By Louis Proyect, who has written for Sozialismus (Germany), Science and Society, New Politics, Journal of the History of Economic Thought, Organization and Environment, Cultural Logic, Dark Night Field Notes, Revolutionary History (Great Britain), New Interventions (Great Britain), Canadian Dimension, Revolution Magazine (New Zealand), Swans and Green Left Weekly (Australia). Originally published at Louis Proyect: The Unrepentant Marxist
On July 14th I wrote an article titled “Convert to the drachma–piece of cake. Right…” that was a first take on the difficulties in implementing a Grexit from an IT standpoint. Since then I have tracked down a number of high-level strategic planning documents written in the late 90s that give me a much better handle on what those difficulties amount to. Except for the folks at Naked Capitalism who reposted my original article, there are very few people on the left who have any inkling of the problem. One of them is Robert Urie who alluded to it in a recent CounterPunch article:
A central difference between Argentina and Greece is that ‘all’ that Argentina had to do was to break the peg (fixed currency exchange ratio) with the USD while implementation of the Euro was a massive technological undertaking that replaced the Greek technology and institutions that supported the drachma. In the event of a forced Greek exit recovery of these technologies and institutions would take time that the Greeks don’t have. Breakdown of the supply-chain— the integrated economic relations that together facilitate economic production, causes a cascade effect where once lost, has to be rebuilt from the ground up.
Instead what I have mainly heard is that it is much more of a piece of cake than my article would suggest. For example, Canadian leftist Ken Hanley, who wrote an article titled “The German Grexit plan may have been the lesser of two evils”, commented: “The creditors were able to develop a Grexit plan. Schaeuble even presented a Grexit plan as an alternative to deal and many think that his whole plan was to force a Grexit.” He also referred me to an article by an Australian economist that assured his readers “A Greek exit is not rocket science”. Well, it might not be rocket science but computer science is certainly relevant notwithstanding the economist’s failure to refer to IT once in his article.
The same shortcoming exists in an article that has been embraced by many on the left as a recipe for overcoming austerity. Titled “Greece: Alternatives and Exiting the Eurozone” and written by Eric Toussaint, who works with the Committee to Abolish Third World Debt, it makes very useful recommendations but once again neglects to mention anything about IT.
Now my point in referring to these difficulties was never to support staying in the Eurozone. It was primarily intended to alert the left about the dangers of thinking in terms of short-term solutions. Furthermore, my own position is that Greece’s difficulties have more to do with the underlying economy rather than what currency it uses. Some Marxists, who have been sharply critical of Tsipras, appear to understand what this means. For example, In Defense of Marxism, warned:
Some people have argued that if Greece is pushed out of the Euro this could eventually provide a solution to its economic problems. That is naïve in the extreme, not to say irresponsible. The question would still remain: what kind of an economy, run by whom and on the interests of whom?
Let us assume that the new currency is called the drachma. What will happen to it? It will fall like a stone because nobody will want to hold it. That will cause prices to rise steeply, even hyper-inflation, as in Germany in 1923. People’s savings will be wiped out. There will be a deep slump and even more unemployment.
Moreover, if Greece is forced out of the Euro, it will also find itself out of the European Union. The European bourgeois will not want to see its markets invaded by Greek goods made cheaper by the inevitable fall of the drachma (or whatever other currency is chosen). It will be necessary to take very drastic measures in order to avoid an economic catastrophe. Half measures will be useless. One cannot cure cancer with an aspirin.
I also thought that the Belgian Trotskyists of the LCR-SAP had good advice:
- Leaving the Euro is not a sufficient condition to break with austerity (as the case of Britain proves) but, in the Greek case, for the countries of the periphery and those which are not in the heart of the euro zone, it is clearly a requirement.
- The need to break with the euro does not imply making leaving the euro the central axis of an alternative programme. Even in Greece, where the question arises in a burning and immediate way, the axis of the alternative programme must be the rejection of any austerity and the implementation of social, ecological, anticapitalist and democratic policies, which directly improve the fate of workers, young people, women, the victims of racism, and the peasants.
- To make leaving the euro the axis of the alternative would be to run up unnecessarily against the very generally-held idea that the currency is only “neutral” technical means of allowing trade, whereas it is in fact also the crystallization of a social relationship. To make leaving the euro (or the EU) the axis of the battle would be also to play the game of the hard-line and far right, by spreading the illusion that a harmonious socio-economic-ecological development would be possible within the national framework. This illusion harms internationalist solidarity. However, this is crucial not only for the fight in Greece, but also because the integration of the economies on the continent requires a European anticapitalist perspective to satisfy social needs and to answer the urgent ecological needs.
Before moving on to the technical aspects of a Grexit, I should say a few words about my background. Even though my regular readers know that I worked in IT for 44 years, it might be useful to mention something about my experience.
To start with, before I began working at Columbia University in 1991, most of my work experience was in financial applications. I worked for five different banks: FNB of Boston, Texas Commerce Bank, Irving Trust, United Missouri Bank (where I programmed ATM’s) and Chase Manhattan. I also worked for investment banks: Salomon Brothers and Goldman-Sachs. Finally, in the 21 years I was at Columbia University, most of the time was spent working on the financial system used for purchases, general ledger and the like. Back in 1998, part of my workload over a two year period was to evaluate legacy software to identify changes needed to accommodate the arrival of 2000, a technical challenge that was dwarfed by Eurozone conversion that I will now explain.
The following documents were key to the observations I will be making:
- Daniel O’Leary, “The Impact of the Euro on Information Systems”, Journal of Information Systems Vol. 13, No. 2, Fall 1999. (https://msbfile03.usc.edu/digitalmeasures/doleary/intellcont/Impact%20of%20Euro-1.pdf). I referred to this in my original article.
- Pieter Dekker, “Preparing Information Systems for the Euro”, a sixty page white paper prepared for the European Commission on the Eurozone in September 1997. (http://ec.europa.eu/internal_market/accounting/docs/markt-1997-7038/7038_en.pdf)
- Patrick O’Beirne, “Managing Risk in Euro Currency Conversion”, Cutter IT Journal, 1998 (http://www.sysmod.com/eurorisk.pdf). This is basically a shorter version of the Dekker article above with a useful bibliography referring to other material in this vein.
- Rainer Gimnich, “Analysis and Conversion Tools for Euro Currency Migration”, Workshop on Software Reengineering, May 1999. (http://www.uni-koblenz.de/~ist/RWS99/beitraege/Gimnich.pdf)
To start with, it would be useful to understand what took place in a Y2K migration. In many programs written in the 60s and 70s, when the year 2000 seemed like a long way off, dates were formatted as MMDDYY. This meant if you were trying to establish whether a bond would mature in five years, you’d subtract something like 07/22/67 from 07/22/72 but when 2000 arrived, how could you determine whether 07/22/04 meant 1904 or 2004? The answer was to wade through millions of lines of code and expand MMDDYY to MMDDYYYY.
In a computer program, every field of data is uniquely named. This means searching in a COBOL program for something like “date_today” is pretty simple. But what if a programmer called it dt_today instead? Of course, you might figure out that “dt” means date but some lazy programmer might have written it as “tdy”.
You will have the same problem, of course, with a euro to drachma conversion. Searching for the Greek equivalent of “amount” or “amt” becomes a drain on any IT staff.
A conversion from a local currency to the euro was a whole order of magnitude more difficult when it comes to converting currency amounts, even when they are identified. For nations such as Spain that did not have a decimal based currency like the euro, the rounding became a challenge. Since this did not apply to the drachma, a simple replacement might be in order and that would be the end of it.
However, the big problem was testing for a hard-coded amount parameter as I tried to explain on Naked Capitalism underneath the crossposting of my original article:
For example, there might be tests to see if a customer has sufficient funds to be qualified for a mortgage. A program might conceivably mark it as eligible if there were 10,000 euros in the account. Switching to a drachma might make everybody eligible–not that there’s anything wrong with that obviously–but you can see that this is not a simple matter. Just being able to handle a drachma instead of a euro does not mean that software is meeting expectations. You have to do a BUSINESS analysis, which is the first stage in any systems implementation.
As it turned out, the Gimnich article listed above makes an identical point:
In many cases, amounts are hard-coded in the application programs. For instance, statements of the kind IF amt_1 < 1000 THEN … appear quite often. Here, the threshold value is simply used as a constant in the program: no symbolic constant, no variable declaration, no external amount table read.
Assuming that Greece’s programmers could convert programs to handle the drachma rather than a euro, this would mean that you could start withdrawing a new currency from an ATM on day one. And at the end of the month, you’ll get a bank statement with amounts designated in the new currency with the proper currency symbol, etc. But that’s just the tip of the iceberg. Any bank maintains a history of transactions for all customers that are used for determining loan eligibility, etc. Your account might have the proper data from the day when the drachma conversion took place going forward but what about the ten years or so of prior transaction history which were denominated in euros? A suite of programs would have to be written to manage the conversion of historical data. This is not a minor task since identifying which files contain such data requires plowing through an enormous IT inventory. Since documentation is always given short shrift in the corporate world, expect major technological hiccups or even heart attacks.
The tasks described above are properly administered in an IT department, which is centrally controlled but that’s not the end of it. Ever since the advent of personal computers, there are huge amounts of mission-critical data that are not maintained by the IT staff. The finance department of any modern corporation is overflowing with PC-based spreadsheets that are used for budgeting, etc. All of these spreadsheets will have to be evaluated for their criticality and converted to the drachma if need be. Once again, a major task.
In August 2001, Computerworld, a trade magazine I read for many years before retiring, described the risks facing small and medium sized businesses that had not gotten up to speed on the euro conversion:
Pollard said the unpreparedness of vendors and suppliers won’t create a catastrophe in the European marketplace, but it will cause supply chain slowdowns and force some small and medium-size businesses to revert to using paper invoices, bound ledgers and filing cabinets.
But Noel Hepworth, head of the euro conversion project at the European Federation of Accountants (FEE), an industry trade group in London, said companies that aren’t ready will quickly be forced out of business by large manufacturers that will refuse to deal with them.
Think about what this would mean for Greece as its businesses tried to do the same thing in reverse. This nation has a huge proportion of smaller firms. It will be exactly those that will be forced out of business if they can’t make the cut. If adopting the drachma will lead to a sharp devaluation as all experts predict, those businesses will be rotten ripe for buying up by foreign investors looking to make a killing.
Now in the long run, it might not matter that all these problems lie in store. It is probably the case that leaving the Eurozone is a necessary first step to escaping the clutches of the German bankers, the IMF and all other predatory institutions. But the left does not look good by minimizing the technical challenges.
Most of all, it is worth remembering what Lenin wrote in “State and Revolution”, which is just applicable to a state embarking on an anti-austerity program based on neo-Keynesian principles as it was to the infant USSR:
We are not utopians, we do not “dream” of dispensing at once with all administration, with all subordination. These anarchist dreams, based upon incomprehension of the tasks of the proletarian dictatorship, are totally alien to Marxism, and, as a matter of fact, serve only to postpone the socialist revolution until people are different. No, we want the socialist revolution with people as they are now, with people who cannot dispense with subordination, control, and “foremen and accountants”.
I would only add programmers to the people Lenin identified above.
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Hello. Thank you both, Louis and NC, for providing these articles on this subject.
I confess I am a bit illiterate on this more technical side of the issue and the articles published here helped me grasp some of the difficulties associated with reintroducing, or rather actually replacing, a currency with another, specially in an integrated international payments system (though very compartmentalized if I understood a previous article correctly).
I have a question though. All these articles have centered in the huge task that is changing many many many lines of code in different systems, or the logistics needed to introduce the new bank notes.
My question is this, on the IT front. Is “brute force” the only way to go about it? I mean having an army of IT people to go through all the relevant codes and changing it line by line (replacing euros with drachmas for all payments withing the banking system) ?
I frame the question that way because I remember what went on in Brazil, in the 90’s. A disclaimer: I know the situations are different, I am just asking if the mechanism used in the transition period over there couldn’t be adapted to avoid some of the IT problems in the case of Greece, and give it more time to be implemented.
Context : Between the early 80’s and late 90’s, Brazil had several national currencies. Cruzeiro, Cruzado, cruzado novo, Cruzeiro Real and Real. Every time the change was more nominal than anything, older 10.000Cz notes where stamped as being a 10 note in the new currency (in a 3 years time, 9 zeroes were thus cut off) . Up till that it is of no real interest to this discussion.
But, in the mid 90’s (mind you, I was and still am very critical of the way this was implemented, mostly because of the consequences to the people), prior to introducing the Real, there was a transition period to help curb the inflation (around 40% a month i f i remember correctly). And this is what I would like to know, if it could help with some of the difficulties presented in this article, and in the others, specially ones about card payment systems.
The transition period saw all prices being converted to “URVs” or Real Unit of Value. That price was fixed from that point on. There were no URV bank notes. Never were. But everyday (actually maybe every week, it was 20 years ago, I haven’t had time to look for the details — I can if this point is deemed of interest) , there was a new “exchange rate” or equivalence rate determined between cruzeiro real and URV. Prices in stores as I said were all denominated in URVs, and when you paid for something you would multiply the URV amount into cruzeiros (which were what you would have in bank notes or in your bank account). —- yes the sell of small calculators exploded… specially since the conversion rate was something very handy like 1URV=2047 cruzeiros. And constantly changing.
That went on until the economy “stabilized”, inflation returned to more acceptable levels (due to the equivalent of carpet bombing the economy, with interest rates of brazilian central bank (SELIC in brazil) reaching peaks of 45% for certain months (in 97) — that will slow down any economy, (if not kill it).
So this is what I wondered if it couldn’t be adapted to the greek case, in order to avoid some of the bigger IT problems in going from one currency to another. Couldn’t all electronic payments (international for sure, but maybe also domestic since greece wouldn’t be leaving the euro) remain in euros, which would become de facto its URV, while bank notes would be in a strictly national currency?
Wouldn’t that avoid at least some of the reprogramming issues mentioned for the IT side? international payments, credit card payments would remain in euro, while domestic prices would be “tagged” in drachmas, and converted to euros if if payment is not done in cash (with the added benefit of tourist being able to pay also in euros). It is a convoluted system, but brazil managed to implement it, and the conversion for each operation hardly adds any delay when paying for something. That would allow for a return to euro once the economy stabilized (following some conversion rules, like Eric toussaint imagined, a weaker conversion as the amounts get bigger) or a full going back to drachma, when the systems are ready.
I don’t know however how that would jive with Brussels (this being the facto a dual currency system, though with one being nonconvertible outside of greece), but maybe this should be a later concern, since even the reality of today’s greek economy is not acceptable to them for the time being…
(sorry if not very clear, I tried to keep it short, and english is not my mother tongue, the former probably compounding some of the language issues due to the latter)
It’s a nice idea, that Greece could avoid some of the immediate repercussions of exiting the euro by mapping, if that is the right word, transactions to a sort of proxy currency which would have a notional value but would not actually exist in the form of notes and coins. I think I understand what you’re getting at. It brings up some technical issues about how the euro’s forerunner, the ERM, got “upgraded” into the euro. For a Greek exit from the euro, it will be necessary, from an accounting / leger entry perspective, to revisit this history and unpick it to figure out how to separate any new Greek currency from the euro.
Your idea does actually hark back to the pre euro days when under ERMII there was a “median currency” (http://wdi.umich.edu/files/publications/workingpapers/wp597.pdf page 8). So Greece might introduce its own new currency and classify the euro as “median currency” which is what bank accounts, electronic transaction and so on are denominated in. As you say, drachma cash (notes and coins) could float against the median currency so what you draw out the bank in cash would get recalculated against your current balance in the “median currency” (it would have to be called something like that because, while it was a representation of the account balance in the value of euros, it certainly would not actually be euros). If you want your bank to remit funds outside of Greece, assuming a 1-to-1 parity between the median currency and the euro, that would sort-of work from an ledger entry perspective.
But there is a huge problem with this. Any financial system must possess an essential property, that of finality. Once a transaction has been completed, you need some documentation (and this can itself be held electronically, or issued on paper) which details who has given what to whom, in exchange for what. Absent a significant IT change across many different institutions, all records would continue to state that a transaction had been processed in euros. Now, the Greek government could pass a law saying something like “from MM-DD-YYYY all transactions within Greek jurisdictions are in drachma, any records which are issued from those transactions may shown in the euro currency but they must be considered to have been denominated in drachma and if your bank sends you any documentation mentioning euros, it isn’t really, it is the median currency.” this law would be valid in Greece.
But outside of Greece you cannot remit, say, SWIFT payments in what is then legally as far as Greece is concerned “median currency” but as far as the payments system is concerned are euros. If you as a Greek bank have just told a non-Greek bank via SWIFT that you’ve sent them euros, the non-Greek bank (and their customer) is entitled to euros, not some “median currency” rubbish. It is then that this game of “median currency” smoke-and-mirrors is shown to be the fakery it is, because the Greek banks would not in reality have sufficient “real” euros to back up the payments they were remitting.
Hi Clive. thanks for taking the time to respond.
I omitted parts of my argument because I was afraid it would get too long and would get filtered by some anti-spam thing.
In brazil it was indeed a “fake” currency (the transitory URV). — a bit like the ECU (european currency unit), before it became the euro.
In the hypothesis I was making, and there are many other issues with implementation. But to the specific point you raise, I think there is a miscommunication. The euros would be “real” euros. Up to the moment when or if greece would exit the eurozone (or the eurozone change its ideological foundations, although that is scheduled to happen only when rivers transform to milk and honey…)
Thus the documentation recording the transaction would indeed state that X euros were paid from A to B on some date. Of course, the greek counterpart or the transaction, would pay for example 100 drachmas, which converted would be sent abroad to settle a 100euro transaction (or 50euro given the spectacular devaluation that is bound to happen immediately).
For Brazil it implied having enough reserves in dollars to cover all the money in circulation (paper money I mean), which in turn implied having the highest real interest rates in the world, so that a steady flow of (speculative) “investments” would keep balancing the current account and allowing for the constitution of reserves. That was possible because brazil had control of its central bank.
So Greece would be going back (but it is going to anyway, one way or another) to a third world economy status, under IMF control and with a necessary surveillance of euro reserves. The main goal of this was to avoid having to rewrite all the codes in the payment system. So that international payments would be in euros, therefore using today’s “codes” credit card payments would be in euros. Prices in Greece would not be though. Many payments wouldn’t. that could give the government some leeway. All cash payments would be in the new drachma. As for the bank deposits, I don’t know. They could be kept in euros, but withdraws from it only in drachmas. Or having it be converted, but that would amount to a potentially very important loss the longer the system is kept (in brazil most people lost about 50% of their deposits).
As for your example of swift payments, I would imagine that I make a payment order, for 100€, that amount is taken from my greek bank account, if kept in euros, or the equivalent amount of drachmas if it was converted. the destination (foreign) bank would receive real euros in any case. the only goal would be to give some wiggle room for the government for some payments, and avoid the IT issues by conserving euros as the reference for all international payments and electronic operations within greece.
Not sure if this is any clearer…
Ah, yes, I see. I get what you’re saying.
The problem is, if they are, as you put it very well “real euros”, then it all falls apart because Greece cannot access “real euros” without the ECB permitting ELA support. For URVs, Brazil was a sovereign currency issuer so it could issue as many URVs as it needed (but I do take your point they didn’t want to keep issuing URVs like confetti, that would have defeated the object of what they were trying to do i.e. restore confidence in a currency to fight inflation, that could only be achieved by creating a degree of scarcity in the URVs).
Bottom line is though that Brazil was in control of the URV issuance. Greece is not in control of euro issuance, so treating the euro like some sort of URV takes them back to square one.
But I do think you’re onto something as a concept for reversion to a national currency (a Greek Exit). I agree with you that it will be better achieved through some sort of URV-like device. But it doesn’t take away the pain points for Greece as it isn’t a sovereign currency issuer at the moment so doesn’t have a free hand like Brazil did.
The idea that all deposits would be converted to a new currency is one of the reasons for the bank-run. Why does all deposits have to be converted?
Greece might be a cash economy now, but if they’re given the choice: payment in a new currency using credit/debit cards or no payment at all, then what would they choose? Card-payment or no payment?
The exchange rate problem wasn’t mentioned, I take it that it would be resolved as it is done for all floating currencies: Crappy exchange rates offered by vendors to compensate for currency risk.
If you don’t convert the bank deposits out of euros into, say, drachma, they are (stating the obvious here !) still euros. You can’t tell a deposit holder that you’ve got X-amount of euros in the bank but then say if they want to withdraw them “Gotcha ! these aren’t really euros at all !”
See my earlier comment though about how the Greek government could legislate to the effect that even if transaction and bank records said “euros” it didn’t really mean euros — but how that sleight of hand all falls apart if people try to remit funds outside of the Greek jurisdiction. Greece simply does not, under the ELA strangle-hold, have the euros it needs.
“You can’t tell a deposit holder that you’ve got X-amount of euros. . .” Why not? Can’t you print a disclaimer, like the ones on cigarette packages? Surely, if you got into the new currency, you can back out of it. I really don’t understand the difficulties, but then I do my best to avoid the electronic banking system we are being forced into here in any case. I use cash wherever possible, no credit cards, and as my Whole Foods store doesn’t take checks any longer they have lost my business (such as it was.) I know, it’s all going on anyway, but I resist.
It reminds me of that commercial we used to see about the one person holding up traffic in a busily circulating store of mindless cardholders. How did we get this way? Slow is good, especially for the beating heart.
Like I already said, within Greek jurisdiction, Greece could try and legislate statutory work-arounds. These quickly fall apart once “normal” banking standards start to apply — which is when Greece attempts to maintain its connectivity to the rest of the Global Financial System.
Yep, the deposits would still be euros. The question remains, why does the deposits have to be converted?
If the reason is that Greeks will not under any conditions whatsoever consider using credit/debit-cards then yes, the difficulty of introducing a new currency will be even higher than it could be. The Gordian know of redesigning ATMs etc etc would disappear if Greeks could switch over to credit/debit-cards.
No. The Card Networks (MasterCard, VISA, AmEx etc.) require that merchant records are absolutely precise. Until the card payments infrastructure was updated to correctly denominate transactions in (say) drachma rather than euros, it would be in breach of the Card Networks licence agreements.
You can’t then say “oh, those meenie Card Networks, why can’t they just let Greece off the hook for a while ?” The Card Networks have imposed stringent record keeping and record accuracy requirements for merchants in their licences to protect both themselves and the customers from ambiguity in transactions. Ambiguity in transactions is a welcome mat for fraud and scams. Such recklessness would produce results that would keep our Richard Smith in scam-watch reports for years.
Oh, and the merchants too would eventually pay a price for introducing confusion into their card processing because — also as a licence condition from the Card Networks — the Card Networks can invoke charge-backs to take the money from the merchant where a transaction is legitimately disputed. A customer saying “I agreed to pay this in drachma but the merchant is now charging me euros and I don’t think the amount is what I said I’d pay” is a legitimate dispute.
I’m not sure how your reply relates to my post?
I’ve never even implied that Greece should forego the process of getting a new currency accepted by payment processors or international standards.
As for your last paragraph: Not sure if you understand how multiple currencies are handled. The amount and currency is specified by the merchant at the time of the transaction – to compensate for currency risk the exchange rate is usually very bad for the paying customer. Chargebacks can, and it has happened, be larger than the original amount charged simply due to currency fluctuations.
Then I’m not sure what you’re proposing.
Either Greece stays in the euro. In which case, naturally, bank deposits, card payments and even cash in circulation stays as euros.
But if Greece exits the euro, then all prices in Greece have to legally be marked in, say, drachma. And you can only pay your taxes in drachma. So Greeks will need to conduct a significant proportion of their economic activity in drachma. Unless you are suggesting a cash-only economy, you need to make card payments in drachma. So you need to make IT changes to accommodate drachma denominated transactions. If you’re suggesting that Greeks have a period of dual-running, where they get to maintain both euro and drachma denominated bank accounts, that’s certainly possible but I can’t see why it would help at all with the magnitude of the system changes required. More likely, it complicates them as you need to offer both euro and drachma denominated facilities in parallel.
The Greek government wants to increase their spending. Raising taxes seems not to be an option, borrowing euros seems not to be an option, the option that is left is to do what MMTers want – government pays in IOUs, TANs or whatever they want to call them. The Greek government would be the only guarantor of the value of the IOU or TAN.
By introducing the new currency then the Greek government could increase activity in the domestic economy by government spending. The increased economic activity would then (it is hoped) lead to increased prosperity in Greece. That would be the point of the parallel currency.
I really do not see any problem whatsoever in Greek tax-collectors only acccepting payment in the new currency – that requirement would create the demand for the new currency.
That demand would give the currency its value. But I think it might be wiser to allow taxes to be settled also in euros at a Greek government guaranteed exchange rate. This exchange rate might (most likely would) differ to the market exchange rate.
Euros would have value for other reasons – like international trade i.e imports.
In short, an added parallel currency could in theory help Greece.
Have a look at the difficulties that are no longer by adding a currency instead of replacing a currency. Integrity of historical records as an example?
Which is easier? Having two currencies in parallel or redenominating everything into a new currency?
Actually, some conversions should be fairly easy as most core banking systems specify what the native currency is. So for playing devil’s advocate here, you pick a weekend and flip the currency code from EUR to GRD (Greece Drachma) and from that day forward you are transacting in Drachma.
Now comes the fun part-going after history. Do you reprice the history strored on your deposits and savings into the new GRD currency or leave them in EUR’s?
Also, when Greece did the switchover, there had to be plans on how to convert from drachma’s to Euros. Certainly there has to be many project plans hidden in people’s desk’s or stored away in some electronic media that can be flipped backwards and used the last task as the first task for a EUR to GRD conversion.
For reasons that have been explained here, corruption is a severe hobble on the economy of Greece. The working people and small businesses have become used to using cash.
Banks have dispersed the pensioners money, meaning that the government has to have money supplied in the form of taxes neither the workers or finance want to pay.
Finance, as the more dominant business of today wants to collect, regardless of risks taken on as if the EU would step in and reinsure their risks as was the case in the US collapse when the reinsurer was reinsured by the people of the United States.
Being the EU is more about the currency as a symbol than any real United Europe there are reasons to see this Grexit potentially as the end of the experiment.
Is it possible that a change in the currency would give the workers and small businesses an opportunity to reduce the corruption that plagues the nation?
I know that Future Tax Credits were discussed as one possible new currency, and that solution seemed somehow of little psychological appeal.
I posited that my own currency formed to bridge the gap between reality and fantasy as Transcendia becomes seen as a spawn of governance gone before, looks to me to be superior for creating good reasons for the majority to feel loyal to the nation. Of course it is my idea, and I am not so unawares of my own bias.
I am aware that for Transcendia, creating things from the get go when corruption has not become entrenched is relatively easier, means the Insurodollar becomes attractive if applied to Greece’s difficulties in a manner that cuts down on the perpetuating cycle of corruption caused by rational observance of abuses of the power to hire into a nepotistic system as if the government was a criminal enterprise and once hired the bureaucrat became “made” and drifted in their jobs until given fine pensions and early retirements.
What if in fact my Insurodollar was built up within the nation as bail out money was used to prevent more financial pain to those who would bring down unacceptable ruin as they lashed out and collapsed due to their fantasy till the end play at acting as if Greece were not as corrupt as it is? While corrupt business practices matter, they do not matter to the people as much as a corrupt government. When the money stops being given to those who are supposed to work for the government, but just get a paycheck enabling them to take it easy at working peoples expense, this is corruption corrected.
Now for those new to the Insurodollar it is the shared equity for the foundation of the bank insurance company used as the basis of the currency. Ideally it is purchased by the government for all citizens at birth, and then otherwise given at buy in to immigrants.
The Netherlands is well positioned to transition to the Insurodollar. It is recognized as a good thing in the Netherlands to expect the government to take care of its citizens. The people of the Netherlands are reputed to feel very well about their nation, not known for high levels of tax avoidance or corruption. Many were all too willing to become citizens, but that was cut out for the moochers when they were required to know the Dutch language.
It is often said that the banks have all the money, when in fact it is the insurance companies that have the most and then from whatever they insure out flows to banks money for financial instruments. The US corruption was and may well continue to be Insurance companies that continue to insure flawed financial instruments.
Where are the Insurance companies of Greece? I have some ideas, but you get my point I believe by now. The question being again: Does Greece have an opportunity on its own through use of the Insurodollar to internally strengthen, advance loyalty to it as a nation of its own, and use influxes of bail out to service enough to skate through to health by arranging itself in pursuit of the elimination of its corruption within the government?
I really can’t believe that peope write programs that contain hard-coded data that cannot be configured, i.e. via xml? That’s the first thing I’d do to avoid such compatibility problems.
Believe it. Hard coded “variables”, data written in amongst the code, redundant / obsoletely libraries still checked into the live mainline, languages that most of the people who ever knew them are either retired or approaching retirement, hardware-specific hacks in code or hardware dependencies such as licence “dongles”. You’d be amazed and appalled. All these and more are lurking in payment and ledger systems which you rely on probably on a daily basis.
That’s almost a best case scenario. Lets say there were a few conditions where specific values would apply. 10000, 15000, or 23000 and based on some parameters you had to chose the correct “constant” to compare against so you stick those in a nice little XML file. You later need to change the currency so you change the base in the xml file based on exchange rate and think you are done.
But what what if that constant you are comparing to really is supposed to be in Euros. Instead of using a constant you should have been using the current exchange rate or something like that. The internal algorithm used has to be evaluated for every modification, turning what looks like a simple problem into a nightmare.
Well, the development was contracted out under a fixed price fixed scope contract and the specification said <10,000. it did not specify that the value had to be changeable easily in the future. SO, the easiest and fastest way that makes the contractor the most money is to simply hardcode the value from the spec. Even better hard coding the value means if the client wants to change the value they wil have to pay some one to do it and that some one is probably the contractor.
if (x > 1000) {/* pray to heaven above this never sees a code review at least until Goldman Sachs snaps me up for “bigger things.” … */}
Of course most developers have seen the above somewhere along the way if only in their encounters with the Bloom County closet monster late at night, or, horrors, in proof of concept code by (shhh) their own hand. Legacy and rush code is one thing, and bad enough, but I still see tying the whole thing together with many external (black box) points of other software packages and testing the whole thing out applying ACID criteria to transactions (shiver…) and then applying some volume -scale (heh, heh, heh), and then testing fail over (serious sh*t), and then going live (ha,ha,ha,ha,ha – whee!!!!!!!!!!!!!!!!!!! Go ahead -fire us all!) as the biggest overall technical hurdle.
Of course I have no idea how much of the heavy CS stuff, such as transactional integrity, is already handled by the “network” layer Clive described in an earlier post or by existing frameworks required by international standards. One has to assume we have made some progress since the days of programming by switching the wires around in the back of the room sized machine.
Just so there is no doubt, I see absolutely nothing but horrible, frightening hurdles in the technical aspects of making a conversion even if I am somewhat taken aback by some of the issues raised such as actually having to deal with legacy code going back to COBAL.
The last sentence could should be modified: “… making a conversion under extreme duress (as would be the case for Greece)…”
If given enough time and money, and cooperation from external dependencies, and decent dedicated code heads and good protective management and Disneyland thrown in then indeed the difficulty of conversion is reduced to simply: a very difficult piece-o-cake.
Many of the same IT arguments could have been made in advance of Greece (and all the other euro nations) leaving their respective sovereign currencies and adopting the euro. In fact, considering it was many nations, and not just one, the problems would have been greater.
But leave they did.
And remember all the IT scare stories about the change to year 2000? Somehow, the world did not collapse as so many IT people predicted it would.
One can make any process seem impossible, merely by listing steps, i.e.:
To hit a baseball, one must simultaneously coordinate:
1. View ball
2. Move left foot forward an exact amount
3. Grasp bat, not too tightly, not too loosely
4. Move left arm outward while moving right arm inward
5. Turn head toward ball while each eye remains aimed toward ball
And on and on and on.
Considering all the muscle movements necessary, it is impossible to hit a baseball — by IT standards.
Bottom line: Leaving the euro would be the best thing that could happen to Greece, if their leadership simply prevents excessive inflation by issuing bonds offering a high interest rate. See: http://goo.gl/q2zmRW
Really really bad examples. Yes Europe converted to the Euro, but not under anything like the time constraints, the financial constraints, the political constraints, to name but a few, that Greece would be under.
Y2K DID present a huge number of challenges and if you read the post, you should have noticed a couple. A lot of people spent a lot of time on that (years) and had they not, YES we would have had much much bigger problems.
Baseball analogy is pathetic. No one is describing a small repetitive task in such detail as to falsify the actual difficulty.
Get a clue.
And in point of fact, it took nature as much as 20 million years to figure out “hitting a baseball.” Compare that to the time Greece would have.
Let me try to assess your comment and the one you responded to.
The (very cogent) argument put forth by Louis Proyect is that the extent and magnitude of the many technical (mainly IT) difficulties involved in migrating from EUR to GRD can be estimated from those historical ones in migrating from national currencies to EUR.
It is correct that the political and time constraints would not be comparable in both situations.
However, that historical migration took place — without catastrophic economic or financial disruptions.
So, the argument by Louis Proyect is incomplete without an (ex-post) assessment of
a) How much time and resources did the migration from national currencies to EUR actually take? Does anybody have references to experience reports from countries (central banks), financial institutions or large firms?
b) How did those dire predictions in the August 2001 issue from Computerworld pan out? Is there any documented assessment of the actual “mortality” of SME due to the incapacity to migrate to the EUR?
c) An assumption is that most difficulties stem from retro-fitting legacy systems to new requirements (whether EUR or Y2K). How much, historically, did that happen vs. banks and other organizations taking advantage of the situation to renovate their core IT thoroughly — by dumping the old system and installing a new one (thinks like SAP or Temenos), even running them in parallel till switchover?
It is incontrovertible that changing from EUR to GRD could not happen smoothly in a fortnight, nor in 3 months, nor probably in 12, and it would possibly be the straw that breaks the back of some of those thoroughly rotten Greek banks.
However just stating that this is a huge, complex project with lots of technical failure points is insufficient — we know that such a project has been carried out successfully, in several countries. This includes other major currency reforms in Europe such as the Eastern German Mark to Western German Mark conversion, or in other countries around the world. After all, even impoverished African countries migrated to the Franc CFA without collapsing overnight, so there must be considerable IT and organizational know-how in those matters worldwide. Actually, this is a question d): who has this know-how?
What is necessary is to have a quantitative evaluation of how much time, effort and resources have been historically required for it. For Greece will probably have to leave the Eurozone — either expelled by irate “partners”, or to save itself from economic annihilation through further “bail-outs”. Without such figures, discussing the Grexit will remain a fairly abstract dispute between economic arguments pro on the one side against technical arguments contra on the other.
The migration from to the Euro took ten years of planning and three years of execution. We’ve stated that repeatedly and you can easily find that on Google. I suggest that you also use Google to find cost estimates. Please read our Policies regarding assignments. Asking us to provide you with more information that you can find on your own is an assignment and against our comments policy.
Having said that, you are arguing that economic issues and technology issues are independent. They most assuredly are not. The reason that Greece is not going the Grexit route is that as terrible as austerity is, the cost of not having a functioning payment systems for well over a year and not having new currency distributed by then either (and these are bare minimum estimate) would utterly destroy the Greek economy. If what the Eurocrats are doing is tantamount to having an arm cut off, a Grexit is akin to having both legs amputated…..and being at real risk of bleeding to death. Greece would almost certainly become a failed state in that scenario.
I get all too many project sponsors coming to me* saying how they’ve had this great idea, it is so strait-forward, will only need some very simple changes, where they used to work the IT department could do it in a weekly release slot, they are confident that it can be done in very little time and cost about five pence.
Being as kindly as I can in the face of their naive optimism, I usually have to explain why if they do it quick and cheap then it’s bad (like they want to launch a new product sold through an online channel but they have quite forgotten that sometimes the same customers might then go into a branch and ask to service that product so the branch systems need to know about it too, or that customers can start off quite happily making an online application but then get a bit stuck and want to phone up and speak to a call centre agent about it, so telephony needs to be able to see what the customer is seeing too — so you can’t simply change one thing without impacting others) and if they want to do it properly, it isn’t quick or cheap but time consuming and expensive.
Most of the time, when presented with the facts they listen and have a rethink. On occasions, they make some noise and, in the interim, get their way and a project is initiated which is woefully short of budget and dreadfully optimistic in terms of time. If the exec is really dumb, they may compound their error by baking in the positive P&L Impact they are hoping for into their forecasts. It is career suicide. Most who aspire to the c-suite learn quickly, but there’s always apparently a fresh crop of numpties coming in through the head office revolving door.
Not wishing without knowing you better to characterise you with the “numpty” tag, have you ever actually worked on a complex change (or even some fairly standard change) in a major financial institution? If not, then obviously your qualifications to comment are a little lacking. If so, was it all a walk in the park, all the time? Was it really done in a few weeks or so, or even in a few months, end-to-end? If there were problems, were they just caused because people didn’t believe enough? Or was it due to some more practical constraints?
* actually, a few less than there used to be now that the fashionable fad for employing U.S. execs for their “can do” attitude before the Global Financial Crisis because, erm, it really didn’t work out awfully well; this “anything is possible if you just try hard enough” mentality does seem to be a peculiarly American trait. But I am generalising horribly and that’s a discussion for another time.
Thanks for another informative article. To my mind, this and the pieces like it such as the one on french/german banks from yesterday are important because it’s crucial to have your facts straight. My sense here in particular is that the devaluation will lead to plunder by the usual suspects, still a very dark situation that doesn’t need a bunch of false hope heaped upon it. Thanks for the inconvenient clarity
Greece has been effectively destroyed as a country and will not recover within the Eurozone, so whatever costs and time it might require to exit are both worth it and irrelevant. An exit is the only means to recover.
However, an exit alone will not cause a recovery. It must also be accompanied by a realization and use of the power that a sovereign currency gives a country to promote the general welfare. This realization does not currently exist in most countries which have a sovereign currency. Note the UK and the US. So the prognosis is poor, exit or no.
The Australian economist referred to above is one of the few who fully understand the situation and interested readers who want to learn more would benefit by reading his analyses.
I’m with Clive here on the IT difficulties. What many of you “it’s easy” people fail to understand is that mainframe programming is nothing like today’s coding. COBOL, PL/I etc. do not support modern concepts like objects, polymorphism or anything else. Think assembly language with nicer mnemonics. XML ? Hah, there is virtually no such thing for the mainframe. There’s no git, no mercurial etc. Virtually none of the tools that exist for Wintel/Linux are available to mainframers.
In large organizations there are hugely cumbersome change management processes. Where I am, a simple code change might take a minimum of eight weeks to deploy, and we only have a dozen systems. Actual application changes like envisioned here would take at least six to twelve months for coding and testing, and then another four months for deployment. For large banks, I would expect the timeframes to be even longer because the systems are so critical.
Anyone who says it’s trivial simply has zero knowledge of the large systems environment.
Excellent informative, well balanced post; good follow-on to yesterday’s superb explanation of who actually got the Greek bailout money.
The Lenin quote was particularly apropos. One of the commentators here related recently how his despairing brother had told that “the Right are Evil but the Left are Incompetent”. If our descendants are not to live as serfs in a new Dark Age of Neo-Feudalism, that must change.
Left critique must be intellectually rigorous and technically sound; you consistently provide both – Thank You.
I’m sure there are a few out there, but I haven’t seen many comments (especially outside of comment threads) to the effect that leaving the Euro would be easy, only that it would be worth it despite the immense challenges and short term pain involved.
I agree that minimizing the challenges is irresponsible, but I think maximizing the challenges so that it seems (virtually) impossible is also irresponsible and more damaging, since it is this view, and fear of the unknown, that keeps Greece trapped in their current hell with no way out.
The key point missing in the analysis I’ve seen here is the recognition of the difference between a standard bank (large corporate) project effort and a critical, no holds barred, project. My experience* is that the project expands or contracts to fill the time and resources available, and if there is no time and the project is critical (and there is a big competitive advantage to getting it done first (or at least, not last), it is amazing what can be accomplished in a short period of time, with shortcuts and workarounds and duct tape and whatever else is required to make the damn thing work for at least 80% of the cases needed.
Plus. I can’t speak for every institution, but all the ones I’ve encountered have a table driven currency code system which would be (relatively) straight-forward to update (and I’m talking institutions running 20+ year old cobol based green screen mainframe/as400 systems).
So, extremely challenging and painful? Yes.
Requires as much planning and preparation as possible given the circumstances? Yes.
Doable? Yes
Worth doing given the situation? Absolutely.
I’m sure Lenin, were he around today, would acknowledge the need for programmers in the new regime, but I find it hard to imagine he would call the revolution off because he was worried about changing some program code.
There is a valid point made there. Above a certain size, for any organisation in general — and this applies to a financial institution especially — you get diseconomies of scale. Naked Capitalism has published several features (e.g. http://www.nakedcapitalism.com/2012/09/robert-jenkins-puncturing-bankers-myths.html ) detailing how big banks are not smart or effective banks. And even outside of the finance industry, bigger sized organisations means bigger opportunities for bureaucracy to grow unchecked. Busy work abounds.
But in seeking to remedy the problem — and also identify why it won’t magically be fixed across the entire industry just because Greece needs, in the minds of those observing from outside the management of large financial institutions, to be given some “help” in any migration from the euro back to a sovereign currency of its own — you have to appreciate why things are the way they are and why they won’t be changing any time soon.
The cost and complexity of implementing IT changes in large financial firms (and even smaller ones too) has two components: necessary impediments (things like legitimate planning and design activities, analysing and ensuring compliance with mandatory standards, version control, testing, capacity planning and so on) and unnecessary impediments (overly bureaucratic decision making, lack of empowerment in people who could make decisions but are unable to do so, “slippery desk syndrome” where those who are empowered to make decisions do not do so because it is easier to stall and similar phenomena).
You cannot, unless you’re foolish and have too wide a risk-tolerance for what are mission-critical systems, get away from the first set of impediments. These are entirely justified. The time taken to complete those kinds of tasks is the time it takes. Skipping them to “speed up progress” costs you more time in the long run and increases the risk of failure. As I tend to phrase it “we didn’t have enough time to do it correctly, but we certainly had sufficient time to fix it when it failed horribly”.
But in seeking to remedy the second set of impediments, you have to appreciate why they are there in first place. They did not occur at random. They are unintentional consequences of how modern management has evolved in many organisations. So much of how people get organised in the modern workplace is a distorted, corrupted chimera of Taylorism https://en.wikipedia.org/wiki/Scientific_management . A sort of Taylorism on steroids. What c-level executives think they want is employees with narrow spans of control, extreme subdivision of skills and highly procedure-alised job descriptions which preclude individual responsibility. From this marvellous vision they imagine they will get cheap, pliable and ultimately dispensable employees. This goal is in part achieved. But the cost is in organisational rigidity, slow decision making because the people who have the knowledge don’t have the authority and the people (a now very small group) who have the authority don’t have the knowledge, and multiple hand-offs being needed as work packages are passed between individuals and teams. I haven’t even got to outsourcing yet. Anyone involved in the IT industry knows that, when supply of IT services is outsourced, the amount of effort required to supply to the outsourcer a detailed description of what they are required to do, receive a quotation back from the outsourcer, spot any padding in the estimate, argue about the costs, then finally agree to authorising the work increases out of all proportion to amount of effort required if IT is done in-house. But I cannot think of any large or medium sized financial services provider who does not outsource their IT operations either in whole or in part.
Yes, it is sub-optimal. But reversing it would require workers to be given greater autonomy and empowerment. Note that last word and break it down — workers would have to be given more power, to a degree. That concept is an anathema to the leaders of a great many organisations in our culture today. There is a lot of puzzlement in economist circles about declining productivity such as detailed here http://ftalphaville.ft.com/tag/productivity but for those of us who, like yourself perhaps, actually have to try and achieve outputs in the modern workplace the reasons behind it are all too obvious.
Greek banks may have sufficient motivation to sweep away the sclerosis inherent in how big companies have ended up managing themselves. But they cannot simply wave away the tasks which are valid in any system change — crucial design, build and test work. And for banks and other parts of the global financial system outside of Greece, these too will have to go through the unavoidable aspects of implementing change. And they aren’t about to re-engineer their workplaces to become models of worker empowerment just because Greece needs a favour.
Can anybody point me to an animated gif of waving hands? Asking for a friend.
When you want the best, go straight to the top
http://media.giphy.com/media/5xtDarHUvpLNO2pHxXW/giphy.gif
http://pixel.nymag.com/content/dam/custom/images/2012/06/queenelizabeth70s.gif
Like the Queen?
https://m.youtube.com/watch?v=8oLr8v5ShMc
http://giphy.com/gifs/british-queen-elizabeth-waving-5xtDarHUvpLNO2pHxXW
Or not?
http://www.reactiongifs.com/wp-content/uploads/2013/05/bear-wave.gif
That’s a pretty awesome critique of the head-in-sand wing of leftistism. Why anyone (rooted in the real world) would suggest converting to the drachma (or floating TANs/other IOUs as if they are a long term solution) as a first order solution is beyond comprehension. The debts are in euros, not drachma or TANs.
That’s what you keep in your back pocket as a response option if renouncing debt results in an essentially war-like blockade from a vindictive euro zone (and USUK)*. Short of war, you simply keep using euros until a new national currency is fully operational. If the Germans invade Greece, there are other things to worry about than payments systems.
Which of course suggests that the actual policy option – renounce debt, raise taxes, or cut wasteful spending – is a choice to which many intellectuals do not want to commit on a particular side. Austerity is bad, so we can’t tax the rich. Voila, righteous indignation with no specific policy alternative.
*of course, there’s no indication whatsoever the eurozone would be vindictive. Quite the contrary, it would likely be an amicable parting.
Great article and thanks for it. Another illustration of ‘Devil in the Detail’. A few years ago I encountered a former colleague, now ‘bright young thing’. In exchanging pleasantries he commented in a patronizing way that I had a reputation as a ‘details person’. Even since I have worn this insult with pride.
Unfortunately ‘strategically minded people’ on the left, right and green too often seem to not appreciate how often details can bring a glorious ideological system undone and if numbers dont add up their ideologies likely will fail – not so much in the short term if say a system has been designed well or sufficient for medium term stability but in the long term as the contradictions and implications of the detail surface.
So it is perversely fascinating to watch how the people of Europe and Greece especially are increasingly locked into a dysfunctional economic system by the short term impacts of trying to correct these and extricate themselves from the growing confusion.
But worse is watching how the economic logic of growth and curent resource exploitation systems has led us to the verge of destroying our home through climate change and other impacts because short term priorities dominate longer terms ones and to change things for the better would require many detailed changes which seem logistically impossible – so we fall back on the very system that brought us to this impasse – capitalism.
What is missing in this discussion is what this does to the Greek Negotiating Position. Naked Capitalism has been at the forefront of reporting how the Troika has destroyed democracy in Europe. But just as Greek voters rejected austerity and then had their government plead for an even worse deal than was being proposed before. Just as debts that cannot be paid will not be paid a threat to leave without a plan to leave means you will not leave. That is where this discussion goes.
What is being discussed is making sure that whatever policy Greece enacts must interact with existing systems in a manner that these systems are accustomed to. This was the whole rational behind TARP and Quantitative Easing, making sure that whatever policy initiatives must interact in manners that the existing banks are accustomed to which meant that those who created the crisis of 2007-08 would be in charge after that crises.
Start over with no legacy code issues and let the only interactions between the new Greek Currency and other Currencies be through a trading window. Open a Greek National Bank that gives every Greek citizen an electronic account of 100 Drachmas. Issue a Greek Citizen’s Dividend of 1 Drachma per Day. Tax all the accounts at 1% per day to pay for the dividend. Put in a 5% transaction fee which will be split between the Operators of the System and the Government.
All that is needed to improve the Greek Negotiating Position would be to start seriously discussing options that do not leave the same people in charge.
You can’t assume away existing positions. Your “start with no legacy code issues” is tantamount to “assume that a city with only one water main into town and no other source of potable water will have no problems when it or its enemy blows up the water main.” You are simply trying to assume away a fundamental issue. That’s handwaving. It does not help the left and it most certainly does not help Greece.
People who casually assume that a Grexit is preferable to what is happening in Greece now are assuming total stupidity on the part of the Greek government. Why would Syriza repudiate both its own repeatedly stated red line positions and overwhelming support from the public for defiance of the creditors? Because a mere first pass look (which is all they’ve had the time and resources to do) at a Grexit has convinced them that it’s clearly, demonstrably worse than even the horrible creditor offer.
Readers seem utterly unwilling and unable to grasp that conditions will rapidly become worse with a Grexit, and will not get better for easily a decade. A Grexit will destroy Greece’s tourism industry and lead to famine unless the EU intervenes (they probably would since a famine in Europe would make them look really bad). So what would Greece have achieved if it imposes even more misery on its citizens, becomes a failed state, and has its citizens’ welfare depend entirely on the willingness and ability of the EU to intervene? Greece becomes a European dependency and an even worse off one than wearing the creditor ball and chain.
Readers keep wanting to find a win for Greece here. That is the province of Disney movies. Greece is in the worst sort of lose-lose position.
I see your point and the points of the post about the difficulties of the situation in which Greece would find themselves if a Grexit occurs. But find themselves in that position they may. The death by a thousand cuts that is occurring now will also add up.
By no legacy code what I was talking about was a payment system that would not tie into the existing world network. It would not work for many things that are now taken for granted, but neither will the limbo in which Greek finds itself. What I am talking about is a system in which Greek could trade with Greek on a rational and ongoing basis in which the parameters are reasonable expectations of what their position will be Greek to Greek.
There will be no win for Greece. We are still in a world economic network that is, according to frequent contributor Bill Black, is run by looters. The European and American banking establishments are in a worse situation than they were in in 2007. At some point the putridness of the system that Greece is working hard to rejoin will call for some other action.
I guess the one silver lining is that if Greek gets back into the world system and it all collapses again they will be in the same boat as everyone else and emergency measures could be instituted.
Michael Hudson has talked about the importance of clean slates historically, of wiping the whole debt clear and starting over. Sure sounds to me that the precarious position that Greece finds itself in is an opportunity for something different.
The problem is that a within-Greece-only system does not do much good. Consider the problems mentioned in the article. As we discussed in an earlier post, if you are cut off from international payment systems, you can kiss Greece’s tourist industry, along with food, petroleum, and pharma imports goodbye. That will have a catastrophic impact on the economy. Ten days of that (via the bank holiday) and the government repudiated the referendum.
Moreover, still would need to integrate with existing records, like mortgages and debit and credit card accounts. So you still have the work of integrating with legacy systems. You really can’t get past that.
Thanks for the response. I really am trying to stay on topic and I understand your difficulty in responding to arguments on things that are basically settled.
I am an American Expat living in Mexico, my connection is through ATMs mostly at banks but also in other retail establishments.
If the Greek Government could offer an opportunity to private entities to create and operate an independent ATM network that would issue cash in a reinstituted Drachma or in the currency of choice of the customer. Their back end would just be the foreign accounts of the private companies that are operating the ATMs. They can get their money in their home currency or have it changed to the floating rate with the Drachma.
The banks must be circumvented or they must be obeyed, those are the current choices. Create a business model in which money can be made and the market will solve the problems.
Just as check cashing services and non conventional loan companies have rushed to fill niches that banks do not serve, the same would be true in Greece.
Or not. Again thanks for all your efforts. I sense that you are looking for real solutions for the Greek People, I hope I can add something. I will drop this line if you feel there is no value in it.
Bill Mitchell’s reply
http://bilbo.economicoutlook.net/blog/?p=31420#more-31420
He has fired another, er, salvo:
‘I had a discussion today with a good friend who owns a significant private firm in Europe which is at the forefront of delivering innovative card payment services to banks and corporations throughout the Eurozone. He is an expert in IT solutions, has one of the best understandings of the technical structure of the financial system and the computer systems that support it. That is how he makes his living. He offered the following short additions to my blog. His knowledge is impeccable and his insights valuable… why is Naked Capitalism supported those who clearly haven’t the first-hand knowledge and are using literature to make their case which is old (1999) and written to cover a different situation entirely?’
Paging Clive!
“Innovative card payments services” are almost guaranteed to be front end. They do not circumvent the architecture we’ve been discussing.
It’s really frustrating to deal with people who don’t know what they don’t know and are noisy to boot.
The point which he fails to grasp is that all that 1999 and earlier crap is still there in all financial services firms of any size. Everyone talks about getting rid of legacy systems and no one does it, or at most they chip away at some odd corners.
Whenever I hear “forefront of delivering innovative” in anything it tech, it’s almost always vaporware or in the early launch phase, with no certainty that it will actually get meaningful acceptance. The fact that the identity of this supposed super expert and his firm name is kept secret raises doubts.
Yes. To quote Louis via e-mail, “So much was wrong in his piece I hardly know where to begin.”
The rules of engagement in blogging are that we will reply with our own post. We are shooting for Monday but it might be Tuesday.
As a daily reader of Naked Capitalism and billy blog, I am truly looking forward to that post. Yves, your analysis of the ongoing Greek situation has been spot on from the beginning, and most thorough. However, I have wondered how you and Bill Mitchell end up with such vast differences in your analyses concerning Grexit, given that you are coming from the same macroeconomic POV, i,e., MMT.
Now that Clive and Louis have dug down into the weeds with the IT issues (which I find fascinating), your analysis of Grexit has taken an upper hand in my thinking, so I am glad to see you and Bill engaging on this issue. (However, you could both drop the references to ignorance.)
I’ve commented on the original article at Bilbo, if it is released from moderation, I’ll cross post a link to it here.
discooperationalism…bilbo and everyone else is forgetting that everyone from lithuania to brazil to the euro conversion had willing partners and parties on the other side…the ecb and the ratings agencies have forced a capital strike on greece…
the german myth(paging jans from rwanda) is the ecb does not finance govts…
total bunk…prime brokerage operations require banks being able to use govt securities for capital access purposes and to use for liquidity…
no one is going to “or can” make a market in greek debt while jans and muti hold greece hostage by playing the game of using georgaki and company like they did in october of 2009…
there are many things greece could do technically on paper, but many world series were won in march by teams that ended up being traded away in july…
if the ecb is not cooperating now in helping to make a market for greek govt instruments…why does anyone think there is any way to introduce a new draxma…
there are three forms of oppression…
physical
(meaning army/police)
mental
(though shall or shall not be forced to watch duck dynasty and the donald show…and good girls where a burkha…and the guy in the wheelchair is better than the guy on the motorcycle…and you heathens better come to church, or walk your newled wed bride around the room with a leash…or not eat pork…or forget to prey to jerusalem or mecca)
economic
(though shalt prey 8 times a day on a mat to frankfurt…gold…yes we have gold in the castle…trust us…oh you don’t trust us…you want to see it…well then we will just have to show you where we keep it…yes right down these steps…oh theses people down here…they also are here to see the gold…dungeon…goodness no…oh that was your old friend ralph who went missing a few months ago…well we have a lot of gold and it just takes alot of time to count it…enjoy your stay)
Introducing the euro system is a much more complex task than simply switching to a new currency.
Every country in the eurozone has been able to adopt the euro.
But, if any such country wants to adopt a different currency then all of a sudden the same task becomes nearly impossible?
It’s certainly not a quick matter but it’s no harder than it was adopting the euro. You have the experience now. Even more, there are well established procedures as so many countries did this recently.
*Sigh*
This is not a matter of “procedures”. It’s a matter of having to inspect billions of lines of code.
And the Euro was introduced in 1999. There have been lots of new programs that have been added since then, all of which need to be checked for dependencies. The task at any institution is larger now than it was then by virtue of the codebase being bigger and more complex.
No IT expert I, but I think of my experience in Greece’s next door neighbor, Turkey, where it has been normal for decades for those of the middle class on up to have one bank account denominated in Euro or USD (and once upon a time, DM) and another in Lira, as a reaction to the hyperinflation of the late 1980s and 1990s. Many ATMs, at least in big cities, are likewise configured to dispense all three currencies. In the tourism industry, a hotelier will often charge you directly in EUR, which are then deposited in the hotel’s EUR-denominated account. In effect, the country operates on several currencies at once, at least in certain sectors. Likewise, I understand that some mortgages are denominated in USD or EUR and paid from accounts denominated in those currencies.
A number of Clive’s comments imply that it is difficult for banks to accept payments in multiple currencies, though obviously Turkish banks have sorted how to create parallel code systems that accomplish this, notwithstanding COBOL or other funky old programming languages. Without in any way minimizing the cogent arguments on the difficulty of Grexit presented here, nor the expertise of their authors, I wonder if Mr. Proyect, Clive, or any other interested commenters could weigh in on how the Turkish system (or that of any other developing countries where dual currency use is the norm) is or is not relevant to the Greek case? Is it simply a question of effective parallel currency systems needing substantial time to evolve organically?
Daniel, you raise a good point there. Multi-currency capable accounts (or, more accurately, core banking system software to host them) are not uncommon. They are usually the preserve of the corporate / SME sector rather than retail, but some banks (HSBC tried to get into this market) do have a retail offer in the multi-currency product sector.
In a “Greece exiting from the euro” scenario though, it doesn’t really help with the speed to implement problem. Multi-currency capable accounts tend to work in one of the following ways:
1) The core banking system is either natively multi-currency capable — that is, it can host multiple accounts each denominated in a different currency under the same customer record. This is the most sophisticated solution as the same core banking system hosts a multitude of different currency accounts within the same system and a customer can select the currency or currencies they wish to transact in. As these are hosted within the same system, transferring between accounts and providing an overall account summary is a lot easier at the “back end” and more straightforward for the end user to navigate.
2) There is not a single core banking system available to natively host multi-currency accounts. In this case an additional application is slapped on the top of various separate systems to provide a consolidated view of the different currency accounts which are hosted on difference core banking systems. This is simple to implement for the bank initially (it is usually done if the bank wants to have a presence in the multi-currency account market but it lacks a more sophisticated core banking system which is capable of doing this) but adds yet another layer in what is usually an already complex tangle of different accounting / ledger applications within the bank. as each currency account is maintained on a different system, the different systems have different feature sets. For example, the system which hosts US Dollars may allow for a checking account but no debit cards. The system which hosts euros may allow a debit card on the account but no internet access to SWIFT payments. For the end users this can be difficult to manage and frustrating.
In Greece’s position, though, option 2) above would likely be all that could be achieved — a new, separate core banking system which hosts accounts denominated in, say, drachma, would have to be designed, built, tested and rolled out. That is a mountain to climb in complexity from a standing start, we has been covered in detail here on Naked Capitalism. But let’s say it was done. The existing euro-denominated core banking system(s) would be kept in place “as is” to provide euro bank accounts. But then you have to have another complex piece of development to provide a single customer view of both types of account and to allow servicing in — as a minimum — the branch channel and — preferably — via internet and telephony too of the new multi-currency capable product.
For a reasonably savvy customer, the implications of managing their finances in two currencies is do-able. But many people are not as financially literate as your typical Naked Capitalism reader. Getting it wrong — paying for something in euros when it might have been better to pay the same thing in drachma, if the payee offered that option, for example — can have big financial impacts. This is all the more true in a situation with a volatile currency pairing. Even with stable currency pairs, you can end up 5 or 10% out of pocket because you’ve misjudged the best currency to make a payment in at a given point in time.
Finally, and briefly, yes, multi-currency ATMs are indeed available. But it is not possible to convert a single-currency ATM to multi-currency operation without — as a bare minimum — a software update and — more usually — hardware changes as well because the ATM’s dispensing hoppers are unique for each currency. Upgrading existing single-currency ATMs to multi-currency is therefore a long term undertaking, requiring months (many) or years. And in the event of an ATM being so old it cannot be upgraded to become multi-currency capable, you’d need a new ATM. These start at $5-10,000 each for a basic single currency machine, multi currency and more complex units (especially weatherized versions for exposed / high traffic sites top out at $50,000+ each. See previous NC features for how Greece’s banks are not up to large capital investments now, and won’t be any time soon.
So Greece can never get its own monetary sovereignty again because it’s too hard to do the IT side of things? Is that really all you have to tell us Yves. I’ve worked in IT for over 15 years and yes it will be hard but come on it has to be something they should start to aim for. Saying it’s all too hard is just too easy as far as I’m concerned. Nothing important in regards to major change happens without pain and struggle. The Greek people deserve Grexit particularly the 60% youth unemployed who could get some great work experience helping to plan for this.
You really do not grasp what we are saying, and your comment is a petulant misrepresentation.
This is not about “hard”. This is about the consequences to the Greek people, which you seem to see fit to ignore.
Not being able to do an IT transition quickly, and there are reasons that this cannot be done quickly, not just on the Greek side but due to issues outside Greece, means irreparable damage to the Greek tourist industry (18% of GDP), and importers. It also means food shortages and famine unless Europe organizes humanitarian relief (which it probably would, famine in Europe would be tacky). Even so, pray tell how independent Greece is if it depends on what amounts to handouts from Europe for food and likely for its other critical imports, petroleum and pharmacueticals? It’s just turned one form of dependence into another, while destroying large piece of the few remaining sections of its economy in the process.
You don’t seem willing or able to accept that the inability to convert to drachma from an IT standpoint in anything less than a year (and that is likely to be a wildly optimistic guesstimate) has catastrophic real economy consequences. And those insure that Greece remains a European dependency.