Greek Euro Exit: A Primer

This FT article provides a useful summary.

98 replies on “Greek Euro Exit: A Primer”

Is it fair to conclude from the ECB talking about a Greek exit form the Euro (following on from similar talk from German and other Eurozone political leaders over the last year) that the ECB is now trying to engineer a Greek exit form the Euro?

Until Greece acts illegally, this behaviour on the part of the ECB appears illegal of itself. The ECB is not mandated to plan for the destruction fo the Euro. (We know how much they care about their statutory mandate.)

Is the ECB concluding that Greece will impose default through law, or is it concluding that Greece will not honour the terms of debt which is now governed by the law of other countries.

It may be acceptable publicly to plan for a Greek Euro exit if same is strictly contingent on Greece acting illegally.

However, it is not acceptable to plan for a Greek Euro exit if no such illegal actions are envisaged.

It’s difficult to tease asunder brinkmanship – aimed at forcing a political consensus in Greece to comply with the bailout terms – and dispassionate reality – no funding for Greece or a political vacuum both presage a hard default which may lead to an exit from the euro.

It still looks like brinkmanship from this perspective.

One thing that would almost ensure contagion when Greece defaults is if existing deposits are forcibly converted into a currency based on the creditworthiness of the (in this case) Greek state. I’m surprised that a forced conversion is even discussed.

Silly FT paywall, if you are unable to read article

go to google
type “Eurozone: If Greece goes …”
click on FT result at top

Silly FT paywall, if you are unable to read article

go to google
type “Eurozone: If Greece goes …”
click on FT result at top

From a Greek perspective it may be best to print Euros on a vast scale and thus bring down the Soviet rather then Drachmaise the place immediately.
Especially if Greece goes it alone , it will probally be made a example of to prevent the others from defecting.

If you were looking at this from a obsolete nation state perspective it would seem really strange that the various PIigs did not just print already in concert.

It illustrates how even the local political class consider nations as provinces now which they have no real connection or loyality , given the strange hybrid power dynamics withen the Euro market state monster.

@Zhou Enlain – How can planning for a contingency be interpreted as illegal? For example all major military powers have endless plans in place for every category of invasion/counterinvasion and remain members in good standing of the U.N. Is all this planning for military contingencies “illegal” under your definition? It seems a silly notion that it is illegal to plan for future contingencies.

The article mentions that Currency printing specialists were needed in Iraq. Any EZ peripheral nation that hasn’t secretly printed its currency already is governed by clowns of the worst kind.

The Germans are obviously trying put manners on the politicians in Greece, with more sneaky use of language like.

‘We can’t force Greece to stay in the euro…’ when they know that the Greeks want the Euro they’re just against paying for its poor design.

@ Dork

I normally find your musings way over my head but I was wondering about this concept of Greece literally printing euros. That is effectively counterfeiting and is accepted in international law as an act of war. I doubt whether even the looney left are going to bring Greece to war.

@Gregory Connor

I agree that planning for contingenicies is not illegal. However, if the ECB is trying to force Greece out then that may be illegal. I don’t think Greece has suggested that it intends breaking the rules. However, by the ECB telling everybody that Greece will have to break the rules because there will be capital flight, the ECB is making capital flight more likely in the near term, and could therefore be forcing Greece into that situation.

It has been my impression for the last few years that the EZ core have been building a firewall between themselves and the peripherary with the intention of cutting the peripherary free if and when needs be. Greece in particular has long since been viewed as incorrigible.

Obviously, it all comes down to motive and I am speculating. It may also be that different people within the ECB hold different motives.

The ECB may be trying to persuade the Greek public to hold off leaving the Euro by explaining to Greece the inevitable consequences of what appears to be the Greek public’s intended course of action. That would appear to be justifiable. One can imagine this to be Gov. Honohan’s thought process as it is consistent with his approach to political affairs.

It’ll be interesting to see how the Greek people will respond to the threats of fellow ‘union’ members.

Will the support for euro membership and anti austerity stay firm. I get the feeling a lot of the electorate feel they’ve nothing to lose so are willing to roll the dice.


It illustrates how even the local political class consider nations as provinces now which they have no real connection or loyality , given the strange hybrid power dynamics withen the Euro market state monster.


It is obvious that many Irish politicians, particularly the older generation, feel conflicted between their democratic duties as elected representatives for Irish voters in Europe and their class interests in acting as representatives of the emerging European political class in Ireland.

The EU has managed to forge more bonds of common interests between politicians, banks and MNCs than citizens and all three groups are now effectively collaborating against their electorates. The Fiscal Compact is as shameful an example of that as one could ask to see.

@ zhou_enlai

Why would the ECB wish to force Greece out of the Eurozone? In such a circumstance, Greece would be highly motivated to default on its debts to the ECB which would make the ECB insolvent as I understand it. Given how hard the ECB fought to prevent a haircut on its debt during the recent round of Greek restructuring when private sector bondholders took haircuts >75%, it would be a rapid about-face no?

@Brian Woods II

The Ukrainians never fought the Russians on those cold border steppes in the 1990s.
Whats so loony left about the concept of national sovereignty ?

Those strange Euro years has wrapped your mind.
The Euro is a Soviet like creation.
De Gaulle is spinning around end over end now.

@Brian Woods II

That is effectively counterfeiting and is accepted in international law as an act of war. I doubt whether even the looney left are going to bring Greece to war.

Surely the Very Serious People of the political right have been the ones spoiling for a fight – here and elsewhere? The thugs at the ECB have given up all pretence at being other than an agent of German interests regardless of the damage done to the periphery in the name of price stability.

The ECB may well destroy the EU in attempting to crush the poorer and smaller nations.

You could be right..ECB holding 35b of Greek bonds. Default would put a big hole in their capital. But guess who would have to pay up to replenish it. Just one of the many unknowables likely to emerge.

@ John,
Thanks for the link.
One has to take seriously the views of Dr. Krugman who has produced insightful papers on currency crisises.

I’d go for options 3b and 4a, More ECB cheap funding and Germany accepting the indirect public claims.


I am fully au fait with the legal position vis-a-vis ECB finance provided to Greece (i.e. denomination, governing law, contracting parties) since the restructuring. Therfore it is hard to comment on that.

However, the ECB might want to brandish the spectre of expulsion for countries who default on debts to the ECB. The may also see loans as unlikely to be repaid in full in any event since the elections.


Good point. Would the ECB have to be given additional powers to use in the event of a country defaulting?

You don’t seem to understand what a structured globalist event the construction of EMU & the Euro really was.
Post 1980 a gigantic wage deflation built up withen the core , they exported their excess oil / gas to Ireland & the rest of the PIigs post 87.

“European” banks also financed Chinese expansion during this period because and not despite of fiscal austerity.
Remember its fiscal money that builds the core wealth of a country , its not bank consumer credit , when you don’t spend this money over time your country begins to die.

If you look at recent energy data these past few years you will find Europe is transferring its liquid fuel ration to China – why is that ?
Becuase the Eurobanks have sunk huge amounts of capital into the BRICs slave arbitrage activities.
Your “Austerity” is to bail out those investments by lowering the price of oil so that the banks can give you credit heroin again to buy those imported goods.

The absurd post 1980 global supply chain is a EMU invention , the heart of darkness is not withen America , it resides in Europe.

@John Foody

“I get the feeling a lot of the electorate feel they’ve nothing to lose so are willing to roll the dice.”

I’m not sure that’s true on the ground. Polls at the weekend in Greece suggest 81% want to stay in the Euro and a majority (slim one) want a coalition government formed now, rather than go back to the booths a second time. I think there’s also a fear (in the EU) that a second vote – which seems very likely to happen at this stage – may give further gains to the left and if they end up in first position ahead of ND/PASOK, they get the extra fifty seats…… that of course would not do!

Anyway, Greece is the sideshow. Spain is the main event and then at some point in the not too distant future – just when you’re thinking, “Wow, what could top that?” – along will come Italy.

Did you see that FT comment about the amount of mortgage debt Spanish banks are sitting on (I posted it in one of the recent threads her on IE)? Hi caramba. Vamoose.

But most of the noise that’s coming out of Europe (including our own dear Prof. Honohan over the weekend) is brinkmanship – and also threats to the Greek electorate to toe the line. I’m not sure whether they’ve thought through the consequences of their words though….. I can see those bank runs in periphery countries getting ‘runnier.’

Crikey. You think that some of the ‘threats’ being issued by the Yes campaign here are dire. Have a look at what Helena Smith is reporting from Athens today:

‘Throughout the day politicians have been talking about the dire effects a euro exit would have on the economy with one senior former official in the outgoing government speaking of “massive food shortages, petrol rations and run on Greek banks.”

“If there was a stoppage of payments because we refused to commit to the [EU-IMF] program and Europe cut us loose we would see a drastic drop in the circulation of currency as well,” said the official, who requested anonymity as the government is no longer effectively in power. “We would have to freeze deposits. We wouldn’t have enough capital to afford imports, rationing would have to be introduced, there would be shortages in medicines and other commodities. They [the EU] wouldn’t have to force us out. It would be so difficult we would leave,” he told me.

In the last hour fears have also been voiced about the effect a euro exit would have on social order.

Speaking to a local radio station earlier today, Michalis Chrysohoidis, the minister for citizen protection in the outgoing government, chose to be more outspoken. He predicted that Greece would descend into “civil war” it if left the euro zone and reverted to the drachma.

“If Greece cannot meet its obligations and serve its debt the pain will be great,” Chrysohoidis, a senior member of the socialist Pasok party, told Flash radio. “What do we have to lose more than we have lost already? Our freedom,” he said. “What will prevail are armed gangs with kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”‘

All we got threatened with by Noonan was taxes ‘might’ go up in the next budget if we vote No.

We could be witnessing ‘hystery’ in Greece 😉

@ CP

the market value of all Greek private debt is now UNDER 10bn in total

The Krugman synopsis is interesting but hopefully he is not correct in believing that ‘de facto capital controls’ will not be implementated until after deposit flight has started.

If there is a belief that Greek exit or euro breakup is on the way, surely capital controls are the first thing that should be put in place.
Or will Ireland, once again, wait until she is fully denuded before capital controls are implemented.

Whatever about Ireland, I cannot believe that Italy, Spain or other European countries would be that stupid.

I listened to a Greek commentator on the News at one. They are not fooled by the ‘bailout’ nonsense. They are perfectly aware that the ‘bailout’ money never land in Greek territory. It is the European banks (mainly French and German) that are being bailed out.

@ PR Guy + 1

Events are starting to make fiddling around with the EIB and growth pacts look foolish.

Allow me to replace ‘a lot’ With ‘at least enough’. You’re points are consistent with mine. As I said most are in favour of the Euro, yet the anti-Bail out Pasok will (likely) win the (likely) next election. The Germans are trying to phrase the issue as either euro or current bailout.

It will be interesting to see how the electorate respond but it would seem to me a large enough fraction of the populous are currently not believing the threats or are willing to run the risk in the belief that things can’t get worse.

Armchair experts can take whichever view suits but when a second general election is looming in an EMU country subject to an international bailout and ECB financing of its banks, the central bank should remain silent when the central plank of a major party is to tear up the second bailout agreement?

@ Chris

Maybe Dr. Krugman should pay some attention to California and its renewed struggle to cut its deficit.

Wolfgang Münchau in the FT reckons that given the opposed interests of Greece and Germany, the ECB and their hangers on*[1] Greece’s end game has to be a default in the least socially destabilizing way they can manage, ideally after somehow wangling a primary surplus.

Default now or default later?

I think Merkel’s and Schäuble’s easy ride in Europe is over now, the fact that Germany’s current government seems to have a reverse midas touch for their would be partners in Europe has to have sunk in (Finland aside) – has Schäuble ever been right about anything?

Of course Ireland could do the dumb thing and help prop up the now doomed Austerians by agreeing to the Fiscal Compact, thereby screwing things up for progressive Europe through gutlessness again.

[1]: Ireland is in a fourth group, those trying to fool themselves that they can be hangers on.

@ Joseph Ryan

They are perfectly aware that the ‘bailout’ money never land in Greek territory. It is the European banks (mainly French and German) that are being bailed out.

So there is no public deficit?

9.1% of GDP in 2011.

It’s all about debt repudiation. The Greeks are slowly awakening to the fact that their debt needs repudiation not further bailouts and austerity to pay back German banks, a policy that has failed. Central to the Euro project is the principle there will be no debt repudiation, no bank will fail, no bondholder will be burned. In support of this policy even though Greece has been made somewhat of an exception, is the Merkozy failed policy of austerity. This means the central platform, its ECB and troika induced policy hub, has failed to grapple with the euro crisis. Its sticking plaster has become undone. There is no better policy currently on the table; Holland’s growth protocol modifications have yet to materialise or be agreed. The evidence is in regard to Greece and Italy and Ireland such FC modifications would be merely band aid sticking plaster that fail to treat the essential problems the euro cannot address; the fact that it is a pretend currency union with a loose fiscal policy currently coming apart at the seams. So, orderly breakup rather than chaotic breakup is the only solution in the absence of viable solutions that can hold the euro together. If debt repudiation cannot occur in the euro, it will have to occur outside the euro.

By Pasok of course I meant Syriza. Following the ever evolving slow motion car crash that is the euro crisis does teach one a thing or two about European politics.

@PR Guy
Blackmail has a nasty tendency to backfire.

@Bond Eoin Bond
No problem then. ECB can buy it all in.

When are you going to accept the concept of monetary soverginity ?

Deficit to whom ?
To private credit issuing banks…..
When consumer credit hyperinflation stops the other arm of the banks want you to pay a exponential interest on sov debt with your declining money stock as the banks create your deposits also.
They have got nations F$£ked two ways from Sunday.

There is no final settlement between nations now………
The banks gave up that Gold role years ago
Countries can issue their currency interest free at will.

There is really nothing stopping them but the banks – but what or who are the banks to stop the sworn duty of treasuries. ?


“Blackmail has a nasty tendency to backfire.”

I couldn’t agree more. If not sooner then later. I’m not a great believer in making threats myself. If you want to do something, just do it and don’t give any warning or they might start shooting before you do. Who was it that said something along the lines of: “Ah they’re only using rifles. They couldn’t hit a barn door from that dist…… gurgle gurgle sigh”.

@Joseph Ryan

Some bailout money does land in Greece I believe i.e. to pay public servants etc. as they still have a deficit to worry about…. er, that I think was the €1bn the EU didn’t release last week when they released the €4.4bn earmarked to pay their creditors. Priorities, priorities, eh?

I keep hearing reports that a short term (2-3 months) coalition is going to be formed in Greece. They (the reports) won’t go away. I want a second election now I’ve called it!

@ seafóid

From your FT link

” That said, there are still a handful of safe, low-risk forecasts, not the least of them being that the overhang of debt will never be paid in full. The only question is whether the default will be formal or via inflation.”

To avoid the growing indeterminate, unpredictable volatility brought about by 30yrs of uncontrolled debt ¢60 trillion sloshes around the Shadow Banking System, never mind the european interbanking and sovereign debt markets, there needs to be a G20 solution to the crisis that is not just left to Europe to carry the can for.

Currently there is no talk of this. All we have is an austerity inspired unspoken banking charter to protect all banks and financial institutions that have built the mess.

This will only worsen the mess.

We need changes at this level.

The opportunities provided in changes due to the breakup of the euro should be harvested to build a new global currency system that will help to bring about order and growth. The current pyramid scheme of central banks too big to fail that has consolidated power into the hands of a handful of large banks in the US and worldwide needs to be broken up. The TBTF’s are taking over governments and replacing democracy with social upheaval, the destruction of the middle class, and disproportionate distributions of wealth fed upward from the bottom and center sectors of society.

Shoring up this imbalance should not be a strategic objective masked as ‘stability’
as it is in Greece and Ireland in the Y campaign. This needs a global response last achieved in 1935, one that requires a similar response in 2012, one whose aim will be real stability 🙂


Yes you are correct, Greece does have a defiicit but there are closer to a primary surplus that Ireland.

What I had in mind was a recent report of the recent ~5billion ‘bailout’, only ~4 billion of which was released, being the 4 billion to repay its loans. The final €1billion to fund Greece’s day to day expenditure was withheld.

However let me say that this talk of ring fencing of a Greek exit etc is cockamamie rubbish.
There would and possibly will be chaos. Taking the Krugman analysisa little further.

1. Greece pushed out of euro by ECB/Germany (or EuroGroup?).
2. Massive capital flight from periphery.Capital controls in EU countries.
3. EU spending collapse.
4. Humanitarian crisis in Greece.
5. Calls for EU aid to help Greece. Calls refused by most governments.
6. Political backlash on Germany/EZ/EU by citizens.
7. Greek military takeover. Atrocities by military.
8. Greece military look for Russian aid. Russia agrees.
9. EU spending collapse causes massive unemployment throughout EU.
10. Italy, Spain, Portugal and Belgium cannot borrow.
11. ECB refuses to buy primary bonds. Not in mandate.
12. Euro collapse. Dmark revalues 50% against most EZ countries.
13. Prof Sinn is elected as new German finance minister.

This was in the comments relating to a Martin Wolf piece during the summer panic
Report Jason Muller | August 30 10:33pm |

There must be much inflation, or great loss, or there will be low growth. The real economy is too full of rent seeking and too devoid of value creation. There is not enough room for new endeavors. Until the day when those with capital are forced to put it to work and risk loss — much more so than is the case today — or until the day when those with capital lose a great portion of it, the economy will not be healthy. It will simply subsist, in statis, in order to provide for those who have previously accumulated capital. Those who are not needed in capital-servicing tasks will remain unemployed. This is the way I see it.

@PR Guy

Thanks for that. I had a recollection of money being withheld from Greece.
As you say, priorities!

Could the timing or our referendum relative to the Greek general election be worse?

The emerging consensus is that if the Greeks throw the head again they will ultimately have to exit the Euro. That is outside our control, but the big fear is that it could lead to contagion to Ireland to the point that we also have to exit the Euro. If we throw the head by voting the referendum down then might we get pulled into the Greek maelstrom?

Of course, the Greek situation could prompt the sanguine Irish middle class (or whatis left of it) to come out in force in favour of the Treaty. However, that is quite a gamble for a Government that considers stability to be the key to everything.

Also, whereas some people might think they will get a second bite at the referendum, it will al be academic if we are out of the Euro by that stage.

As somebody who opposes the stability pact being given constitutional status, it really angers me that the Government could not negotiate something which did not require a referendum. It annoys me as much again that Labour’s Attorney General gave such a wishy-washy and equivocal justification for the Treaty which essentially sounded like: “I am not sure what the law is so we better have a referendum”.

Very annoyed.

@Carson/@Gregory Connor

On further reflection, I am pretty much persuaded that the ECB is not trying to force a Greek exit from the Euro (not to say that they haven’t contributed to same by not following IMF advice in full over the course of the crisis).

Speaking of Paul Krugman (John Foody on May 14th, 2012 at 11:05 am), it seems that Karl Whelan is going to have to argue with him too now. In a post ( ) today, Krugman writes that “eurozone banks could float through a slow-motion bank run by borrowing from the ECB”, for which the “Bundesbank…may ultimately be on the hook”. Perhaps Grexit might give us some data to settle the argument!

As can be seen from this article New York transferred over $950 billion to the rest of America’s fiscal union from 1990 to 2009. New Mexico has received 261% of 2009 GDP in transfers over the last 19 years.
Could New York and New Mexico have survived in the same currency union without this and mobility of workers?
Perhaps under much worse hardship for New Mexico or not at all according to Mundells OCA.
Its clear that Europe needs a stronger fiscal union including transfers. There should be at least some talk of this now the compact has been agreed to.


American based economists have poked holes in Europes austerity drive well, as its driven more by self interest by creditor countries than following economic theories. Perhaps California is a bit harder to figure out, it seems Krugman blames the republicans?

Do you really trust a centralised European fiscal pool ?
Have you seen how Europe operates ?
Its a Bank infested swamp.

You will get your wish me thinks ………its called ESM, a direct Fiat / tax seizure of the Banks , by the banks.
Nothing less then the each European Treasury printing interest free like Greenbacks will free us from this self imposed Banking vice.

The Banks should not be allowed to dictate the money supply of nations to suit their failed global credit investments – the domestic money supply is the sole duty of treasuries whose loyality should be with the people withen the countries that elects them.

The only way a Grexit would cause contagion would be if David McWilliams is proved right and the Greeks live happily ever after. Much more likely Greece will descend into chaos and potential contagionistas will sigh with relief “phew, that cuda been us”.


If Greece goes there will be a wall of hedge fund money bet on prising the next countries out. There is too much capital sloshing around with nothing to do.


“a wall of hedge fund money bet on prising the next countries out”

Spot on. Easy money, driven by the herd (at least in the short term).

@The Dork

“Its a Bank infested swamp”

I see it more as a shark pool. Sharks in suits who are good at sums.

Its not capital , its leverage – you cut the banks balls off when you give the money to the people.

Fair point dork but a lot of pension funds are putting real money into hedge funds as well. They have had fabulous returns over the last decade if you ignore the fees..

I wish I could be a fly on the wall in the Finance Ministers meeting that has now kicked off. I think my starting assumption would be: don’t believe anything the others are saying, they are all lying!

Wouldn’t it be grand if the wealthy and other insiders could maintain their gravy train?

Austerity in Greece — curbing doctors and other professionals on the make:

In Feb 2012, Andreas Loverdos, health minister, who pushed through healthcare reforms, criticised what he said was an organised interest group of businesspeople, doctors and pharmacists that had blocked the use of lower-priced generic drugs in the state healthcare system. But many deputies voiced concern that the cuts would reduce the quality of healthcare services and lead to hospital closures

Healthcare reforms would cut spending by around €1bn, partly by replacing expensive branded drugs with cheaper generic versions.

Doctors at state hospitals staged a 24-hour strike in protest against changes in procurement and measures to streamline hospital management.

Some observers were sceptical that a fresh attempt to open up dozens of “closed shop” professions, from truck driving to pharmacies and legal practice, included in the wage package, would prove successful. Influential interest groups were been able to block two previous laws on liberalising markets.

Once patents have expired, the lack of any requirement for Greek doctors to prescribe cheaper, generic versions means patented drugs still represent nearly 80 per cent of total prescriptions in Greece, compared with less than 30 per cent in Germany. Yet generics were traditionally sold at relatively high prices, with very low discounts to patented drugs. Even after recent reforms, they are typically only a third cheaper, compared with lower rates of nearly 90 per cent in the UK.

@ Brian Woods II

It could hardly be orderly and there would be the likelihood of a left-wing government having to use the army to restore order.

Iran would likely accept drachmas for oil but most shipments to Greece would be halted for a time.

@ Chris

In the US, the finance industry is more concentrated in New York than would apply in non-unified Europe. So for most of the last decade, New York’s finance firms were making lots of profits and paying some taxes.

However, in Santa Clara, home of Intel and Cisco and biggest city in Silicon Valley, one of America’s richest regions, services have been subject to cutbacks for years and just last week a measure on raising taxes to fund schools went for a vote, which required a majority of two-thirds.

They make money by decapitalising physical systems….. soon there will be nothing to decapitalise as things become more and more stretched out to get a return.
This is the great drive for efficiency we have witnessed since the 70s – a drive for efficiency that reduces redundencey withen systems.

They make money in this fashion because there is no money demand from customers and therefore no appropriate price signal.
Therefore credit makes “investments” that substitute for money demand……this is why we have seen all these credit / housing bubbles since the 70s.
Wages have been kept lower then productivity increases with catostrophic malinvestment therefore a certainty when each credit bubble blows out when surprise surprise there is no demand for those products as the people don’t have the money , they are merely given credit that now somehow thinks it has a God Given right to have a money stamp on it.

Its 19th century free banking using the tender of the state.

Its the biggest monetary disaster in the history of money.

@ MH

the US tendency to fund schools by means of property taxes is no better than what FF did in terms of funding the Irish PS during the tiger era.

Austrian Finace Minister says
*Greece won’t get more money on failure to meet targets
*Greece would have to re-apply for membership of EU (on Euro exit)

The Boy Tsiparas sez “target is to keep Greece in Euro” and “Europe must examine its austerity policies”

It looks like the traditional ally of Germany has been sent in to apply some pressure.

Seems some news is beginning to emerge on what shape the income to generate investment/growth will have, the opposition in Germany are talking of it in terms of a Financial Transaction Tax.

If Merkel can do a deal on this, it could get her through the elections she faces next September.

She won’t get any support from Enda Kenny or John Bruton on this proposal. Clearly FTT could help with our own budget deficit along with a hike in our Corporation Tax. Its an interesting no go area for Ireland’s position so far.


There was an articulate Greek economist on Morning Ireland this morning.
She said that apporx 2,000 Greeks had committed suicide in the past few months.
A little more presure form the Axis powers, and they will have to go into Greece to harvest the olives themselves.

As a European, allow me to say that no pressure they are applying to Greece is on my behalf.
Perhaps some of the pressure is to recoup the €2 billion that the London office offic of JP morgan lost in the most recent bout of gambling.

If Greece decides not to obey the troika and is asked to leave the Euro but says no,
under what rule can they be kicked out?
Does Greece not hold a veto over this decision?
Can Greece then appeal this to the European Court of Justice and so hold up everything so almost assuring the destruction of the Euro?

@Shaun that’s not how it goes. Greece says no more program. Troika says, okay – no more cash. Without the cash to pay pensions and salaries, and the cash to recap the banks, and in default then GGBs won’t be acceptable collateral for ELA so ECB will switch off the tap of cash for Greek banks so suddenly Greece has no cash.

At that stage Greece will want to leave the euro in order to print drachma, they won’t be forced they’ll jump.

Or they could write a few euros into their central bank’s account and then use that to pay everybody. The money from the ECB does not exist it is only numbers on a computer, it is the Greek printers who make it real, how will the ECB stop them?

@Shaun that is State sanctioned counterfeiting since the treaties are clear that printing of euro must be authorized centrally, and under International Law could constitute an act of war.

As counterfeit euro they may as well be drachma, Greek printed euro would cease to be acceptable elsewhere in the EU due to the existence of counterfeits, and so would have their own value and cease to be proper euro.

You can be amazed what countries can do when they put their minds to it.

“To the dismay of the European Central Bank, the sizes and compositions of the 50 new kuruş and 1 new Turkish lira coins clearly resemble those of the €1 and €2 coins respectively. (See comparison photo in [1] of YTL 1 coin and €2 coin.) This could cause confusion in the eurozone. It also caused trouble to businesses using vending machines (particularly at airports) in the eurozone since a number of vending machines at the time accepted the 1 new Turkish lira coin as a €2 coin. Since €2 is worth roughly four times more, vending machines affected had to be upgraded at the expense of their owners.”

The chain of command is deliberately very confusing withen the Eurozone but it is Treasuries that have the power to print if they wish to use it.
The CBs turn the stuff into debt and currency sometimes
Banks should only deal with collateral , not money.

They now wish to control fiat (issue & tax) because their credit “investments” are worthless.

Sorry wrong wiki reference

Diet Coke breaks using Lira coins in Euro vending machines………………

An act of war against who, the ECB, the EU, each individual country?
an EU mandated reponse would require Greece not to use it’s veto

I am not being facetious (really) just trying to tease out the possibilties.


An Act of War against the countries who are participating fairly in the EZ and who suddenly find a State sponsored counterfeiter of their currency. Hitler tried this scam in WWII (Godwin’s Law, I know, I know), he dropped bank notes from planes, or was that just a plan?

Luckily we are long way from Greece and so they are unlikley to nuke us first.

Long before the first Greek ‘bailout’ most economists and reasonable believed quite rightly that Greek debt was too high to be repaid. Yet the ECB and Europeans powers, particularly France and Germany, insisted that Greek society driven to the edge to repay the debt.
Could such actions be considered to constitute an ‘act of war’ against the Greek people?

I am absolutely amazed at the capacity of some people on this blog to portray the profligate blowing of borrowed funds (even State sponsored cheating to obtain those funds) as somehow the victims of some evil Teutonic monetarist aggression.

What about Schachts Mefo bills ?
Nobody talks about them in polite company.
Its always Wiemar Wiemar Wiemar……..

They were a sort of corporatist Greenback.

Sometimes you need a Mason to stir things up like , sometimes not.
Jackson or Schacht ? – take your pick.

Under Nato rules an attack on one Nato member is an attack on the entire alliance. Tricky that, since Greece is a Nato member. So is Turkey. Hence the Turks could attack Greece, for attacking the USA by engaging in an act of war against Nato-countries in the Eurozone.

I think it’s a load of cobblers myself.

@Brian Wood 11

There was no Teutonic plot to loan out the money so far as I am aware.
But lets be very clear, there is a definite Teutonic plot to recover the debts.
That Teutonic plot has most of Europe and European institutions as allies in that plot.
The real question is this.
Are the predominant European powers prepared to destroy the Greek people to recover these debts?
The answer appears to be yes.

Then I would say to Europe, go ahead. See where that path leads.

@BW II Well said, its the notion that all creditors are evil and that there are no consequences to inflicting losses on them e.g. the ECB without realizing that a portion of those losses falls to each taxpaying nation in the EU, ourselves included.

@aisling and Brian wood II
Just because the Greeks took all that money and now no longer wish to repay, which is totally wrong, does not mean that there is some nice clean easy way to make them repay it.
If someone borrowed to buy a house, then refuses to pay, the bank is left with a very expensive, long drawn out battle to get the money/house back. It is the same with Greece, if they want to (I think they won’t) they can illegally print Euros and it would take years of legal wrangling to make them stop. An all out physical war is out of the question unless the ECB out sourced it to Turkey.


Guess who paid for Lehmans through ECB losses:

“At the same time, the specific circumstances of 2008 also implied higher financial risks in Eurosystem credit operations. In autumn 2008, five counterparties defaulted on refinancing operations undertaken by the Eurosystem, namely Lehman Brothers Bankhaus AG, three subsidiaries of Icelandic banks, and Indover NL. The total nominal value of the Eurosystem’s claims on these credit institutions amounted to some €10.3 billion at end-2008. The monetary policy operations in question were executed on behalf of the Eurosystem by three NCBs, namely the Deutsche Bundesbank, the Banque centrale du Luxembourg and de Nederlandsche Bank. The Governing Council has confirmed that the monetary policy operations in question were carried out by these NCBs in full compliance with the Eurosystem’s rules and procedures, and that these NCBs had taken all the necessary precautions, in full consultation with the ECB and the other NCBs, to maximise the recovery of funds from the collateral held.”

Maybe the EZ should declare war on the US to get its money back!

The Zurich newspaper NZZ am Sonntag had some interesting stats on Greece. 15000 tons of tomatoes and 30000 tons of lemons imported last year even though they can grow them in Greece. The cost of producing a ton of tomatoes has doubled there in 20 years and is higher than in the Netherlands.

Germany needs an inflation rate of 6% to bring the PIIGs back to competitivity if PIIGS salaries are fixed. On top of structural reforms.

And poor Switzerland is banjaxed if Germany goes for the inflation. Try to defend 1.20 against the Euro.

@Shaun sorry, I wasn’t clear. I don’t think it will result in a war, I think if Greece is going to print they will print drachma rather than euro because printing drachma might be frowned upon, printing euro would be, in so far as is possible for a State, criminal. Defaulting is one matter, engaging in crime is of an entirely different level hence it won’t happen.

Even if it did happen, the Greek bank recap requires €40bn, ELA is about €100bn so €140bn would need to be printed for the banks alone. That level of printing could justify a refusal to recognise any Greek euro as legal tender by anyone outside Greece. The lock down to prevent the counterfeit currency escaping would turn Greek euro effectively into drachma – a Greek euro would no longer equate to a German euro.

But it won’t happen. If they print, they’ll print drachma.


@BW II Well said, its the notion that all creditors are evil and that there are no consequences to inflicting losses on them

No has said that which, when you think about it, is odd.

In our current situation creditors is basically a synonym for the financial sector and their lackeys. If one had to broadly characterize the behaviour of Goldman Sachs, J P Morgan or the manoeuvrings of the ECB to get the public to pick up the tab for bondholders failings and the poor design of EMU then “evil” does not seem very extreme.

The German government quickly let self interest trump its desire for a proper resolution to the European component of the global financial crisis, Lorenzo Bini-Smaghi unapologetically took the side of the powerful against the weak. When I look at the advocates of the current solution, where state, lives and human happiness have been sacrificed to save banks and the value of a currency, amoral does not quite seem strong enough to describe their behaviour.

So I’ll take your straw man and light him. The imperative to protect creditors and the Euro at the expense of the progressive qualities of the European Union and the health of its citizens was evil.

Everybody thinks that Greek’s alternative is to print drachma. How about they print punts? What we need is a bit of thinking outside the box. Where is David McWilliams when we need him?

Why do you think Bunds are at 1+ % or something ?
Its because the “authorties” gave the entire Bank Bond credit market the time and space to turn those credit deposits into a closer money substitute.
Now Thats criminal – as it has destroyed the shared currency as it has made taxing mortgage holders up to their eyes in debt impossible therefore destoying the credibility of non sovergin goverments.

You see credit deposits especially of a long duration are not really money , they are a loan to a bank.

The Germans are now borrowing from our accounts , driving down their interest rates relative to the periphery.
They have created Mefo bills for themselves without officially cheating.

Outside of the single currency it was Germany that was most vulnerable as surplus countries always do very badly in depressions as nobody has the credit to buy their credit senstive goods.
They have had the time to rejig their economy to exporting BMWs to where the oil has flowed – to Asia mainly.
The Irish strategic plan was to buy time for Germany for some reason.
It is a sort of reverse operation Green without the paratroops which can be very risky.(see Crete 1941)

@ BW2
another out of the box suggestion

the Greeks should follow FF doctrine and guarantee the banks. That is a cracking solution to the problem they have. Cheapest bailout ever.

Since BW2 is calling for thinking outside the box and talk of war is in the air, I wish to endorse Brad DeLong’s suggestion: the US should threaten a currency war if the ECB doesn’t revive Eurozone aggregate demand. Either the European economy heats up, or German exports are priced out of the US market as a result of aggressive dollar-selling by the Fed.

Too late for that. I think the Greek banks are toast….they are holding 49 b of bonds which are going through the floor. Last I looked they were selling for16.42 so it’s unlikely the ECB will take them as collateral any longer. I wonder how much the ECB are down on their 35 b of Greek bonds.

@ Joseph Ryan

‘The Krugman synopsis is interesting but hopefully he is not correct in believing that ‘de facto capital controls’ will not be implementated until after deposit flight has started.’

Unfortunately starting pistol was fired long before last week for those who could – the rest are quite a bit behind the curve.

The only cash these ‘guys’ will have on deposit in Greece is ‘pin’ money for local expenses – have no doubt about that.

@ Ashling & BWII

Is any of you income dependent on state resources?

Just a question. 😉

Apologies to the grammatically retentive – relative to previous post.

‘Are any of you income dependent on state resources?’

@ Seafroid

“the Greeks should follow FF doctrine and guarantee the banks. That is a cracking solution to the problem they have. Cheapest bailout ever”

But Ireland is not Greece…..mind you the quote below for Der Spiegel on Greece could make you think otherwise…

“It is difficult to explain to a deeply frustrated population that while ordinary people are supposed to change, and have to pay more taxes and receive less income, the political class continues to occupy key positions and can keep doing as it likes.””

@ Dork,

Fiscal transfers would be earmarked only for pensions, social welfare, health and education.
For banks an European wide deposit insurance and bank resoultion system where banks pay a yearly fee their own bailout insurance would be preferable.
Its true that while the ECB is supposed to be representitive of Europe due to its election of its executive board it favors the 4 biggest countries over the other 13 and the financial sector over workers.
The fiscal fund would hopefully not fall foul to any ‘gentlemans agreements’ like that.

@ Ordinary Man

I for one is not in receipt of State income. What particular feature of my musings prompted this erroneous innuendo?


“What a mess .I wonder how long before the people of Greece start taking their money out of the banks”

The ‘Grape Leaves of Wrath’?

Deposit flight has been going on for a while, not just in Greece but Spain, Italy, etc. and as we all know, deposits fled big time from Irish banks. It’s one of the reasons why Switzerland effectively ‘froze’ the Euro exchange rate… too many Euros chasing Swizz Francs and upsetting their exporters.

Greek government revenue stream has dried up dramatically since the elections there – nobody paying bills to government or taxes during this uncertainty (and who can blame them?) – which also suggests that ordinary people (the rich moved their money out long ago) are now hoarding cash (Euros) so they have some in hand come the ‘bank holiday’ (if it ever happens).

My view? *Buy Swiss Francs while the exchange rate is held. What else you going to put your money in? Government or bank bonds? Gold? Dollar$? Oil? Equities? An Edvard Munch painting? They all frighten me for one reason or another.

* not to be taken as investment advice!! Personally, I will be ‘investing’ in a few cases of very good wine when I get to by retreat in France this summer. If the financial world blows up at least I will be able to drink myself senseless and ignore it for a while.

Would or Should ?
I assume you are talking about the ESM ?
Its a question of politics or more accuretly the lack of it.
I don’t see a clear chain of command withen the ESM , there is no politics , merely bagmen / Wrath riders sent out to scour the Shires once in a while.

Its Banks gaining a more direct control of Fiat money without that messy politics.
Banks have really no business messing with Fiat on any level in my view.
Their business is with Bank credit.
Fiat is a political matter, not a cosy ecumenical matter.

The issue of schools being funded by property taxes was raised above. Generally schools are operated locally and roughly 50% funded by local property taxes. The next two levels of gov’t (regional and national) fund the shortfall. When schools are funded locally the parents pay attention to what they are voting for in local elections for town councils and school boards. There are many variations even within single countries as one size does not fit all. The common theme is large schools and extensive busing. I was amazed at the size of primary and secondary schools in Newfoundland, economies of scale had to be achieved or so I was told.

@Brian Woods II


More a case of wondering where your best interests were located relative to your points of view – idealogical or financial.

@ PR Guy

Deposit flight alright but has it gone as far as the Greek equivalent of the Sindo readership I wonder.

En Primeur is probably better than Sfr because the franc is undrinkable. There is the makings of a carry trade if you buy in London and sell on to CH afterwards. Swiss prices are around 25% higher.

If it gets really bad I think CH will have problems putting smacht on the franc.

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