Germany's Roadmap For A Greek Return To The Drachma

Tyler Durden's picture

There has been much speculation about how the Greek endgame will play out, but precious little from the perspective of Germany. Until today. Courtesy of a three part series from Handeslblatt (here, here and here) we now know precisely what the next steps are as visualized by Europe's piggybank, which now is telegraphing it is set to cut Europe's most wayward child loose.

Step-by-step summary:

  1. Greece cannot stand by the spending cuts expected by the Troika. €11.5 Bn until June
  2. The creditors refuse the payment of the next tranche. Greece must pay €30 Bn until the end of June, to pay pensions, civil servants salaries, and support its ailing banking sector.
  3. Greece cannot service its debt anymore. Which means essentially service its debt to debtors like banks, bringing its banking sector to a likely bankruptcy (remember Greek banks were already hardly met by the 80 Bn PSI in March, 2 big Greek banks already have negative equity).
  4. Greece must save its banks to avoid a bank run. There will be no other way than reintroducing the Drachma since no one will lend them money, IMF or EU.
  5. Greece gets out of the Euro and reintroduces Drachma. "It wouldn’t be that easy since to avoid panic and a bank run, a banking holiday (perhaps a week) would be necessary.Even with capital controls with foreign contries, the process would remain technically difficult. For the Greeks this would mean serious consequences as loans would see the value drop and prices would go up. On the short term, the competitiveness of the country would improve. According to economists, a 50% depreciation would be necessary. That would, at least theoretically, mean that holidays in Greece would be substantially cheaper. It can still be doubted that Greece would solve its problems its way. Who wants to spend there its holidays , where unrest and chaos reign. “Greece could earn air to breath on the short term. This would change nothing to its problems on the longer term”, Commerzbank economist Christoph Weil says."

Much more in the full Handelsblatt series.

The only question is now that the return of the Drachma appears set, how long before the "Greek case" metastatizes to Spain, which is already roughly where Greece was about a year ago, with the bank sector now effectively having seized up, and the only question is how soon until the sovereign debt has to get the "PSI" treatment.

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NotApplicable's picture

Roadmaps. Those always work.

gatorengineer's picture

 

who needs them when you have a German Public Sector (GPS) willing to get you where you need to be....

AldousHuxley's picture

Greek finance minister Evangelos Venizelos: hey we are going out for all-you-can-eat lunch buffet at this German restaurant, you wanna go?

German finance minister Wolfgang Schäuble: no, I'm on an austerity diet. I brought my lunch.

or "talk to the hand pig"

or half way heil hitler

nope-1004's picture

Insolvency meet time.  Time, meet insolvency.

Not a matter of IF, just WHEN.  Sucks having made financial promises you can't keep.

 

LawsofPhysics's picture

Yes, especially when the people you made those promises to have directions to your house.

Oh regional Indian's picture

What dizzying speed all this is happenign at, eh? T'was just yesterday that Euro Zone Unity was paramount, tantamount and generally...mounted y'know.

And then along comes this past weekend. Nothing too great happens. Not tectonic anyways. And suddenly all we can see is the short hair on a greek arse disappearing down the debted hole of no return, with a diffic ult transition predicted.

WHAT is the other hand doing? So much distraction. 

Greeks will have to riot no mater what. If there is no money, there is no money. It's part of the script anyways. Fitting that the land of Playdough and Ariestoddler loses all reason. 

Such is how it is...

ori

mt-whitney-to-tanggula-pass-obliquely

Chief KnocAHoma's picture

I am still confused. Those Greeks sure can run a restaurant or liquor store, but give them a country and they fuck it up every time.

Oh regional Indian's picture

Entrepreneurship does not scale well. At all. 

Perhaps the greek lesson is that we all need to collapse the system back to micro-operations. Not co-operations, just operations.

ori

redpill's picture

"Who wants to spend there its holidays , where unrest and chaos reign."

 

Well if you dumb fuckers had allowed Greece to do this a year and a half ago with when it was already BLATANTLY OBVIOUS that this was the inevitable conclusion anyway, they wouldn't have had so much unrest and chaos.

resurger's picture

 

The Loss must be carried forward, there is no shortage of fall guys

 

Cole Younger's picture

Its not as if those financial promises where in real money..Its just electronic digits and paper...

He_Who Carried The Sun's picture

The question is NOT whether Greece has massive problems,

it is a question of whether they are willing to do something about it

and elections and the whole history of bogus budgets show,

that they don't. End of story!

noses's picture

Well... They should have bought a Garmin immediately. It would have adjusted the route selection immediately after going in the wrong direction.

CrimsonAvenger's picture

Don't you mean a Gartman?

evolutionx's picture

Bundesbank Target 2 new record:

 

644 Billions in April

+ 23 Billions from March!

http://www.cds-info.com/

 

cossack55's picture

They should have pulled an Iceland years ago.  Course, they did get all that free money. 

agent default's picture

And what will happen to the rest of the periphery under such a scenario?  This may be the event that in the long run will break Europe's back.

bdc63's picture

"... avoid a bank run ..."

who in their right mind would still be holding their money in a Greek bank for 'safe keeping'?

Chief KnocAHoma's picture

LOL... oh you're funny. What is the worst that could happen? 

No your money is safer in the bank... it's not like the people running these instutions are greedy and have no character. They are bankers and only have the best interest of society as a whole in mind...nothing will happen to your deposits.

machineh's picture

Greece has no public holidays between May 1 and August 15th.

Let's pencil in Monday, June 25th, as the commencement of the Greek bank holiday.

Summertime blues, biTcheZ!

Fidel Sarcastro's picture

This is bullish, right?

Cole Younger's picture

Must be...You can set your watch by the DOW. Market is going up, must be 11:00 am...

Blammo's picture

Can modern Greeks read a map ...I wonder

mariner22's picture

I would imagine gold coin dealers are doing great business today in Greece!

TooRichtoCare's picture

how much would the germans pay to buy Mykonos?  

Then they could all run around in their little marble-bag Speedos, and not worry about having to wake up at 5:30 to nab the best poolside deckchairs, and they could listen to kraftwerk and the Scorpions all day long whilst sipping shitty retsina which reminds them of their own shitty riesling back home.

noses's picture

Jealous because you always have to sleep off your all the cheap beer you drank the night before end never even got near the pool? Poor you.

Bag Of Meat's picture

Venizelos just announced that he discussed two propositions for a government including PASOK with the Syriza leader, Tsipras.
Buy euro!!(sell tomorrow) 

bdc63's picture

"Buy euro!!(sell tomorrow)"

Homey don't play that game ...

PR Guy's picture

I think Venizelos teaming up with those guys is the wild card and could happen.

 

Did Venizelos sign that Troika letter himself (committing to continue with cuts) or was it Papandreou who signed it for PASOK?

Loukanika the riot dog's picture

They all had to sign committments even Samaras when he was in opposition before the last  coalition started. The EU wanted to make sure they had all the bases covered.

They didn't figure on the main parties getting their arses kicked in this last election.

mjcOH1's picture

Well it's lucky they got those commitments rather than loan payment promises!   Cause those didnt work so well but these must be worth more.

PR Guy's picture

Isn't the likelihood that there's a step 3.5

 

 i.e. Greek Generals step in and start shooting (Creditors hopefully)?

Jason T's picture

Waiting for the Edward III debt default moment to usher in the new dark age and perhaps another plauge.

Sandmann's picture

Greece defaults and retains its gold. It makes itself a super tourist destination and sucks all those tourists out of Non-Euro Turkey. It creates a tax haven to encourage Russian and Middle Eastern money. It invites Russian and Chinese investors. Governments nationalise banks throughout the EU. Geithner offers TARP 2,3 and 4 to US Banks and Happy Clappy Americans sing Halleluja.

It is all possible. Look how readily the US broke Kosovo out of Serbia, destroyed Libya, destroyed Iraq - noone asked about repaying loans or whether Iraq could pay the costs of invasion. Afghanistan - the Us did not ask the Chinese how many Treasuries they would buy to finance it and we don't see a US Debt Clock for Afghanistan - it simply gets done - just like the J-35 jet fighter - just buy them and hang the consequences

 

That is how life works. You are all CPAs fretting about the Audit - you never bothered when Wall Street was loading up on Dericvatives or when putting Lehman into liquidation.......but Greece....well the Greeks should take time off from hunting for food in garbage cans to wonder about poor Bond traders in hedge funds and their bonuses......right.

Jean's picture

Russia is the wild card here.  They could make a play, orthodox unity move.  Be interesting if they funded a greek "investment" by rising EU gas prices.

azzhatter's picture

Would be interesting to see where the piigs would be if this horrible EU experiment never started

Jacque Itch's picture

Gold and Silver bugs beware:  Forced selling is gonna test your mettle (metal!) during the upcoming collapse.  We have only just begun the unwind.  It could be years.

Sophist Economicus's picture

Nonsense.   During every bull run, investors have been thrown off at exactly these correction cycles, only to watch the correction stop and the market turn-around.    The tech bubble was a classic case of folks not having the stomach to ride out the corrections when it was under-owned and the mantra of why the bull could no longer run made alot of sense.

 

Patience.   If you understand what gold is, this is an opportunity.    If you're overleveraged or just a trader in this market, you will probably be hosed.

LawsofPhysics's picture

"patience, you will be dead soon" - fixed.

Sophist Economicus's picture

The rest of the road-map once the Drachma gets introduced:

 

Everyone gets a massive haircut on the debt they OWE OR on promises they are OWED.   

Savers that had Euros, Gold or Silver in their mattresses or overseas should gain purchasing power

Government workers, 'social workers', career students, 'artists', lawyers, and other leaches of society become redundant - their ranks drastically reduced

Risk takers will look at opportunities and boot-strap new business activities - many will fail, but a few will take-off and a new class of entrepreneurs take hold

Those with savings will begin getting a real rate of return commensurate with risk

The indolent student class and the hangers-on will either provide productive services to society vie employment or monetizing other talents or find living off of others far more difficult than before

In 5 years, Greece become a more vibrant place to live - the shadow world of tax avoidance, the boon in specious educational majors, and the lack of a safety net slowly erodes the ranks of the parasites

 

 

 

LawsofPhysics's picture

right.  Now please tell me this;  1) where is the energy coming from that is required in order to make all this happen, 2) who is providing it, and 3) will the energy producers continue to accept worthless paper or do the greeks have a huge stash of gold somewhere that they will be using to pay for the energy they need to make any economic recovery actually happen?

Joe The Plumber's picture

Quality young pussy is highly fungible and liquid. I dont know any energy supplier who doesnt want any.

Demand is infinite

Sophist Economicus's picture

Ewww!   Did you really use liquid in the same sentence as kitty...

LawsofPhysics's picture

LOL, this is greece right.  Did you mean to say "quality young hairy..."

 

Joe The Plumber's picture

I will bring a blade and shaving cream. Always prepared for that diamond in the rough

Sophist Economicus's picture

Like most trade, it will come from products that they produce.  Greece will learn that only 'hard money', be it cheese, gold or yogurt is the path to obtain desperately needed resources they don't produce.

If they fail to understand that, well, then I guess they're screwed.   That realization should focus their human capital in the right direction.   I cannot wait for it to happen here!

LawsofPhysics's picture

How does one "produce" anything without energy?-  FAIL.

Sophist Economicus's picture

Ah yes.   There is no more energy.   Right.   And those with energy are husbanding it for trade for ONLY precious, rare products - LIKE US DOLLARS!    LOL

 

Poor Taiwan, Singapore, Japan, etc.....  They'll never produce anything because they have no indigenous energy....Oh wait, they do make stuff and get their energy!   Now, how is this possible????  Hmmmm.....

LawsofPhysics's picture

Pay attention, who said that there was no more energy?  You obviously can not read.

The question is how much energy is in Greece numbnuts.

Moreover, the countries you mention do produce stuff because they also developed and are developing much of the new technology.  Now, please remind us all, what does Geece have to offer?  Thanks for playing, but you still FAIL.