The Grexit is coming sooner or later

One more post today, this time on Europe. I wrote this outline for Italy in November before the ECB’s Italian job. I didn’t and still don’t see an Italian exit or default as a baseline. However, a Greek exit for the eurozone has been my baseline for a number of months. Citigroup’s Willem Buiter has talked a lot about this recently. He and his colleagues call it "Grexit". Business Insider’s Simone Foxman has a good synopsis of that view.

Here’s how I see it happening, based on my Italian default post.

  1. Plan. The Greek government can plan for a redenomination into New Drachma in secret that takes advantage of the Greek law jurisdiction over their sovereign debt obligations.
  2. Law. “Euroization” would remain in place and the euro would continue as the currency of physical payment. However, New Drachma would become the national currency, pegged at 340.75, exactly the same rate as the Drachma was fixed on 19 June 2000 and converted into euros on 1 January 2002. All debt under Greek law would be redenominated into New Drachma at the 340.75 New Drachma exchange rate peg. This would effectively bring us back to 31 December 2001 for Greece.
  3. Taxes. The government would announce that henceforth it will tax exclusively in New Drachma. All municipal governments would be required by law to tax in New Drachma. 
  4. Banks. Like the Argentines before them, the Greek government would convert all euro bank accounts legally into New Drachma. The systems would process as if it were euros because of the fixed peg, but legally the money would be New Drachma. This would make the Greek economy “euroized” but make the banking system redenominated into New Drachma.
  5. Retail. Retailers, all sellers of Greek goods, would then be forced to return to the double accounting treatment of pre-2002 whereby they denominate all transactions in both Drachma and Euros. Again, the paper money would be euros and each euro would initially be worth 340.75 New Drachma. The electronic money would legally be New Drachma, even while the systems said euro.
  6. Float. On day one, immediately after redominating, the Greek government would drop the 340.75 New Drachma exchange rate peg and float the new Drachma as a freely floating currency. From that day forward, foreign currency adjustments would need to be made between euro and New Drachma.
  7. Physical currency. New Drachma would be printed by the Bank of Greece and introduced to replace euros.

When the present government loses re-election in a few months, the new government will have difficult decisions to make. One of these will be whether to rescind the austerity deal now being hammered out. If they do not accept the deal, Greece must then exit the euro zone.

P.S. – Two posts todat at Credit Writedowns outline the social mood in pictures and video in Greece right now. My take: these deflationary policies mean that nationalism is coming back, just as it came back in the 1930s because a shrinking pie produces an us versus them mentality. See here and here.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


    1. BenX

      Yes, why not set the New Drachma at 1:1 ?

      Since #4 will let it float freely, it will move where the market wants it anyway, so you might as well give it a running start.

  1. Paul Amery

    I don’t see how, after step 2 (the introduction of a new drachma that is initially pegged to the euro), you’d prevent all euro cash from disappearing from circulation and/or fleeing the country. Your scenario suggests that euro notes would still be around at step 7. Once people realised that a new, devaluing physical currency was on its way, cash would effectively disappear and the economy would come to a halt.

  2. Praedor

    Nice, though I too wonder why not simply start the New Drachma at 1:1 (Upon floating would it skyrocket towards, and beyond, the initial 340.75? Why choose that particular number? Simply because that was what it was before joining the Eurohell?).

    In any case, it sounds good. Take control of your own currency and cut off technocrat (nondemocratic) control of your social/political system. As for whether the Greeks ought to stick with austerity imposed by alien outsider robberbarons…HELL NO. Any Greek public lands sold off to attempt to pay off the robberbarons should also be re-nationalized and the robberbarons sent packing or jailed if they complain.

  3. Marley

    I think the 340.75 was the lockdown rate of GDR:EURO set in June of 2000 (see here:

    W.r.t. the social unrest, anyone else manage to catch this tidbit earlier today?

    “Greek police union wants to arrest EU/IMF officials”

    If the Grexit is upon us, then the Grevolution is quite possibly closer as well.

  4. Praedor

    Those vids you link to are a thing of beauty. That is exactly what inflicting austerity must bring about everywhere. The only things aristocrats in the 1% understand is the Bastille.

  5. steelhead23

    Edward, I may be overly paranoid, or just ill-informed but if debt were redenominated in New Drachmas, pegged to the euro, wouldn’t Greece still have trouble paying its debts? Or, if Greece then simply monetized its debt, wouldn’t it suffer massive inflation? Or, if Greece simply defaulted, wouldn’t the IMF make them a pariah and destroy their economy endogenously?

  6. Maju

    Greece would be in default of its international obligations if it steps out of the Eurozone. In order for a state to leave the Eurozone, it’d need to leave EU, what is also complicated (negotiated withdrawal or two-years period before unilateral secession). The EU cannot expel any member country either, although it can sanction (qualified majority) or suspend it (unanimity).

    An ad hoc treaty might be signed for the Greek case in theory but that would blow the cover and make the whole plan fail.

    Anyhow, all that assumes that Greece has a stable government what, considering its disintegration as we speak (four or more ministers resigned today) and the total unlikelihood that new elections could generate any stable majority, is dreaming awake.

  7. Jim

    How does #2 work with respect to debt. If I owe 10 Euros a month to a firm in Germany, would I then owe 3,408 Drachmas a month?

    In Argentina, the government decreed that all dollar debts would immediately be payable in pesos, at a 1:1 rate. And if you were paying the electric utility (owned by a European company at the time) 40 dollars a month for electricity, you would continue paying it 40 pesos a month.

    This makes much more sense than what you’ve proposed.


    To prevent the recurrence of the recent disturbances, the government plans to soften the impact with what Mr. Ruckauf called ”compensatory elements” in its economic package. The devaluation is expected to be preceded or accompanied, for instance, by a decree that shifts rents and debts currently denominated in dollars, like mortgages and car loans, into pesos.

    According to local news reports, Argentines are also likely to be allowed to pay telephone, electricity and gas bills in pesos instead of dollars. That would be a blow to utility companies, many of which were bought by Spanish, Italian and French companies during a wave of privatizations of state-owned companies in the 1990’s.


    1. Edward Harrison Post author

      You don’t understand forex. The exchange rate is irrelevant. I am using the old Drachma rate so that Greece could use old Drachmas to put into circulation. The rate could be anything they choose.

      1. Jim

        Edward, I apologize for not making myself clear.

        You say,

        All debt under Greek law would be redenominated into New Drachma at the 340.75 New Drachma exchange rate peg

        So, let’s say that a household had a debt of 75,000 Euros, under Greek law, and the new f/x rate was 340.75 New Drachma to 1 Euro.

        Would the family then owe 75,000*340.75?

        If so, that’s not what Argentina did.

        Argentina did float the peso, which went as high as 4 pesos to the dollar.

        But by government decree, all dollar debts were redenominated in pesos, at a 1:1 ratio, regardless of the market f/x rate. And if you were paying your utility 40 dollars a month, you would be able to continue paying about that much, except in pesos.

        That’s my understanding of what happened in Argentina.

      2. kris

        With all due respect, sir, nobody does. It’s too big to be understood by one person whoever that may be.
        I’ve read your background summary, I’m sure you know a lot experiencially (I hate the word “expert”). But, it’s just not possible for that multi-trillion market to be fully understood, particularly since the the central banks are the main players.

  8. kris

    Why is everybody just focused on the financial frame?
    Anybody thought of the geo-political importance of Greece?

    1. Maju

      The problem may actually be that Greece is not anymore so important strategically (Turkey is critical, specially for Russia, but Greece is expendable). That happened to former Yugoslavia as well: it became expendable, geostrategically irrelevant and was left to the hyenas and its own disintegrative forces.

      Today ships and airplanes have much more autonomy than in the past, so intermediate bases are less important, more so when you can always hire one in the nearby country if need be (specially Britain still holds a chain of bases in all the Med, always available for Big Bro USA).

      I do not think that is the problem at all, specially lacking a rival power in the area (sure Russia… but Russia is not really a power anymore).

      1. gnk

        Greece expendable?

        “Although terms of the Israeli-Greek mutual defence pact are not public, it would surely envisage protection for Cyprus, with whom they have an economic alliance. To underline this point, Israel this week reportedly sent low-flying jets and a helicopter over a Turkish ship exploring south Cypriot waters. For good measure, Israeli jets also flew over North Cyprus, despite warnings not to.

        None of this sits well with Turkey. It is not only seeing its dominance over Greece and the eastern Mediterranean challenged but also its plans to control much of Europe’s natural gas supply — before the pipeline through Greece materialized, Turkey saw itself as a gas gateway through which Iranian and Central Asian gas would reach Europe, a position that would have given it leverage in its long-held desire to be accepted in the European Union. Turkish pride at being trumped by Greeks and Israelis is also at stake.

        Will Turkey resort to force to obtain what it views as its right? Not likely, assuming an incident doesn’t spark an unintended war in the Middle East tinderbox. Last week, the European Parliament issued a press release condemning the Turkish government for its threats against Cyprus, and the previous week U.S. Secretary of State Hilary Clinton and Russian foreign minister Sergey Lavrov warned Turkey to tone down its belligerence. To punctuate the message, Russia also sent two nuclear-powered submarines to the eastern Mediterranean as its way of tamping down Turkish aggression.

        The Turks, for now, are at bay.”

        1. Maju

          Nice to know but Israel is also expendable, mind you. It has more weight because of the ZioLobby but still is just a small worthless state in the middle of nowhere.

          If Greece would be so valuable for the Zionists, they would have bailed it out already anyhow (they do have the means indeed). They have not, so it’s obviously quite expendable.

  9. kris

    I am not greek, neither am I of greek descent. But based on what I know and read:
    Greece + Geopolitical Importance is much more important than European Banks.
    I think the euro banks will lose this battle.

    1. gnk

      I agree with you, and it’s not because I am of Greek descent.

      For the first time ever, the Greek side of the Aegean Sea has been given the green light for hydrocarbon exploration. This is a very big deal. Cyprus and Israel have entered into an agreement to do the same. Turkey is the odd man out.

      As the Middle East continues to boil over, Greece-Cyprus-Israel are the boundaries of the western world. We are entering into resource wars and it surprises me how most people don’t see it. India and China will not be able to grow their economies without Middle East oil. The lines are being drawn.

      From time immemorial Greece has been the western boundary. From Xerxes’ Persian invasion to the recent Russian pipeline deal to Churchill’s balkan deal with Stalin to China’s interest in Greek ports, as well as Gulf Arab states future investment interests – Greece has been the crossroads of Asia, Africa, and Europe. That’s some very valuable geopolitical real estate.

      Greece’s geopolitical relevance is the reason the US and Israel have been lobbying Europe to take it easy on Greece – to make sure it is stable. The Germans see this crisis simply as a morality narrative. But if we recall the first Greek bailout of May 2010, didn’t Germany stick a billion dollar military arms deal to that bailout? The EU has no army and no focused foreign policy. So they see Greece as a way to sell weapons to keep their factories busy. They overlook the geopolitical importance that Israel and the US see.

      1. Maju

        “The EU has no army”…

        It has 20+ armies in fact (I think that there are a few smaller states that lack an army: Luxemburg, Malta) but otherwise… there are some big teeth around if you ask me (and the potential to quickly rush into a much stronger militarization and even nuclear escalation given the circumstances). Just ponder why Argentina has not yet invaded the Malvinas again… (hint: begins with nuclear and ends with submarines).

      2. Maju

        And anyhow I insist that the geopolitical relevance is minor: today’s airplanes can fly from Spain to Iran easily without stops, for example and there’s nothing in Greece that in this aspect that is not in the British chain of Mediterranean basis: Gibraltar, Malta and Cyprus or the US chain of military basis in Spain, Italy, Bulgaria or Kosovo (if you whish to take out Turkey what I believe is nonsense).

        The only reason for the IMF/USA could have to “support” Greece (really?! I do not think it does: it’s France who is playing to balance the field because they have very strong interests there) would be that Goldman Sachs has made a bet (CDS) but that’s not even a serious reason in fact (after all it’s just money: printed coupons and e-notes of convenience and not real stuff like oil or tanks).

        The real reason is that if EU allows Greece to collapse (and it may have no choice ultimately) the whole EU and Eurozone project would become too weak and soluble and it may disintegrate in a matter of months or years. The EU can pass without Greece… but without Portugal? And what about Italy? Spain? France? No flat chance.

        1. gnk

          Sure, those planes can fly from Spain, or even Kosovo. But proximity can not be underestimated:

          “China’s top political advisor Jia Qinglin presented an award here Wednesday to 18 Greeks who helped evacuate 13,185 Chinese nationals from war-plagued Libya in March.

          Jia, chairman of the Chinese People’s Political Consultative Conference (CPPCC) National Committee, spoke highly of the Greek government, the provincial government of Crete in particular, for their timely approval of the evacuation of the Chinese nationals from turmoil-hit Libya via Crete.

          He also thanked all Greek departments concerned as well as the people of Crete for the help and convenience they offered during the evacuation, which he described as a “miracle.”

          I would say that every country in that region of the world (Eastern Med and MENA) has geopolitical relevance, including Turkey. This shouldn’t be a Turkey v. Greece argument, which I am sensing from you.

          The Aegean Sea is also the route one takes to go to the Black Sea; a lot of petroleum is moved in those sea lanes. And should Turkey ever side with China in a future conflict, or even become more extreme, Greece is the West’s insurance. The global powers always like to have choices.

          The EU may have several armies, but there is no unified EU Army. Only NATO, which is a US run organization. Just recall the Libyan intervention – Germany and France were at odds (surprise) over how to handle that.

          The EU has a long way to go. Monetary union is nothing without fiscal and political union. It is merely a currency straightjacket – the equivalent of a restrictive gold standard when the rest of the world is still on a fiat standard.

          1. Maju

            “This shouldn’t be a Turkey v. Greece argument, which I am sensing from you”.

            Not me: I just say that Greece, unlike Turkey, can be ignored. For Greece to defend its air and sea space is very costly (it’s a very scattered country so to say) and needs “imperial” support. I’m sure that Turkey has been used and will be used again to force Greece to bow to imperial designs whatever they are (for example the Turkish invasion of Cyprus was mostly intended to allow Britain to keep its huge military basis, etc.) But, even without the willful help of Turkey, nothing really stands that could impede the USA or even a second tier power like France from invading Crete, Rhodes, all the Ionian and Cyclades and Lesbos and what not. Whatever is needed to control the Aegean almost overnight, as if a new Venice was meddling around and plundering this lousy heir of Byzantium again.

            Anyhow, forget Greece, think Haiti: Haiti is a most strategic state yet it has not only been allowed, even forced, to collapse once and again but it has been invaded and manipulated at will. Think of Greece as the Haiti of Europe, which in some aspects is.

            States of the size of Egypt, Turkey, Iran, Spain, Italy… is another story, a much more serious affair in all aspects. But a small state like Greece…

            “The EU may have several armies, but there is no unified EU Army”.

            Maybe but there is still the old Entente, if we have to judge for what we saw in Libya, where France and Britain essentially ran the show (against Italy and Germany to some extent, mind you)

            “Just recall the Libyan intervention – Germany and France were at odds (surprise) over how to handle that”.

            And France ran the show. The same it did with the DSK affair with the help of its connections in Hollywood, I mean… Washington. But in the Libyan case it was much more striking because it meant that France was acting as in the old times of the Crimea War and the Second Bonapartist Empire, with a little negotiated help from its anglosaxon allies quite interestingly.

            “The EU has a long way to go. Monetary union is nothing without fiscal and political union”.

            Arguable but I’ll just say that the important matter is that the central bank is submitted to the political branch and not the other way around as happens today. Whoever had the idiotic idea of “independent” central banks should be buried in manure until he drowns (because they become dependent on the private banks directly, without any political filter, and this is the catastrophic result).

  10. Because

    Greece itself is not important geopolitically, but it could be the trigger that begins the fall of banking in Europe causing Germany to collapse spreading globally.

    Basically it is implosion of markets on markets. Capital owners and rentier’s would liquidate in mass to preserve their savings while the middle managers and their laborers banks collapse losing most of theirs.

    It would lead toward the greatest contraction in the modern history of market economy. Considering what we consumed cannot be met by what we produce for 3 decades, our consumption will fall considerably, to what we call the poverty line for most people.

    I suspect some western democracy’s will collapse as well overtime into dictatorships. The glory age is over.

    1. Maju

      Yes but I do not think that dictatorships are any viable exit. It is only natural to compare with the 1930s but in fact this crisis is more like the late 18th century in most aspects. Also the Fordist conditions of the 1930s are not here anymore: leaders are systematically distrusted not worshipped, dictatorships are effectively impossible.

      However as the people making the decisions are in many cases quasi-senile and/or really have very limited socio-political formation, they may fall prey to the illusion that they can enforce fascist dictatorships in order to save Capitalism in this hour of its implosion… that is a critical error: they can’t do that in fact, they will fail.

  11. j.grmwd

    If the Greek economy bounces even half as spectacularly as the Argentine did after defaulting and breaking its currency peg then the Euro is finished. How could Portugal, Spain, Ireland etc. ignore the truth when it was staring them right in the face. Perhaps Greece would face the mythical “investor strike” that Argentina never did. Successful resolution of the Greeks problems would be far too embarrassing.

    1. Jim

      Excellent point, j.grmwd.

      If you were the CEO of a multinational and thinking of expanding into southern Europe, and Greece had left the Euro, where would you invest?

      In Spain, Portugal or Italy, knowing that those countries are burdened with a currency that renders them so unproductive that they may have to leave the Eurozne.

      Or post-EZ Greece.

      It’s a no-brainer.

      1. j.grmwd

        Certainly that’s probably why the predicted investor boycott of Argentina never emerged or at least didn’t last long. If there’s money to be made in Greece ultimately investment should flow. And it seems a no-brainer that with an Argentinian style 75% devaluation there will be money to be made. However, the politics of it seems a lot murkier than the Argentinian case. Any Greek success at all would make it abundantly clear to the man on the street that the Euro as constituted now is a weapon of mass destruction.

        1. charles sereno

          Let’s be realistic. Argentina was a net energy exporter. Greece imports all of its $-denominated oil. (A boatload-full of drachmas might barely keep Greek scooters supplied.) Argentina had soybeans China was dying for. Greece has olive oil no one is dying for. Oh, I forgot about the millions of German tourists that flock into Greece. (Germans are prudent. They avoid places where the natives are restive.)

        2. Maju

          Argentina fell on its feet. There were one year and a half of unrest but once Menem was gone and a respectable president (Kirchner) in place instead, within a much more helpful and less demanding Mercosur (in comparison with EU)… Argentina has done pretty well.

          One of the problems of Greece is that, as much of the rest of Europe, it does not have a decent political class with statesmanship level: they are mere managers for the banksters. Another problem is that Germany is demonstrating to be a much worse continental leader than Brazil.

          1. j.grmwd

            I commented below on why I think on the economics alone there’s no reason why Greece can’t be as prosperous as any other small European country, Croatia, or Slovenia for example. But I agree, it needs a political class uninfected by neo-liberal ideals. And Germany has to allow it to happen.

  12. Nathanael

    This isn’t going to happen.

    Something much, much messier and much, much more complicated is going to happen instead. The replacement of the bank-owned Greek government is the crucial first step, and nobody knows how that will happen, but probably by revolution rather than by orderly election.

  13. Chris Rogers

    There is much Greece can do to mitigate against its current fiscal and monetary woes – by far the most important is to stick it to the Troika of the EC, ECB and IMF – and this means both a default and exiting the Euro. The sooner the better in my opinion.

    Having exited the Euro and defaulted completely on its existing sovereign debt obligations, the country can effectively start again with a new flexible currency – obviously, capital controls will have to be put in place and its taxation system completely overhauled.

    Military expenditure will also have to be addressed, together with international alliances and treaty obligations.

    Despite years of animosity towards Turkey, true leadership would entail a ‘Entente Cordial’ with the old enemy, much as the UK and France had to settle years of animosity in the opening years of the 20th Century.

    From a geopolitical perspective, a compact with Turkey would help facilitate Turkey’s entry into the EU – I suggest they avoid the Euro though.

    With the threat of confrontation removed, Greece could concentrate on building up its economy and as a priority would initially focus on tourism and logistics – investment from overseas would follow any such move – particularly given Greece will have the status of an emerging economy with large profits to be had by those not too risk averse – obviously, a property bubble would have to be avoided at all cost.

    Far from Greece being disunited, the current fiscal and monetary demands from the Troika have actually solidified an alliance between the left and right in the country – obviously, should the military see fit to stage a coup, then Greece would be ejected from the EU, which in reality is in no ones interest, including the Greek military.

    Given most of the rich rats, the 1%, have already abandoned Greece by offshoring its wealth elsewhere, the majority of the nation can get on with building a new state free of outside interference – yes, they may be poorer, but better to be poor and free, rather than slaves to unelected bodies intoxicated by neoliberal economic orthodoxy aimed at benefitting a minority at the expense of the majority.

    I wish Greece well and if this facilitates the collapse of the world banking cartel, so much the better for us all.

  14. j.grmwd

    I’m all for being realistic and believe I am being so. We’re not talking about Chad here, or Tajikstan. This is a developed European country and the 37th largest economy in the world. Yet we’re supposed to believe that the prospects for Greece are so terrible that the complete surrender of national sovereignty and permanent indebtedness is the best the country can hope for. What are the supposedly insuperable macroeconomic problems ?
    1) Tax avoidance by the rich — the tax take of the Greek government is just over 30 % of GDP. Low for Europe but comparable to the US for example. The GINI coeefficient is comparable to any other country in Europe and much lower than the UK or the US. Even with the tax avoidance the system is still probably more progressive than the U.S.
    2) Too much bureacracy, too much government — 18 % of the total labour force. Above the OECD average but not unusually high for Europe.
    3) Excessive public sector wages — the wage bill of the Greek public sector represents 12.1% of GDP. Is that excessive ? Hard to say unless you know what you’re getting for the money but 12.1% of GDP going to 18% of the labour force doesn’t immediately sound excessive.
    4) Overgenerous social spending — as a percentage of GDP right on the European average.
    5) Early retirement — there’s has been a lot of talk about hairdressers being given retirement at 50 and the like, but as far as I can tell the effective average retirement age is around 61. This is obviously quite young but if it is a genuine macroeconomic problem then surely it can be fixed without putting the entire country through an endless depression.
    6) Inefficient, uncompetitive industry — in comparison to Germany sure, but before the crisis manufacturing still constituted 18 % of the economy. Not so bad, and sure to become instantly more competitive with devaluation.
    7) Import dependence — Greece is a net exporter of primary produce so the people aren’t going to starve. I believe Greece uses its own brown coal and hydro for most of its power generation. Oil has to be imported for the most part but Greece is hardly the only small country dependent on imported oil. They do have some oil reserves. I’m not sure how much.

    I’m not saying that it will be all sunshine and kittens for Greece in the near future and that the country doesn’t need significant microeconomic reform. Nevertheless, recovery can’t even begin until they fix their one glaring macroeconomic problem –a crazy “gold standard” currency system.

    1. Maju

      I like your analysis. In fact I was a bit surprised to find out that the Greek economy (PPP, 2010) is similar to that of Switzerland (even if Greece is twice the size of Switzerland in population it is still a notable achievement). More directly comparable lands are maybe Hong Kong, Austria, Sweden, Czech Republic…

      However the “gold standard” problem is not one of just Greece but one of the whole Eurozone (except apparently Germany and its clique of Austria and the Netherlands). As such the devaluation of currency should be done at Eurozone level and not just Greek one.

      It is however many years too late and may not be enough anymore.

      1. j.grmwd

        The extreme dysfunctionality of Greece does seem to be a myth. There are obvious problems, but they don’t seem to be of the magnitude to inevitably condemn Greece to poverty if it exits the Euro and starts up some good old-fashioned Keynesian stimulus.
        Agreed that it’s a Euro-zone wide problem. In the end if you’re not a trade surplus country already you’re fate is going to be the same as Greece.

    2. charles sereno

      j.grmwd, my question was about Greece’s oil dependency and trade balance in the event of default. Much of your analysis is well taken but only point 7 begins to address the real macroeconomic problems that would occur in that regard. Argentina’s default, and subsequent survival, is the best model for Greece’s future and, sadly, the bar is set much higher given Greece’s resources.

      1. j.grmwd

        If countries like Croatia, Bulgaria, and Romania can earn enough foreign exchange to keep the cars rolling and the heat on in winter, I honestly don’t see why Greece would have any greater difficulty.

        1. charles sereno

          This winter WAS a test for those countries. With all due respect, Greece cannot be fairly compared to them. I think hard numbers about the two issues I raised are available or can be compiled and are frightening. It’s just that it’s way beyond my pay grade to properly lay them out.

        2. j.grmwd

          I’m sure this winter was a test for those countries. Most of Eastern Europe is under neoliberal government and their own austerity policies. The point is that there are many small energy-importing countries around the world, some successful, some unsuccessful. If in normal times, a country like Croatia can develop its economy without seeing a balance-of-payments crisis, then there’s no reason that Greece can’t do the same.
          There is precedent for the kind of crisis you’re describing so I’m not discounting it totally. I don’t think there are hard numbers to be had. Just assumptions about how much the drachma devalues, how much the cost of rises, how much import substitution results, how much exports increase, how much is foreign direct investment affected. Modeling that is above my paygrade too.

    3. Fiver

      But irrespective of the data (and I’ve seen numbers that are quite a bit “worse” for some of the categories cited)the point is that Greece’s relatively comfortable position and Gini were dependent on a huge, unsustainable debt load. Whatever the numbers actually were over the past decade, they are history, and Greece’s problem is that during that decade its economy was cushioned from the forces of intense global competition. The adjustment is going to be long and painful.

      Corporate-led globalization was and is a disaster for places like Greece (small, no resources, no competitive advantage, no strategic value) and will just get worse going forward.

      1. j.grmwd

        If you’ve seen alternative figures then by all means supply them. I’ll find my sources. You can give yours. And we’ll decide together which source is more reliable.
        The question for me isn’t whether adjustment would be long and painful but whether the adjustment is made more or less painful by staying within the Euro or defaulting and reintroducing its national currency. That applies to all the PIIGS countries. If Greece really were being run like Nigeria maybe handing permanent control of their country over to the bankers would be the least worst option. A lot of commentators have suggested that’s the case. I don’t think it is.

        1. Maju

          The group of peripheral countries you so dearly insist on insulting as non-kosher meatbags constitute almost exactly 40% of the Eurozone citizens.

          Wouldn’t it be better for them if they show some political guts and start directing the Eurozone’s economic policy themselves (at least to some extent). The euro is not the German currency any more that it is that of, say, Italy!

          A lot of people do not seem to get that, neither in London, nor in New York, never mind in Frankfurt. And that is the real problem in fact: confusing the euro with the Deutsche Mark.

          I’m not even commenting in your attack against Nigeria (as if it would not already be run by foreign multinationals, although more like oil companies. Look at Haiti: there you have a country ruled for two centuries (with extremely brief parenthesis at the best) by foreign banksters!

          1. j.grmwd

            PIIGS is just an acronym. No insult intended. We can use GIPSI if you prefer. The Euro ceased to be everyone’s currency when the Northern European banks decided to cut off liquidity to the governments of the south. Now you get your money on German terms or not at all. I’m sorry, but practically speaking that gives Germany economic sovereignty over the GIPSI economies.

          2. Maju

            I do not agree that Germany has the power. IF the peripheral countries had some statesmanship, which they obviously lack, they could easily force Germany to yield.

            They should have certainly battled together and also could forced the banksters to very difficult situations by for example threatening a coordinated bankruptcy within the Eurozone, displacing Germany to the margins (or at least a more proportional role) of decision-making in the EU.

            You just assume that money makes the rules and I just assume that states make the money. So… who controls the states control EU and everything what matters in this discussion.

      2. j.grmwd

        I am assuming in all this that Greece exits the Euro but retains the trade advantages of staying within the EU. If that’s not the case then the country really is going to feel the cold winds of international competition.

  15. andrew hartman

    greece walked into the eurozone with eyes open and then took the money.
    it was voluntary. now they have to pay it back and they would rather not.
    tough shit.

    1. j.grmwd

      Well, in a way you’re right. Greece and in fact all the trade deficit nations could have introduced the present austerity measures the day after they entered the currency union. With much the same result as today. No loans would have been made. And the Euro would have been finished within six months of its inception.
      Germany being a good little mercantilist would need to control the value of its currency in order to maintain export competitiveness. Much as China accumulates $US to prevent appreciation of the yuan, Germany would accumulate lira, francs, drachma etc. to prevent appreciation of the deutschmark.
      The trade flows could be well be exactly the same as today, the difference being that Germany would have no lever to compel other
      countries to commit economic suicide and there would be no morality tale to tell of thrifty Germany and spendthrift Greece.

    2. Poi

      The Banks bought the bonds, voluntarily, taking the risk. Greece can’t pay. Tough shit, you took the risk, you take the loss. Two sides to the transaction. Private sector supposed to be the smart ones, right.

  16. Sufferin' Succotash

    “They hired the money, didn’t they?”–Calvin Coolidge.
    That was during the 1920s.
    Partly as a result of that policy, everyone lived happily ever after, especially during the 30s and 40s.

  17. Nat

    And in anticipation of a rapid devaluation from the 1:340 exchange rate, there’d be a run on banks as people withdraw their cash, knowing it wil be worth far less in a few days/weeks time. Double digit, even triple digit inflation would inevitably result. Households who owe Euro debt will find this devaluation makes repayment impossible and default on thier payments. How much Euro debt is held outside of Greece, I do not know. As far as setting the initial conversion rate to 1:1. This would be meaningless. No one will ever consider the New Drachma to be worth the same as the Euro and the same outcome will result. Something along these lines will take place. There simply isn’t a choice. Greece cannot remain the Euro. This is the type of scenario, hyperinflation, a sharp devaluation once the economy reverts to the Drachma, New Drachma whatever you wish to call it, that Papandreou is warning the Greek parliament about this evening.

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