“A Greek Exit from the Euro Area: A Disaster for Greece, a Crisis for the World”

Willem Buiter provides a primer on the various scenarios here.

42 replies on ““A Greek Exit from the Euro Area: A Disaster for Greece, a Crisis for the World””

It’s good to see an analysis from a credible economist, of possible outcomes, that are tossed around so glibly in daily public discourse.

we believe that the improvement in Greek competitiveness that would result from the introduction of the ND and its sharp depreciation vis-à-vis the euro would be short-lived in the absence of meaningful further structural reform of labour markets, product markets and the
public sector. Higher domestic Greek ND-denominated wage inflation and other domestic cost inflation would swiftly restore the old uncompetitive real equilibrium or a worse one, given the diminution of pressures for structural reform resulting from euro area exit.

In our view, the bottom line for Greece from an exit is therefore a financial collapse and an even deeper recession than the country is already experiencing – probably a depression.

The European Solidarity Bond must hold: otherwise strange anarchies will be loosed upon the world.

Let’s forget Dastardly Deauville and give Greece a 50% or more haircut; and a hand over the next decade, probably more, to sort themselves out. And WITHIN the Eurozone; where would we be now were it not for the Greeks and the thought of the Golden (not now Dork) age of Pericles. Admitedly, the age of Pericles was economically based on slavery; what’s so different now – we are all citizen_serf slaves to the bleed1n elites in the Dodgy_Derivative Financialized Capitalist Universe – off with their heads I say, and lets build a democratic Age of Pericles in Europe.

& Look around the Med – Morocco, Algeria, Tunisia, Libya, Egypt, Palestine, Israel, Turkey, Lebanon, Syria, Macedonia, Albania, Bosnia Herzegovina, Kosovo, Serbia, Croatia, Slovenia, Italy, France, Spain, Malta, Cyprus, Portugal, Gibraltar …..

… and count the guns ….

I wonder if the tables were turned, and this were France or Germany – and the austerity required in Greece were imposed on those countries – I would suggest that there would be wide-spread social disorder and a deep resentment of the countries enforcing the austerity with potentially very serious ramifications.

This is fast becoming a problem way beyond economics….I can’t see anything other than a total write-down of Greek Soveriegn debt, and the Eurozone footing the bill for it. That is the right thing to do.

How does derivative accounting deal with the post default situation where the so called risk free asset gets a big haircut? What would a Greek default mean for other risk free bonds ?


Should one incorporate the bank’s cost of debt in the discounting for an uncollateralised derivative?
The accounting concept of fair value dictates that the valuation should be based on an estimate of the value that could be obtained by selling the claim in the market. There is risk inherent in the management of counterparty exposure associated with uncollateralised derivative trades. (There is no static or dynamic hedge that will eliminate all of the risk. This is not the dynamic hedge of the Black-Scholes model.)

C’est un vrai bordel de merde .

It’s pathetic. Greece is like a patient with TB. The doctors at the ECB insist that Greece just needs to go back to work and concentrate hard.
Greece needs to be taken to a sanatorium and given time to heal. Otherwise everyone is going to get TB.

I imagine the 1930s were similar.

Greece is a crazy basket case. They lied about their deficit, they have a poor work ethic and a love of street violence. This weekend’s ‘solution’ of a tax is laughable, as taxing your way out of a recession caused by excess public spending…makes no sense.

That said tax evasion is the national sport in Greece, so perhaps a property based one, is more difficult to evade.

As Buiter rightly points out, the threat of ELA withdrawal is the big monetary one.

That said, the current Greek debt trajectory is unsustainable, and ejection would make it worse.

The problem is that if say a haircut of X is needed to make it sustainable, the Greeks will squirm and cheat until they make it a multiple of X.

What Greece has done, and is threatening to do is morally repugnant, but booting them now will make matters worse, so some nose holding is required.

The European Solidarity Bond must hold: otherwise strange anarchies will be loosed upon the world.

The Big Bad Boogiman of Creditor Default for example. Better to lose the continent to austerity, breakup, and war than allow that.

“A crazy basket case. They lied about their deficit, they have a poor work ethic and a love of street violence.”

And in what ways would say Ireland’s bankers be different? It is very comfortable in the gutter, isn’t it ?

As you say the problem is if an agreed haircut on Greek sovereign debt could be arrived at by the powers that be they will find a way to leverage that. Another problem is their banks would be totally insolvent and the ECB is on the line for 100b in ELA. As it stands a 40% haircut would wipe out their bank equity and with the bonds trading at a 60% discount it is obvious they are toast. So just to sort out Greece is going to cost 200b+. in the meantime European banks continue to shed deposits….


“in the meantime European banks continue to shed deposits….”

and Yank banks have cut back on money market funding…

@ Michael Hennigan

“…analysis from a credible economist…”

Rubbish. Buiter seems to imagine that with unemployment & under utilisation of resources in the stratosphere, somehow ‘hyperinflation’ might occur from the Greek government spending (issuing) some 5% or so more ND (new drachma) than it collects in taxes. What tired old neoliberal, theoclassical nonsense. Neither Buiter nor anyone else offers ‘credible’ analysis or evidence for ‘inflation’, never mind ‘hyperinflation’.

The Greek government can spend without ‘borrowing’ as many ND as it wishes, +providing+ there are unused Greek labour & resources to be bought, with little or no inflation risk. (As full employment nears, spending is reigned in.)

This is exactly what Greece, exited the Euro, should do (if they have any sense) to revitalise their economy in no time at all.

For similar reasons, nationalising their banks & capitalising them to quickly recover essential banking functions presents little problem.
Greece can hardly be worse off than looking down the barrel of years of 30s style depression & extortion from the Euro oligarchy.

Buiter again (ref Greece exited from Euro):

“Social & political dislocation would be certain. There would, in our view, be a material risk of a downward spiral of dysfunctional politics & economics.”

Absolutely laughable – this is a perfect description of the +Eurozone+ itself, in its entirety right +now+. Pure Kafka.

Exit from the dysfunctional Eurozone gives Greece every opportunity to restore prosperity & a functioning democracy. No such prospect exists otherwise.

As far as I am aware the Greeks work long hours – however their work is not as PRODUCTIVE as a German car factory worker or indeed a Irish pharmaceutical worker who strives to increase the national GDP in a Soviet like fashion.
They work in the poorer end of the service industry (tourism) – servicing Northern European workers whims – when they tighted their belts , Greece was toast – they lost their primary export industry

Greece is / was the weakest link – thats all.
A collapse of tourism and perhaps shipping during 2009 sunk the already holed state.
Who is next ?

Off topic.

The US census published the 2010 Income / Poverty report. Given the importance of the US consumer to the global economy, it doesn’t make for happy reading. Levels of poverty in the states and what the poor are willing to put up with never fails to shock me. There is the risk to the establishment that some of the new poor may have the smarts to organise.

Key findings:
• Real median household income was $49,445 in 2010, a 2.3 percent
decline from 2009 (Figure 1 and Table 1).
• Since 2007, the year before the most recent recession, real median household income has declined 6.4 percent and is 7.1 percent below the median household
income peak that occurred in 1999 (Figure 1 and Tables A-1 and A-2).
• The official poverty rate in 2010 was 15.1 percent—up from 14.3 percent in 2009. This was the third consecutive annual increase in the poverty rate. Since 2007, the poverty rate has increased by 2.6 percentage points, from 12.5 percent to 15.1 percent (Table 4 and Figure 4).
• In 2010, 46.2 million people were in poverty, up from 43.6 million in 2009—the fourth consecutive annual increase in the number of people in poverty (Table 4 and Figure 4).

(Definitions of income is in appendix A page 31. Definition of poverty is in appendix B page 61).


Note that Greece would be the big loser on leaving the EZ and that there is no question of a voluntary exit but a possiblility of a de facto expulsion. And yet econ celebs like David McWilliams argue that an Irish voluntary exit would cure all our ills.

The paper argues that an exit by Greece would trigger a currency flight in other peripheral countries. But that is happening already big time. When people like Shane Ross write in the Sindo that they know that the CB is secretly printing Punts Nua we have already reached that point in the crisis.

You are missing what most MMTers do not want to see – the ability to buy oil , oil is the modern day slave market – without it the economies ability to do work is toast.
Greek natural resourses pale in comparsion to this all powerful dynamo.

The Drachma would mean they would have to fill their ferry boats with very very expensive juice.
Theres a reason why OPEC meets in Switzerland and the banks are all powerful in this world – they have control of the worlds BTU slave market.

PS – the geopolitical ramifications to this could be immense – I don’t know if you have noticed lads but Turkey is getting stroppy lately……

I see the leader of the Tory Group in Strasbourg is calling for the Greeks to be expelled from the Eurozone.
The other interesting snippet from Strasbourg is Barrosso railing against leaders bypassing the EU and holding their own discussions. And again Angelo sidelines him this evening to tell George he must do more. of Course she brought along Nicky for moral ? support.

I’ve no information on whether “the CB is secretly printing Punts Nua” but certainly it should have contingency plans in place. Hopefully they are better than the contingency plans that were in place in the late 1970s for the break with sterling. (When the long-anticipated blow actually fell, banks were instructed to shut down their FX dealing operations while CB officials figured out what to do next.)

@ KD

I don’t think it is the sort of thing you can have contingency plans for. I think we have contingency plans for a nuclear attack, but they will be a fat lot of good.

The 1979 break with sterling was of course a completely harmless exercise by comparison. I do not recall any rush pre ERM to convert to sterling. We all assumed it would be business as usual which it more or less was.

I’ve no information on whether “the CB is secretly printing Punts Nua” but certainly it should have contingency plans in place.

There is no way that the ICB or Department of Finance could have ever a) kept such a plan secret, or b) actually come up with one in the first place.

Let’s talk about printing bank notes for a new currency and the processes involved.

A a very basic level, you actually have to prepare the designs for the notes themselves. This involves two very important processes. Firstly you have to get a multidisciplinary committee together to decide what denominations there will be, what the designs on the notes will be, and what information/serial no.s, anti-counterfiet measure, microchips, etc will be placed on the notes. And that’s just to decide the design.

To actually print the notes, you need to commission an “Engraver” to physically cut out the designs on the metal plates which will be used to print the notes themselves. Several plates will usually have to be made, and engravers are still hard to come by. Even though much of the process has been moved to computers, there are also innumerable additional and complex security features on notes which necessitate the involvement of several experts and companies.

In short, the mouth-breathers and the Dept of Finance wouldn’t be able to print a new batch of currency even in the best of times, let alone keep the whole thing under wraps while they did so.

The only real option would perhaps be to use the old (worn down) Punt plates; but if there’s any sharp copokies at all at the ECB, those plates are probably sitting in a German vault somewhere, likely next to the old Drachma plates and Portrait of a Young Man.


One version of the rumour was that the motif on the notes would be the popes and that Benny himself insisted on being on the 100 punt version and indeed had already posed.

How does Ross get away with the nonsense he spouts?

OMF, you do know that the CB already has a printing facility in Sandyford? That’s where your Euros are coming from (if the serial number begins with a T). As for keeping things under wraps, well maybe the codes for the vaults are known every local barman but I doubt it.

Don’t overdo the scorn. You’d be surprised how many people are perfectly capable of doing their jobs if they are allowed to. Having said that, I’m quite sure there are also officials saying “a eurozone breakup would be so chaotic that, really, it’s better not to think about it.” I just hope Patrick Honohan has the good sense to sideline such people.

I seem to remember the Greeks got someone else to mint their coins because they were so late to the euro party – yes here is the wikipedia reference
So another member of the network could mint coins I guess – it does not have to happen to Dublin.
It could be a adhoc punt /euro coin with the same scale and content as the euro but with a different face – much in demand for slot machines in the remaining euro countries……..
I do not expect such a outcome however – when Greece defaults and or leaves this will give the ECB poltical cover to bid up Gold on the open market as financing Goverment defecits is a no no in Euro circles.

Ireland’s sins were less brazen/obvious – and, largely, we’ve confessed and are doing the right thing.

@Punt Nuas
We should just forge USD, or ask Barrack, it’s seal the Irish American vote for him in 2012

OMF, you do know that the CB already has a printing facility in Sandyford?

Yes but if they want to print Punts, they–at a bare minimium–need printing plates. You don’t just walk into a shop and buy bank note printing plates. If you think the ICB or Dept of Finance have managed to get their hands on a set of plates without anyone getting wind of it, be my guest. I refuse to believe that level of competence exists in any institution in Ireland.

Don’t overdo the scorn. You’d be surprised how many people are perfectly capable of doing their jobs if they are allowed to.

Not doing your job because you’re “not allowed to” amounts to not doing your job; Nothing more. People in this country are sitting in positions, positions with clear briefs, and are not fulfilling those briefs. They are not doing their jobs.

Not doing your job because you’re afraid of the boss is just an excuse for not doing your job. I note that civil servants and bankers seem to have no trouble with getting paid extremely well for not doing their jobs. If anyone in the DoF, the banks, etc feels put out by this, start leaking dirt on the criminal activities of your superiors, or go back to sitting at your desk.

2 years ago I did visit the company, which builts the money printing machines, Giesecke & Devrient. It was spoken pretty openly about, that most nations have their own printing machines, and that there is always at least one complete set of a reserve currency stored somewhere in a vault.
Just in case. no big deal.

It was spoken pretty openly about, that most nations have their own printing machines, and that there is always at least one complete set of a reserve currency stored somewhere in a vault.

When you say reserve currency, do you mean reserve denominations of the existing currency, e.g. plates for 10,000 euro notes, or do you mean a complete set of notes in a completely new currency?

And as to the vault, whos vault and where? Since the ICB is a branch of the ECB, how do we know any plates—if they exist—aren’t already in Frankfurt.

I think all the CB have to do is to stamp an image of a harp, or a shamrock, or an Irish flag at half-mast or something, on the “T” Euro banknotes. Or cut off one of the corners of these notes. This would distinguish them from real Euro. Of course if the Punt Nua rose against the Euro you would have lots of Germans looking for an image of an Irish flag at half-mast to stamp on their own Euro notes. But by that time there would have been plenty of time to introduce a real Punt Nua with its own design.

@ Dork

Oil is going to be a problem for all of us soon, & none are taking even remotely timely steps to mitigate it.

With a new Drachma and sane economics policy Greece +could+ direct their government spending/investment to move ahead of the pack vis-a-vis carbon decoupling. At any rate, they will likely be no worse, likely far better off, than the rest of us.

Eurozone sectoral balances means when some countries are running budget surpluses, there will be other countries running deficits, precisely as has happened. This is accounting identity not theological economics. Once imbalances begin, without any transfer balancing, the EMU is inherently set up to create winners & losers. Greece is just the furthest ahead. Ireland will discover this too, in time, if it stays in the euro. There may be some argument for Ireland staying put, short term, with its MNC enclave, balancing ‘tribute’ to the the banking (absentee) ‘landlords’ vs getting on with developing a more self sustaining economy. But for Greece? No point at all. Stark may have been pushed out, but his mentality probably isn’t too far from the rest of the parasites masquerading as EMU/EU ‘authorities’.

Of course, I take the view that in the difficult times to come humanity will be better off co-operating & ensuring +all+ get some quality of life. Rather than continue with a system by & for the priveleged elite & its race to the bottom & conflicts that will cause great suffering for the many.

Why not try an oil backed currency ?

Gold has always had an irrational trinket value beyond any genuine economic utility….Oil would be a much more lively currency base. Sure maintaining a depositary would be challenging,probably best to buy the stuff in the ground.

If Greece can remain stable, peaceful and remain a respected member of the European Union I am not sure the average Greek will be overly worried whether they use Drachmaś or Euros when they pop down to the shops.

I feel what has George (I cant spell the Greek Prime Ministers surname) looking nervous when he appears in photo ops with Dr Merkel and Mr Sarkozy is that he suspects that both of them do not understand,or care, how crucial it is for continental Europe (especially Germany and France) that Greece remains democratic and within the EU.

George is well aware that ordinary Greeks are not exactly over enamoured with Germany(or its French neighbour) at the moment and are not very hesitant about recalling stories about German occupation during the 1940`s.

If a “Greek exit” turns out to be painful, messy and acrimonious there could be very serious trouble on that nations streets which may attract the attention of the Greek military. After that the “contagion” we would all be concerned about would be very different than the balance sheets of a few banks.

In such circumstances internal Greek politics would make internal French and German internal politics appear very benign in comparison.


The Ould Greek Colonels have been furiously polishing their brass buttons over the past few years … best to let them polish away.


Blind Biddy has decided to put ‘your rifle’ up on eBay. Only bid so far is from an Ould Greek Colonel, obviously attracted by its pristine, never used, and superbly oiled condition. By the way, where did you lose it?

I have some sympathy with your position – but the banks are dangerous creatures now as always – they will try to crush any example of success.
They have control of the spice.

@ Dork

No doubt those at the top of the bankster pile fear the ‘threat of a good example’ (functioning MMT economy) above all else.

But they only control the spice because our non-functioning shamocracies collude.

@ David

I agree.

IMHO the best way to keep “polishing away” is to not distract them with too much noise from outside their windows and keep their salaries coming in every month.

After all the “Ould pay check” is what kept the ” Ould Greek Colonels polishing thier buttons” so diligently in recent decades.

Yes they go along because they have been preprogrammed under the sov state model – the hybrid system of control meant all would get some of the cream.
Our politicians seem not to understand or perhaps want to understand the market state model.
The creditor takes it all – not a very stable system , but who cares until it all falls down right ?

The breakup of the Czechoslovakian monetary union is described in section 3 of this paper. Banks stamped the notes over a weekend, as suggested above.


This paper discusses the dissolution of the Austro-Hungarian empire


Stamps were used in this transition too.

Greek-printed Euros make up only 9.96% of Euros in circulation in Greece according to this site:


Further discussion:



stamps were further stamped here in 1921 – but only for use as stamps – I have a few of them. Will consider barter for banks of turf, reliable spud futures, or lumps of gold.

IMHO, it ain’t going to happen.

@ bokonon

A fascinating paper on the break-up of the Czechoslovakian monetary union. Written in 1998, on the eve of the Euro as it were, it argues that the subsequent break-up of the Euro would be easy, based on the Czech experience.

I think the big difference is the huge cross border indebtedness and the already very significant capital outflows from the peripheral currencies.

Whilst an independent Slovak currency was expected to be weaker than a Czech currency and this did cause capital outflows it wasn’t absolutely clear cut that there would be a significant depreciation and that certainly would not have been the intention.

On the contrary everyone expects that if a new peripheral currency is introduced it would be for the very purpose of a massive devaluation and the resultant capital outflows would collapse the banking system especially if the ECB withdrew lender of last resort facilities.

Dutch parliament wants ‘plan B’ on Greece

Dutch lawmakers unanimously supported an oral motion by Geert Wilders’s party asking the Cabinet to sketch various scenarios on Greece. [Illustration by Manos Symeonakis].
Dutch parliament has asked the country’s Cabinet to explain the possible costs for the Netherlands if the Greek government defaults on its debts.

Parliament unanimously supported an oral motion by anti-immigration Freedom Party leader Geert Wilders asking the Cabinet to sketch various scenarios, examining not only the costs of a Greek default but also of further sovereign defaults, a general collapse of the euro, and a restoration of national currencies in euro-zone countries.

Wilders said Wednesday that ”every scenario has disadvantages, but please, no scare stories.”

Officially the Dutch government backs a new bailout for Greece but Finance Minister Jan Kees de Jager said Tuesday the government is examining ”all scenarios.” [AP]


re:Greek printed euros in circulation in Greece.

Thank you for shedding some light on this for me as I indirectly(and unintentionally) referred to this topic recently on a different thread.

Anecdotal evidence seems to suggest that quite a bit of “euro hoarding” (presumably of notes printed outside Greece ) has been going on over the last two months within Greece.

It would not surprise me if ordianry Greeks are conciously “circulating” Greek printed Euros (and holding on to potential”foreign currency”) within Greece while they wait to see what happens.

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