods and services.

Germany had not great depression.

collapse of the german system was because at end of war, the amount of goods produced was destroyed by war.

The confederate economy in the U.S. also had their money system collapse when the war was lost.

With regards to mixed markets.  There are three kinds of markets:  Elastic, Inelastic, and Mixed.

The Nazi system economic system was actually successful.  It takes some sort of historical ignorance to ignore that fact that they had full employment and no great depression.  

Winston Churchill's picture

Talkinhg about the good old days when they still had enough money to go to war, and

men not snowflakes to fight it..

peddling-fiction's picture

These men are still around and in their late 40's, early 50's.

Jeff Welch's picture

you are right even with blown out knees and a good many battle scars we can still whoop any snowflakes ass.

peddling-fiction's picture

Any fucken day.

And the snowflakes know it.

U4 eee aaa's picture

Now that he has his marching orders from his Davos masters

And prepare yourselves for a whole bunch more announcements that all just happen to sound like they were all scripted in the same pit. Davos has ended and the lots have been cast

Francis Marx's picture

Do you take a payment system? $25 a month =)

Ignatius's picture

Those fuckin' banksters...