Why the Greek Government Rejects a Grexit

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European leaders like Merkel and Hollande have argued that the referendum in Greece tomorrow on an expired offer from the creditors is a vote on whether or not to stay in the Eurozone. When the press picked up their pronouncements, Greek officials reacted quickly and furiously, accusing Greece’s creditors of trying to push Greece out of the currency union and saying they would fight any such effort vigorously. In keeping, Yanis Varoufakis, stated in Why we recommend a NO in the referendum – in 6 short bullet points:

5. Greece will stay in the euro…Geece’s place in the Eurozone and in the European Union is non-negotiable.
6. The future demands a proud Greece within the Eurozone and at the heart of Europe. This future demands that Greeks say a big NO on Sunday, that we stay in the Euro Area.

Varoufakis curiously maintains this position despite having his key assumptions back in February overturned:

The Greek state, let me remind you, is quite close to a primary surplus. With judicious top-down reductions of wages and pensions, plus the issue of tax-bonds, the Greek public sector could finance itself for the foreseeable future. All that is needed is that the ECB continues to provide liquidity to the Greek banks….As for those who argue that the ECB will take an aggressive stance, think again: the ECB will not knowingly take steps which will destroy the eurozone.

In fact, the ECB has taken a stunningly aggressive move by refusing to increase the ELA and pushing the Greek banking system towards failure by limited the support it has provided to deeply insolvent institutions. The ECB looks to have been authorized by European leaders to naplam Greece to produce regime change. This would hardly be the first instance of German/creditor meddling in domestic politics. As the Economist observed in a 2013 story on Merkel, “…she helped get rid of clowns like Italy’s Silvio Berlusconi.”

The lenders could have engineered Syriza’s demise less thuggishly by refusing to give ground in negotiations and letting the Greek government cross its red lines itself by being unable to pay pensions and salaries in cash, which would have been certain to start happening in July. A month or two of payments partly or fully in scrip would lead to a rapid decay of support for the ruling coalition.

But as brutal as this move is, the ECB is within its rights. As the Economist noted in February:

The growing reliance on ELA makes the banks, and thus the Greek government vulnerable. According to Karl Whelan, an economist at University College Dublin, the ECB has great discretion over how much ELA to permit and when to withdraw it. So Greek banks’ growing dependence on ELA leaves the government at the ECB’s mercy as it tries to renegotiate its bail-out.

Accordingly, we’ve been saying for months that the ECB holds the whip hand. It has finally decided to use it. This is what a mere four days of a bank holiday and capital controls had produced. From Ambrose Evans-Pritchard of the Telegraph:

Greece is sliding into a full-blown national crisis as the final cash reserves of the banking system evaporate by the hour and swathes of industry start to shut down, precipitating the near disintegration of the ruling coalition…

The daily allowance of cash from many ATMs has already dropped from €60 to €50, purportedly because €20 notes are running out. Large numbers are empty. The financial contagion is spreading fast as petrol stations and small businesses stop accepting credit cards…

Constantine Michalos, head of the Hellenic Chambers of Commerce, said lenders are simply running out of money. “We are reliably informed that the cash reserves of the banks are down to €500m. Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour,” he said.

“We are in an extremely dangerous situation. Greek companies have been excluded from the electronic transfers of Europe’s Target2 system. The entire Greek business community is unable to import anything, and without raw materials they can’t produce anything,” he said.

Yves here. It isn’t just “can’t produce for export.” In Greece, a large percentage of imports aren’t inputs to production (major exception being unrefined petroleum) but final consumption goods

The next day, last Friday, Evans-Pritchard reported:

Food has been exempted from an import freeze since capital controls were introduced last weekend. Grains, meats, dairy products, and other foodstuffs should be able to enter the country freely, averting a potential disaster as the full tourist season kicks off.

Translation: Food imports are so important that the government is taking the risking bank survival to keep that supply chain open.

The Guardian was also grim:

Greece’s economy is on the brink of collapse after the capital controls imposed ahead of Sunday’s referendum left the country with shortages of food and drugs, the tourist industry facing a wave of cancellations and banks with barely enough money to survive the weekend.

Banks said they had a €1bn cash buffer to see them through the weekend – equal to just €90 (£64) a head for the 11 million-strong population – and would require immediate help from the European Central Bank on Monday whatever the result of the referendum, in which the two sides are running neck and neck…

The survival of the Syriza coalition, formed just over five months ago to repudiate five years of austerity programmes, was in doubt as Greece started to suffer shortages of basic provisions, including the sale of vital drugs in pharmacies nationwide.

Food staples, such as sugar and flour, were also fast running out on Friday as consumers started to feel the effect of the restrictions.

“We have shortages,” said Mary Papadopoulou, who runs a pharmacy in the picturesque district of Plaka beneath the ancient Acropolis. “We’ve run out of thyroxine [thyroid treatment] and unless things change dramatically we’ll be having a lot more shortages next week.”…

“Imports, exports, factories, firms, transport – everything is frozen,” said Vasilis Korkidis, who heads the national Confederation of Hellenic Commerce. “The only sectors in demand are food and fuel.”

Korkidis said the economy had suffered losses worth €1.2bn in the past week and that the cost would have to be added to any fresh bailout deal. “Even in the best-case scenario, it is going to take months to recover from the shock of closed banks and capital controls,” Korkidis said. “Now that they are in place, capital controls may last for a year.”

We had warned readers that a 12 day bank holiday in Cyrpus, with capital controls that continued for two years, did major harm. Businesses were on the verge of failure. And Cyrpus was prosperous when the bank holiday started. In far more fragile Greece, which has already been suffering a slow-motion bank run for months, the shockwave hit harder and faster.

Yet quite a few pundits who claim they support self-determination for Greece advocate a Grexit despite the clear preference of Syriza leadership and the Greek public otherwise. A Bloomberg poll last week found that 81% wanted to Greece to remain in the Eurozone. That demonstrates that Greek citizens appreciate that as bad as things are under austerity, a Grexit could tip Greece into being a failed state. What is starting to happen now, the inability of companies to import, constrained access to international payment systems like debit and credit card networks, is a pale shadow of what Greece would experience with a Grexit.

We’ve tried to convey what it would mean for Greece to convert to drachma and have a dracma-based payment system interface with international payment systems. Payment systems run at mission critical standards; errors or unplanned outages can lead to huge losses, as well as serious to disastrous effects for end users. And as many readers know, IT projects in large organizations, even with stable systems and capable staff, take months to complete even when they go well. The failure rate for large IT projects is well over 50 percent. As as we hope to convey, a reintroduction of the drachma is an order or two a magnitude more daunting than a “normal” big IT project. Hence the Greek government’s refusal to consider it is well justified (note that our sources who are in contact with Greek government officials say the government has not undertaken any preparatory IT work for a Grexit).

As we’ll discuss, even introducing drachma notes, a comparatively simple part of this exercise, would be a well over six month project for Greece in and of itself. But if a payments system is like an electrical grid, being reduced to using cash only is analogous to Iraqis using portable generators after the US took the electrical system out in the 2003 war. It’s still well short of what would be needed to get the power back in your outlets, or the streetlights and subways working again.

Reintroducing Drachma Notes

We turn the mike over to our expert Clive:

Way way a-back when dinosaurs roamed the Earth and I was a junior in my TBTF I worked in the ATM Operations unit. It was a big, big unit. The logistical effort is considerable in maintaining an ATM estate — and that is under BAU conditions. Cash is bulky. The security requirements are considerable. The ATM hoppers are designed for specifically sized notes (the specification is exacting — if the notes are not precisely the same height, width and, crucially, paper grade, the ATM will jam up quickly; this applies to note counters as well). You can’t just max out high denomination notes either — a functioning cash currency needs sufficient quantities of various notes and coinage in the right proportions. Physically stocking, balancing and making an ATM ready for service once depleted takes a finite amount of time and that time isn’t trivial. And most ATMs are “dual control” — you need two operators for fraud prevention. Like I say, for a single TBTF to maintain a network of ATMs takes several hundred head office staff and a lot more in-situ staff. Then you need armoured cars, guards, access to premises. That’s many hundreds more needing to be planned, rostered and actually turning up each day. It is a major undertaking — and this is under normal, day-to-day operational conditions. Factor in secrecy (which would be inevitable, certainly in the run-up until the last few days anyway) and it is even more difficult.

And then you have self-service tills in supermarkets, vending machines, ticket machines and so on. Again, the specification of the physical currency is critical. For stores, marking prices is a labour-intensive job.

Bloomberg concurs:

Wintergerst says introducing a new currency typically takes at least six months, and sometimes as long as two years. Artists must draw the notes, security experts then add anti- counterfeiting measures such as watermarks and special inks, and bank officials need to plan how much of each denomination is needed and get the money to banks.

“The most challenging thing was to establish efficient distribution and make sure the new currency was available everywhere,” said Boris Raguz, head of the Treasury Directory at Croatia’s central bank, who in 1993 oversaw the introduction of the country’s currency, the kuna, after the breakup of Yugoslavia

Some Examples of IT Issues

There’s a reason converting to the Euro took ten years of planning and three years of execution to have it go smoothly The list of IT issues to address in the reintroduction of drachma is far too voluminous to cover in a post, or even a book. We’ll give a couple of examples. If you haven’t read it already, your first stop should be Clive’s accompanying article today on card system requirements

Transition. Switching drachma to Euro at a fixed rate took years of planning and rehearsal. The fixed rate is a big simplifier, though: during the transition, counterparties don’t really care if they receive Euro or Drachma in settlement.

With a switch to a new floating currency, outstanding transactions in Euro would have to be settled in Euro. New transactions would have to be booked and settled in Drachma. You need a new currency code. For imports and exports, you need a functioning market in a new currency, too: a 1:1 exchange rate wouldn’t last for long. Overseas suppliers wouldn’t be at all naive or trusting about that rate.

Thus, the system changes required for a new currency at a floating rate appear to be significantly more complex than the 2001 Drachma-to-Euro switch. As far as one can see, there would be no lead time at all, either. There is new exchange rate risk for everyone to manage, and on Day One of the new Drachma, there won’t necessarily be a way to do that. This is not a recipe for success.

Lack of an ISO code. There is now no ISO code for the drachma. International payment systems like Swift won’t accept drachma transactions until there is an ISO code for them in its system. The ISO is a very deliberate body, so don’t expect that to happen quickly. Even though the odds are high that the ISO will re-adopt the old ISO code for drachma, GRD,GRD, but only if there are no concerns that the new 2015 drachma could possibly be confused with the old, pre-2001 drachma. Most banks won’t bother to start their own coding to handle drachma till they have an ISO code and have an idea when Swift will be ready. That means drachma trading will probably be limited to buccaneers, um hedge funds, like Glencore (the successor to Marc Rich, which specialized in trading with countries subject to embargos), foreign banks with operations in Greece and banks that trade exotic currencies. For example, Barclays was strong in exotic currencies due to having a large branch network in Africa.

Those niche players may make some sort of joint effort to develop risky kludges for the time being. The result will be that the drachma market will be thinly traded and volatile, and dealing will be relatively expensive. For how long? Well, even if the ISO agrees quickly and produces a new code promptly, it would take a great deal of time, up to a year, to update all the various systems with the new ISO file.

The usual legacy systems issues within banks. New requirements and their consequences for bank systems are always more complex than anyone thinks. Part of the reason is this: a lot of very singular legal structures have resulted from bank mergers. The legal requirements spawn in turn a set of unintegrated and juryrigged IT systems, all different from bank to bank. The overall result is that bank systems are far more decentralized than most laypeople assume. This decentralization makes it hard to understand just which systems have to change in order to satisfy a new requirement. So the changes take even longer. Miss a key requirement, and, at best, expensive remedial work is involved. At worst, your newly modified system isn’t fit for purpose at all. Related to all that, there is the usual development backlog at banks: where does the putative New Drachma fit into the schedules?

The implication is that Syriza is not simply following public sentiment. Varoufakis has been firmly opposed to a Grexit even before he became Finance Minister, and his stance hasn’t changed even as the Eurozone has become a more obviously hostile environment that it seemed before he took office. As as much as it would be emotionally satisfying to see Greece take a hike out of the Eurozone and have its revenge by living better, or even not that much worse, that’s just not in the cards. Greeks are overwhelmingly opposed to leaving the Eurozone and EU because they recognize that the costs of departure aren’t just high but catastrophic.

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  1. I.D.

    Excellent post.

    I’m wondering how many states in Europe will now take steps to isolate themselves technologically from undemocratic, unelected ECB blackmail.

  2. Robert Dudek

    They can stay in the Euro and run a parallel currency. They can run huge fiscal deficits and stay in the Euro.

    On the other hand, the ECB is supposed to be a lender of last resort and has chosen to break its own mandate. As V said, capital controls within a monetary union is a contradiction in terms. So in effect Greek is de facto outside the Eurozone, though it retains a Euroized economy.

    So regardless of what Greeks want – the decision has been made for them: Grexit has already happened. Maybe that’s what Schauble meant when said Greece could temporarily be out of the Eurozone.

    1. bh2

      The Greeks can print banknotes in whatever quantities ink and paper permit: the existing Euro, itself.

      If the Greeks are put “out” of the Eurozone after this vote, what stops them from printing and distributing their own fiat using existing Euro printing presses under their control? That has to be faster and simpler than designing and deploying an entirely new currency.

      There would be no need to change anything else because these Euro notes are identical to all others — but distinctly Greek based on their serial numbers. Call it the “New Drachma”.

      By this means, Greece exercises its sovereign right to print its own fiat and tells the ECB to go piss up a rope. Greece can then facilitate exchange of goods within its own economy and pay its external bills (including EU denominated debts) with a vastly depreciated currency.

      Problem solved. :)

      1. Lambert Strether

        tl;dr “Let’s put on a show! — Judy Garland.

        The burden is on you to show that the Greek government was the organizational capability for this. Please do so, and stop assuming a can-opener.

          1. bh2

            If the Greeks routinely print Euros with permission of the ECB, it’s pretty hilarious that anyone would think they could not fire up the presses without that permission.

            They don’t even have to go to an outside vendor to produce new money (without respect to its value, of course). All they need is a stock of suitable (or even unsuitable) paper and ink.

            That can-opener is firmly in hand.

            1. Nathan Tankus

              Syriza is not printing Euros. Relatively conservative officials who essentially work directly for the ECB do. What those officials do is a matter of speculation. good luck printing Euros or for that matter running the payments system without the people who have been doing it. Let alone the passwords.

              1. bh2

                The Troika are now caught in a sticky web of their own making based on past precedent. History revisited (from August 9, 2012):

                “But the ECB has a public face, President Mario Draghi. He didn’t want history books pointing at him. So the ECB switched gears. It allowed Greece to sell worthless treasury bills with maturities of three and six months to its own bankrupt and bailed out banks. Under the Emergency Liquidity Assistance (ELA), the banks would hand these T-bills to the Bank of Greece (central bank) as collateral in exchange for real euros, which the banks would then pass to the government. Thus, the Bank of Greece would fund the Greek government.

                “Precisely what is prohibited under the treaties that govern the ECB and the Eurosystem of central banks. But voila. Out-of-money Greece now prints its own euros! The ECB approved it. The ever so vigilant Bundesbank acquiesced. No one wanted to get blamed for Greece’s default.”

                The Troika arbitrarily make it up as they go along. Treaties are used as a bludgeon when convenient and transgressed without hesitation when inconvenient.

                This is not the rule of law. It is the rule of ruthless and arbitrary power.

                But at this turn of history, the Troika really are no longer in the driver’s seat after an overwhelming rejection of their threats by Greek voters. The tables are now turned — it is the EU who have been publicly humiliated by the very democratic action they so loath and seek to suppress at every opportunity. They have been smartly slapped on the face for their hubris. If chaos follows, they will be recognized as its sole authors. Apparently the IMF agrees and will no longer be a party to slaughter of a nation by unpayable debt.

                Oppression is the singular design and intention of the EU. It has no other. It’s no more than a giant potlatch for faceless, feckless bureaucrats.

                The more the EU big dogs huff and puff and openly threaten retaliation, the more fully do they reveal themselves to be a real and present danger to every nation in Europe (including Germany). They are no better than common thugs — and the world now sees it.

                1. Yves Smith Post author

                  The ECB still holds the trump card and in 2012 it was constrained by contagion risk. It isn’t now. We’ll see what it does tomorrow.

                  And I hate to tell you but any bailout of Greece (and Greece has asked for a 30 billion bailout) has to be approved by each and every one of 18 other democracies that don’t want to fund Greece. The biggest “creditors” are citizens of other European countries.

              2. bh2

                Further to the question of whether Greece can print Euros if necessity dictates [emphasis mine]:

                From Barclays tonight:

                “How long Greece can stay in the euro without a financial assistance programme will depend on the ECB’s willingness to continue to provide liquidity to its banking sector and the consequence of a default on the bonds held by the ECB in its SMP portfolio on 20 July. If there is no agreement on a programme, the ECB will shut down ELA no later than 20 July. Banks will then not only be illiquid but would then turn insolvent. As a result, the lack of financing would trigger a collapse of the Greek economy. This situation could not last more than a few days, beyond which the Greek government would have to decide to take back the control over the central bank of Greece and force it to provide liquidity support to Greek banks, therefore printing de facto another currency. This would clearly be a violation of the Treaty and would certainly put Greece outside the monetary union.” Link

                Barclay’s obviously believes they can print at will.

                1. Yves Smith Post author

                  It appears you did not read the post. We described in some detail juste a few of the impediments to getting a new currency operational. It took ten years of planning and three years of execution for the conversion to the euro to go smoothly.

                  And “impediments” doesn’t mean, “this is sloppy and improvised.” It means “We lose most of our tourist industry, which is 18% of the economy.” and “we have serious trouble getting imports which are critical, like pharmaceuticals, food, petroleum.” And these will not be temporary reversals. Businesses will fail and ordinary people will lose jobs.

                  1. 4D

                    How about this idea to bridge the gap to the Drachma?

                    A credit card surcharge of 10 to 20 percent, whatever, on all Greek related transactions, levied directly on Greek banks, cross verified by Visa and Mastercard. That would give the ECB some comfort to keep the system funded.

                    I also don’t see what the problem would be in issuing stamped euro notes that also traded at a discount, as someone on the other link said happened in Slovakia, Czech Republic.

                    Messy yes, ideal no, possibility of being ripped off, maybe? But a lot better than hand wringing.

                    1. 4D

                      Thanks Nathan, I don’t misunderstand anything.

                      It’s in no-ones’ interest to toss Greece out to die a slow death, but all the condescending “experts” like you can say is it’s impossible to set-up a currency and payment system quickly enough.

                      My proposals are for Greece to use the current systems at some cost to Greeks. there’s a price for every thing, whether the Troika accept that or not I don’t know, but loading a surcharge on Greek transactions certainly must be one of the more simple things to code in. Ditto for the bank notes.

                      Grr, this browser is out of chain again

                2. P James

                  If Greece started printing euros without the permission of the ECB, they would probably end up getting kicked out of the EU, as well as the eurozone.

      2. MyLessThanPrimeBeef

        Tsipras would be guilty of dereliction of duty for not printing more over the last few days and not having a higher daily limit (or no limit at all), if he could in fact just print more the existing Euro ( we’re in the Euro with a ‘parallel’ currency now).

        1. Yves Smith Post author


          Tsipras has no control over the Bank of Greece printing presses.

          As important, the stock on which the notes are printed does not come from Greece. So even if the government were to try to take over the presses, assuming they even could (I imagine they have security controls that makes that not trivial), they’d run out of stock.

          1. Sy Krass

            How about introducing a digital currency, a digital drachma? It wouldnt solve all of the problems though.

            1. jsn

              This just assumes a different can opener: the internet and a smart phone for all.

              The people who most need this money are those most likely to have access to neither.

    2. MyLessThanPrimeBeef

      The lender of last resort can not cure everything.

      The borrower can’t borrow without sufficient collateral.

      In Greek’s case, increasing the ELA limit would not help if the ECB realistically values Greek banks’ collateral and if those banks are balance-sheet insolvent, or at least, not enough new collateral to make up the shortfall (due to new valuation assigned).

      Does anyone know if their current total market value does not exceed the existing limit and if they have more assets to pledge?

      1. Yves Smith Post author

        Yes, the banks were expected to run out of eligible collateral in July sometime. With the run of the last week, they may be out of collateral now. The ECB has also declared them to be solvent (another one of the criteria for lending under the ELA) when they aren’t.

        In other words, the ECB should have done something a while ago. But it looks like they spent all their time and energy on getting tools to prop up periphery bond markets and not resolve banks.

      2. OpenThePodBayDoorsHAL

        LOL “collateral” LOL, you mean paper promises by another insolvent entity, who in turn relies on another insolvent entity? “Insolvent entity” = fill in the blank: USFR, BOJ, BOC, JPM, CITI, what a ridiculous game this is. I know, I know, how can a money printing CB ever be insolvent, mm-k. Gold price stays quiet during times like this because gold repo soars, paper merchants want “money good” collateral, JP Morgan, DeGaulle, now the Chinese and many others know what that is: gold, not opaque derivatives claims to counterfeiting institutions with impenetrable balance sheets, unmeasurable risk and asset/liability mismatches as far as the eye can see. 7 years into the worst “liquidity” crisis ever and there’s no liquidity? (See BOC report). Oh, look, the problem is not liquidity, it’s solvency, d’oh, these ridiculous acronym paper shuffling games, Spain contributing to the fund that “bails out” Spain, what a farce. There’s a little boy named Greece at the front of the crowd, points at the Emperor and says “but Mama I don’t see that he’s wearing any clothes at all”.
        Can we just get on with it please, a tsunami of debt building higher and higher until it takes everybody when it finally crashes is no way to run a civilization.

    3. timbers

      “So in effect Greek is de facto outside the Eurozone, though it retains a Euroized economy.”

      Think this is the point Duncan Black at Eschaton has been making. So if Greece is already in affect out of the EU, what’s the point of pretending you’re not? Greece is getting all the bad of leaving and not leaving with no prospect of future good it will get by leaving.

      “Just Go” as Eschaton puts it, as the EU is a dictatorship of banks. How can anyone argue remaining in a dictatorship of “banksterocracy”? IMO there should be one who says Greece should not leave the EU, only on how to do it. The sooner they act like they are not in the EU, the sooner they can rebuild.

      1. Yves Smith Post author

        Please stop shooing the messengers. I suggest you have a conversation with the Greek government and citizens. They both want to stay in the Eurozone.

        1. Fair Economist

          They want to stay in the Eurozone, or at least think they do. But the *fact* is that they are already out, and it’s not in their power to return. Greece’s currency is now a Greek Euro which currently exists only in electronic form (account balances at Greek banks). This is formally pegged 1-to-1 to the European Euro, but due to capital controls it’s no longer worth the same. This is actually a pretty familiar situation apart from being just electronic – even China’s renminbi isn’t fully convertible.

          Returning Greece to the Euro now will require about 100 billion European Euros to pay for a bank run-off, because everybody’s going to withdraw everything they can now. The Greek government doesn’t have that and doesn’t have any way to get it. Only the ECB can put Greece back on the European Euro now, and I don’t see them doing it, although they could certainly cough up the necessary 100 billion if they chose.

          1. I.D.

            Pegging the Greek ELA is one thing, but should the ECB decide to wipe out 95% of Greek bank balances (see Yves’s post about how much insurance backing they have), they’d have to deal with a couple of trillion Euros of bank balances fleeing from Portugal, Spain and Italy towards northern banks.

            Not to mention creating tens of thousands of anti banker Greek terrorists overnight.

            I really hope Mario Draghi does not have that strong of a death wish, so I’d expect a (partial) ECB capitulation on Monday.

            1. Fair Economist

              I suspect the ECB has the legal power to force the depositors to eat the 100 billion, but as you say the consequences would be unacceptable. When I say they can fix it, I mean they are able to (electronically) print the necessary 100 billion and give it to the Greek banks (probably technically loan it, although they’d never get it back and they’d know it). But that would be problematic politically and probably unacceptable to their neo-liberal beliefs so it’s not going to happen.

              If the ECB realizes what’s going on, they’re going to try to shut down the banks for “resolution” quickly to deny the Greeks a comparatively easy Grexit. But I don’t think they’ve got any idea what’s going on yet. It seems almost nobody realizes the Greeks already have a national currency under strict capital controls.

              What’s probably going to happen is that the banks run out of physical Euros in a few days and the ECB is going to cross their arms and wait for the collapse – which will never come. Greeks will move to mostly electronic transactions. European Euro cash will still be accepted, with a substantial discount given as the physical European Euros will be worth more than the electronic Greek Euros. In a few weeks to a month the ECB will realize what they’ve done and they will be horrified, but it will be too late by then.

        2. ian

          Especially in the case of the average citizens, whether they want to remain in the euro or not is far less relevant than what they are prepared to do to stay, or leave. I’m not sure they fully understand.

    4. okie farmer

      Greek pollsters are forecasting a narrow win for the “no” side, endorsed by Prime Minister Alexis Tsipras, in a referendum that risks pushing the country toward an exit from the euro zone.

      Four informal surveys published as voting finished estimated the lead for “no” at about three percentage points. Polls closed at 7 p.m. local time on Sunday and the first official projections are due around 9 p.m.

  3. joecostello

    Well, this piece assumes the Euro survives a Greek departure and that’s certainly no sure thing.

    1. Yves Smith Post author

      Huh? Did you read the post? The Greek government does not want a Grexit. They might issue domestic-only scrip if they hit their next pension payment date (end of July) with no deal.


    Greece should adopt the bitcoin. It takes less than five minutes to install. Old thinking should be banished when faced in such a situation. Bitcoin could provide Greece immense wealth as being the first adopter. All the bitcoin businesses of the world would come to Greece.

    1. Tammy

      Since Germany has adapted bitcoin do you think it (bitcoin) has played a role in strengthening the German economy?

      1. FG RIDEAU

        you’re speaking nonsense. last time I checked, the official currency in Germany was the EURO.

        when i say accepting Bitcoin as currency means, Greeks would have the CHOICE of paying their taxes with bitcoins. when the bitcoin would be flowing enough, all payments could be processed with bitcoin.

        actually i said bitcoin, but i could say Altcoin. it takes just a few skilled IT guys to code a new currency. that can be done in a very short time. if the govt backs it with law and computer power, the infrastructure exists already, its called the Internet. This is a technology of the 21st century. this is not about enriching the current speculative holder in Bitcoins.

        How poetic if -in Greece once again – from the ashes of the Euro, would be born the new currencies of centuries to come.

        1. Mr. G

          Bitcoins put them in the same dilemma. As the supply is fixed, they can no longer devalue their currency to manage debts. The Bitcoin software has set an arbitrary limit on the size of the monetary base. This is the reason that its pricing relative to,other fiat currencies is so volatile. Additionally, no mechanism exists today for a country to issue debt denominated in Bitcoins. This would be an essential need for the Greek government.

          Bitcoin is more of an electronic, money laundering/payment system.

          1. Lambert Strether

            “no mechanism exists today for a country to issue debt denominated in Bitcoins. This would be an essential need for the Greek government. ”

            Excellent point.

            1. FG RIDEAU

              i am glad you are participating in the debate.
              well. there is no mechanism to issue debt denominated in bitcoins.
              hmmm im glad you are not opposing a fundamental objection, but a technical objection. this can probably be solved in due time.

              in shorter time, given that the ballooning debt – and the ensuing austerity – is what has caused this crisis, perhaps if we start from zero, a good idea would be NEVER to be in debt again ! balance the new budget…at least for the next 70 years.

              a bit like the Japanese who gave up military force after WWII defeat…

          2. FG RIDEAU

            what debts ?

            the debts won’t be paid. they have no money. they have (at last) finally defaulted.
            there is only one true way of managing their current debt. default on it all and restart from ZERO again.
            this is economic Hiroshima happening. the banks won’t reopen. there will be very little left for depositors when all is said and done.

            the writer of this blog says a functioning payment system may need at least one year to be built. i’m making a bold statement, but i propose this is no longer true with the current technologies.

            it takes months to install an EPoS terminal in a new currency to every merchant. It takes 5mns to install a bitcoin wallet. see my point ?

            yes bitcoin is volatile, because now its just a penny stock. if it becomes a currency it will stabilize with time.

            [btw it doesnt matter if it stabilizes at 1$ or 100000$ to me. ]

            1. zapster

              It’s volatile because it’s a fixed supply. It’s therefore inherently deflationary. It can never operate as a true currency until it can expand and contract with demand. Right now it’s just an electronic commodity.

          1. John Smith

            Not to mention the obvious attempt to put the taxation authority and power of government behind bitcoin owners such as was the case previously with gold and silver owners.

            1. FG RIDEAU


              its technically possible for the Greek govt to mint its own bitcoin. call it the Gritcoin.

              1. MyLessThanPrimeBeef

                Belgium would suggest irregular denominations.

                Say, €2.50.

                “But Belgium has managed to skirt the French protests using a rule that allows eurozone countries to unilaterally issue coins if they are in an irregular denomination.” – from a June Guardian article.

              2. John Smith

                Any government-privileged fixed or slowly* growing money supply is a money hoarders dream. But economic growth requires taking risks, not lazily sitting on a pile of money waiting for others to do so and then free riding on the value they add to the currency. See Matthew 25:15-30 for confirmation.

                *relative to real potential economic growth.

    2. Lambert Strether

      tl;dr “Let’s put on a show!” — Judy Garland.

      Greece is primarily based on physical cash. I believe there is exactly one Bitcoin ATM in Athens, in Syntagma Square. Please make your case by showing how many Bitcoin ATMs would be needed and where they would be located. If you believe that all Greeks have the personal IT infrastructure for Bitcoin, make your case by showing that. And then show that the Greek people would be willing to adopt it.

      1. Clive

        Yes, and not to mention too that all Bitcoin payments system variants that I have seen demonstrated where the payment takes place on the premises where the transaction occurs in person (bars, restaurants, supermarkets and the like) rely on a smartphone app to allow a mobile form-factor. Otherwise the recipient would have to provide PCs / laptops for customers to use to key in the transaction.

        Smartphone penetration is not exactly on the high side in Greece. Even in richer European countries or the U.S, it is only in the range of 40 to 60%.

    3. Yves Smith Post author

      Lordie. Bitcoin solves none of the problems described in the post. And Greece is not a monetary sovereign in bitcoin.

  5. Jose

    Greece is now in the worst of all possible worlds – de facto outside of the eurozone and without a new currency to make payments.

    But the amicable Czech/Slovak split of 1993 proves that it’s possible to introduce new currencies in a fast, smooth and efficient way.

    Maybe the time has come for Greece to just ask the ECB and the other euro authorities to allow it to leave the eurozone. With the agreement of the parties a Grexit could be implemented quickly – especially now that the banks are already closed.

    In any case, the present situation cannot last long. The ECB’s brutal move has blocked the payments system and trade flows are mostly suspended: the country may soon face an unprecedented, large scale humanitarian crisis.

    1. Jim Haygood

      ‘As bad as things are under austerity, a Grexit could tip Greece into being a failed state.’

      With or without a Grexit, Greece is patently insolvent. This is so whether the medium of exchange is euros, drachmas, Bitcoin or conch shells. ‘Failed state’ status has already arrived.

      When push comes to shove (as soon as tomorrow morning) force majeure will determine currency arrangements. Without a debt deal that provides more euro financing, Greece will either make new institutional arrangements, or else turn out the lights and send several million refugees flooding north and west in search of food.

      It was stone obvious after the last two bailouts — in which European governments and the IMF fanatically refused to accept the haircuts they imposed on private creditors, leaving Greece with a hopeless 175% debt-to-GDP ratio — that default was inevitable. Now it’s arrived.

      It’s not just Greece that’s bankrupt; it’s Europe’s doomed fiat currency experiment. The euro currency’s design is fatally flawed, and now nature is sweeping it away. Schaeuble and DieselBoom’s complacent notion that northern Europe can shed Greece without a blink is spectacularly wrong.

      Tryin’ to be a hero, winding up a zero
      Can scar a gov forever, right down to its soul
      Living in the spotlight can kill the banks outright
      Cause everything that glitters is not gold

      — adapted from Larry Gatlin, All the Gold in California

      1. Lambert Strether

        The Euro is poorly designed exactly because it does not have the institutional capacity to take advantage of fiat.

        If the United States government were to be drowned in a bathtub, and assuming the US dollar was one of the last functions that remained, then the United States would be, in essence, a currency union, and subsidies to poor states would become an issue, along with bailing out Texas and California.

    2. Lambert Strether

      Here’s how the split worked:

      The split was announced on February 2. The two countries already had capital controls, but all cross-border money transfers between them were halted to avoid further speculative flows into the Czech Republic. Border controls were tightened.

      Komercni Banka, a then state-owned commercial bank, glued stamps, printed by a British firm to ensure secrecy, on 150 million federal banknotes. These were trucked around the country with the help of police and the army.

      The exchange for notes stamped by Czech or Slovak stamps, at a 1:1 rate, started on February 8 and was completed in four days. Later in 1993, the stamped notes were replaced by new ones.

      People could swap a maximum of 4,000 crowns — then worth $136 (87 pounds) — in cash. They had to deposit the rest. The old money ceased to be valid immediately the switch started.

      The whole process, which required 40,000 people just on the Czech side, went ahead smoothly. An opinion poll showed 86 percent of Czechs experienced no problems in the operation. Capital controls were essential to stop bank runs. Secrecy in the buildup was paramount.

      This plan seems to involve fewer magic ponies than, say, bitcoin, and there is a precedent for success. That said, we’re back to organizational capability. Are the stamps even legal for a Euro banknote? (Presumably the Eurocrats were watching the Czech events and did some thinking about the implications.) And assuming the sticking of stamps and trucking of currency goes smoothly, banknotes aren’t all a modern economy needs. Foreign exchange? Government debt?

      And I know Yves had other thoughts on this, because we talked about this early on in the crisis with other economists, but I can’t find the fershegguneh mail…

      1. Lexington

        In trying to transcribe the Czechoslovakian experience to Greece another consideration is that Czechoslovakia wasn’t Greece. Successfully implementing a major project like introducing a new currency is a test of the public sector’s integrity, professionalism and planning capacity, and there are excellent reasons to believe the Greek public sector isn’t up to the challenge. Greece also fails on some other important intangibles. Strong social norms against cheating would be helpful, for example.

        In the case of Czechoslovakia one key factor that contributed to a smooth transition was that the breakup was mutually agreed upon and amicable. If Greexit becomes inevitable much will depend on how supportive the ECB and EU are in facilitating the transition.

      2. Yves Smith Post author

        And many people stress the two wren’t comparable because the old currency was going to be made invalid as of a set date. People had a motivation to convert. By contrast, Greece, is now stuffed to the gills with euros, a currency that would be seen as vastly superior to drachma.

        Plus notice the capital controls. Greece wants to get off them ASAP, even though “ASAP” even if the ECB got generous and turned the money spigot back on would probably be the better part of a year.

        1. vlade

          Ah, noticed this only later.

          Two things. First one is, that this shows that electronic payment systems can be hacked if need must. I can think of at least two ways how to do it over a week or so (and, I have dealt with bank IT systems before, so I do have an idea of the problems likely to encounter), and at least one would not involve any programming at all.

          The second one is, that electronic payment system is only a part (although for us the part we see most often), and tend to think in it. There are numerous other problems, like cash, card payments etc. Each of those can be dealt with (although I don’t know enough about card technical aspects to see a solution there), but then the real stuff comes in. I.e. the best thought out plan is only as good as the staff you have to execute it. And, to be honest, I have my deep doubts now about the ability of (any) Greek government to execute anything reasonably well.

      1. MyLessThanPrimeBeef

        I take it it’s ambiguous ambiguity.

        That is, is ambiguous to some, but not ambiguous to others.

        For example, we might over here say, looking at the referendum, ‘It’s all Greek to me.’ We are not sure.

        But the Greeks, reading it in Greek, and seeing it as all Greek to them, do not have that problem.

      2. c (too)

        a bit like the totally democratic elections in the USofA?
        to me the referendum has more the flavour of a deus ex machina
        the article in question points out the shenanigans and brinkmanship of the different parties involved.
        It opens with “… Despite the never-ending soap opera that is Greek crisis politics though, few would have imagined that the SYRIZA-led coalition government would succeed in outdoing itself in terms of its “creative ambiguity,” by calling a referendum which, just days before the polls open, remains remarkably unclear as to its actual meaning and potential consequences. … ” (By Michael Nevradakis) quite lengthy

          1. c (too)

            please point out what is wrong with the article in question other than that it is somebody’s opinion. one question: is everything you read clearcut and comprehensible without translations on top of foreign cultures and languages or specialized technical matters
            creative ambiguity

            1. Lambert Strether

              It’s not the article, it’s your interpreation:

              a bit like the totally democratic elections in the USofA?

              That is, exactly, a straw man. Please be serious.

              1. c (too)

                Please explain then how you came to this conclusion:

                Lambert Strether
                July 5, 2015 at 11:52 am
                Oh good. Creative ambiguity again. I take it, then, that you’re not cheering for the referendum as an exercise in democracy?

    1. Yves Smith Post author

      Yes, agreed, It’s part of the design. Which is why it is troubling to see Syriza continue to pretend Greece can have both (the Euro and no austerity) and Greek citizens who should know better after the hard fought negotiations so far not recognize that they can’t.

  6. wbgonne

    You have to break some eggs to make an omelette.

    Greece can either remain tethered to the neoliberal globalist whipping post or it can break its yoke and forge a new destiny for itself. The latter course is perhaps more frightening because its outcome is unknown. The status quo, however, means permanent debt-slavery, the surrender of dignity, and the termination of self-governance, all this in the birthplace of western democracy. The neoliberal project must end and, for that to happen, it must be defeated. It is most unfortunate and certainly unfair that so much misery and responsibilty is being foisted upon the Greek people but so be it.

    I don’t know what the Greek people will choose for themselves and their children. But I know how I would vote: Fuck No!

    1. Lambert Strether

      How true. Of course, in this case the eggs will be the heads of the elders Syriza drew one of their famous red lines to protect — in fact, ran an election campaign to protect — but never mind that (John 11:50).

      And I like the “is being foisted upon” because of the lack of agency.

      To reframe in terms of US politics: Will Stiglitz, Krugman, et al., now support a “foisting” a grand bargain on the country?

      It’s also interesting to note that the Oxi vote skews young. I’ll call it right now: Syriza will be betray the young, exactly as Obama signaled betrayal of elders in 2008, and then went on to betray everybody (except the bankers*) after 2009.

      I’m not at all against the Greeks undertaking a grand national project, but a democratic process should be used to engage as many as possible, as soon as possible. For whatever reason, Syriza did not do this, has not done it throughout.

      NOTE * I am now reminded that Syriza never went after the oligarchs. (A cheerleader in comments came up with one charge, and no convictions.) So the parallel is even more exact than I thought; Obama never went after the banksters.

      1. wbgonne

        I am not a big fan of Syriza. At this point, Syriza is at most a catalyst, and probably even less than that, likely just a conduit. But still. Syriza is giving the Greek people an opportunity for self-determination. And that is something. In fact, it is a great deal. If the no vote wins, that allows room for alternatives, for opportunities. And if — as I fervently hope — Syriza has a workable plan for a post-no Greece, then Syriza may be much more it seems right now.

        BTW: the comparisons to Obama and the U.S. are somewhat strained at this point because harsh reality has stripped Greeks of the illusions we Americans comfortably cling to. Also, this has disaster has indeed “been foisted upon” the Greek people. They are victims, they are victims of the global neoliberal project. The question is whether the Greeks will accept their status of permanent victimhood or whether they will choose self-determination.

      2. TheCatSaid

        “I am now reminded that Syriza never went after the oligarchs.”
        The Greek government’s language seemed always carefully chosen so as not to frighten oligarchs. What was not clear was the exact nature of the various Syriza government proposals in relation to oligarchs / the top tax avoiders.

        Was Syriza not spelling out the specifics publicly to avoid end-runs around their strategies? Or not spelling them out in order to take oligarchs by surprise but not frighten them off early on? Or did Syriza tread softly softly in its language in relation to specific targets because Syriza will inevitably sell out to oligarchs, as you imply by the Obama comparison?

  7. Winston

    Regardless of what political party chose the ministers, the self-perpetuating bureaucracy was still in control. Corruption was rife. And, most important of all, Greece had become a political system that Aristotle would have called an oligarchy.
    The very rich used their money to create for themselves a virtual state within the state. They extended their power into every niche of the economy and so arranged the banking system that it became essentially extra-territorialized. Piraeus harbor was filled with mega-yachts owned by people who paid no taxes and London was partly owned by people who fattened off the Greek economy. The “smart money” of Greece was stashed abroad.

    Behind the Greek Crisis

    A whole island pretending to be blind to get benefits, 8,500 pensioners who faked being aged over 100 and lawyers who claim to earn just €12,000: New book reveals how Greeks cheated THEMSELVES into ruin
    James Angelos’ book looks at widespread tax evasion and benefit fraud
    Includes case of the island where 498 people pretended to be blind
    Also reveals how super-rich bought camoflage for pools to avoid tax
    Greece is on the brink of collapse as it decides whether to reject EU bailout

  8. jfleni

    Let’s not forget “Goldman-Sux” and their cooperative swindle with Greek criminal plutocrats in instituting the Euro in Greece while it was common knowledge that Greece did not meet the requirements! Those are the places to start the payback, and hopefully JAIL time!

  9. Sally

    Varoufakis said in his blog over a year ago that Greece could not keep extending and pretending. The interest on the debt is killing the Geek economy and the debts needed to be restructured with big right downs.

    He has been proved right on that. It is what the IMF are now saying. Its what even some in in troika are saying that Greek debt needs to be restructured. We even had leaked documents published on Zero hedge (probably from the NSA) of talks between Merkel and her finance minister to the effect that the Greek debt needs right downs and restructuring, and renegotiating of debt.

    Funny that. So why have the IMF as members of the Troika been saying the complete opposite for so long? It’s madness. They have insisted that Greece should submit to something we now know they thought was untenable.

    The European finance ministers have been terrified that if they back down on Greece then Italy will be next then Portugal, then Spain,and then France. France is in a complete mess. And 80-90% of its debts are owed to German banks.

    Whatever the result of the referendum to day a new approach will have to take place. An end to all these fake red lines and a sensible restructuring of the debt, if not it will eventually take down the whole Eurozone system and the euro currency. Is that what the ECB really wants?

    The Greeks will have to re structure their own country. This may mean big cuts in welfare payments and pensions. Old people will suffer so will the poor, but the alternative is a long term total destruction of their economy. It may be necessary that their own banking system may have to collapse. They really should get out of the Euro currency so they can devalue. The UK is in the euro zone but not in the euro currency. It won’t happen because the Greek people seem wedded to the euro.

    There are a lot of Euros in circulation in Greece. So this may lessen the total hardships. A black economy can develop to keep things going. All that is required in the short term is food and essentials like medicine, fuel and heating come the winter. Greece can recover but not under the ludicrous debt payments and interest. The result today is almost irrelevant to what will have to be done. Because this is really about economics. Greece will have to be allowed, under whoever governs to restructure and right down her debts. There is no alternative. Unless you want a failed state and a euro collapse. You either start tomorrow with a new piece of paper or you will have to 12 months down the line.

    1. Jim Haygood

      ‘[Without] an end to all these fake red lines and a sensible restructuring of the debt … it will eventually take down the whole Eurozone system and the euro currency.’

      Precisely. Never send to know for whom the bell tolls, Mr Schaeuble; it tolls for thee.

    2. Lambert Strether

      And if this is the Greek national project, it should have been done at once. There is nothing we know about the creditors or the economics that we did not know then. Of course, the different between then and now is that Greece had billions in the bank then that have now gone to the creditors, so the Greek people would have been better off.

          1. Lexington

            As indicated by opinion polls that show a majority want to retain the Euro and remain in the EU. That could all change, of course.

            Overwrought appeals to dignity and national destiny aside hardship accentuates social tensions and promotes political polarization. The fact that Greece’s World War II dictator Ioannis Metaxas is now being held up by some factions in the country as an exemplar relevant to the current crisis is a clear indication of which way the winds are blowing.

            The idea that under the collective strain of austerity Greeks are going to spontaneously come together to cast of the shackles of neoliberalism and chart an independent future based on shared sacrifice and mutual responsibility is romantic drivel. What’s coming is going to be a lot uglier. It always is.

            1. wbgonne

              Nationalism is inevitable because the international order has been infected by virulent, anti-humanistic neoliberalism. If the Left doesn’t attempt to harness the resulting nationalist sentiment the Right surely will.

              I agree that the immediate future looks tumultuous for Greece. But, IMO, that beats certain and permanent debt-slavery. And I wouldn’t be so quick to scoff at the power of human dignity: it has done much throughout history.

              One final note: determining the fate of the global neoliberal project is clearly not the goal of the Greek people. They have been forced into this. That said, incidental or not, neoliberalism’s future may nonetheless by significantly affected by Greece.

          1. Michael

            The same thing we all know now — that the Troika isn’t just bad and foolish, but actively evil and insane.

            Sure, the tea leaves were there, but it wasn’t nearly so unavoidable.

  10. Dan Lynch

    Agree with Yves that the lack of an electronic payments system is the biggest practical obstacle to a Grexit, and would lead to a hard crash.

    But …. why wasn’t Syriza working on a contingency plan for a Grexit from day one? They are at fault for putting all their eggs in one basket. I vote “no confidence” in Syriza.

    As for a “mandate” to leave the Euro, that’s BS. FDR and Nixon had no mandate to leave the gold standard. FDR had no mandate to deficit spend (he campaigned on a promise to balance the budget). The truth is that all elected officials have a mandate to FIX THINGS. Syriza has failed to fulfill that part of its mandate.

    I advocate Grexit. Paper currency is no problem because Greece already prints the Greek Euro — that could continue as their new currency. The problem is the electronic payment system. Well, what did people do before plastic money was invented? — they wrote checks. So you tell people to go back to writing checks, just like grandma and grandpa used to do. International payments could be in bitcoin until a proper payment system is in place. Would there be problems? Sure. But there is no realistic alternative.

    It does no good to whine about how tough a Grexit would be unless you have a realistic alternative.

    1. FG RIDEAU

      Hey Dan,

      this is the 21 st century. there is a payments system which already exists, and takes less than 5mns to be installed on any PC or Iphone. its called Bitcoin.

      as a matter of fact, theres 100+ of such payment systems readily available.

      you don’t need months to make new machines which read in drachma to read credit cards etc…
      thats becoming obsolete.

      1. NotTimothyGeithner

        Assuming Syriza recognized the potential for a “grexit,” there wasn’t a majority or a near majority for a “grexit.” The majority might be sympathetic to the concept, but it’s different than approval.

        If Syriza was caught working on a “grexit” through a leak(kudos nsa), there would be a backlash which would still put Greece in a precarious position except with “fringe” parties of the right and left or a weaker version of the old guard in charge. Both would be weak and have a greater challenge than Syriza had when they came to power. I think the only way to make a “Grexit” acceptable to the populace without a Greek De Galle (there isn’t one) is to be kicked out while appearing as reasonable and amicable as possible.

        Not working on a contingency plan seems crazy, but I can see how I could buy into the idea that a contingency plan by Syriza over the last months would sink them.

        1. Lexington

          This is another unfortunate example of how people engage in all manner of mental contortions in order to absolve Greece of responsibility for its own predicament. Apparently a party that ran and won a platform of ending austerity might be caught red-handed planning for to exit the Euro zone by the NSA, who might then leak this bombshell to the Greek opposition, who would (horror of horrors!) exploit it for political advantage.

          Except the only card Greece had to play in order to wring concessions from the troika on austerity was the at least implicit threat that absent such concessions it would be forced to default and exit the Euro zone, and everyone knew this. There was therefore no political risk to Syriza in engaging in contingency planning for a Greexit, since it was obvious from day 1 that this might be the only alternative to swallowing the troika’s austerity medicine. The shocking revelation that the Greek government was preparing for this eventually would therefore have been so shock at all. Indeed leaks to this effect would have strengthened Greece’s position to the extent that they demonstrated that they were serious about slitting their own throats rather than having them slit for them.

          As it turns out it appears that Syriza, in spite of its very weak negotiating position, never seriously considered the possibility that they might not win concessions sufficient to satisfy their base or that they would need a contingency plan in case negotiations fell through. Syriza talked big about challenging the troika’s stranglehold on the country’s finances, but bold talk unaccompanied by bold action quickly degenerates into humiliating farce, followed by a tawdry little referendum in which the prime minister asks the Greek people to retrieve a few shreds of his dignity by retroactively endorsing his failures.

          1. Jim Haygood

            And it continues. From the NYT:

            Mr. Tsipras went on television briefly to say he would resume negotiations immediately. He said that the vote was not a mandate for “rupture” with Europe and that it would strengthen his ability to negotiate a “viable’’ future for Greece in the eurozone.

            “The people today replied to the right question,” he said. “They did not answer to the question in or out of the euro. This question needs to be taken out of the discussion, once and for all.”


            If you’ve run out of euros, and the kind sirs who dole out the euros won’t give you any more of them (no matter how hard you bang your spoon on your empty soup bowl), then it’s GAME OVER.

            Where did Greece’s euro fetish come from? If euros were printed on filo pastry dough, Greeks could at least boil and eat them.

      2. plechazunga

        Syriza’s Left Platform economists like Lapavitsas were favoring Grexit from Day 1. Surely they were talking about the practicalities between themselves.

        I think the gist of the situation is, while a disordered Grexit will certainly be painful, medium-long term it’s still better than being controlled by the Austerity Junta for the next decade.

        1. Yves Smith Post author

          You apparently don’t hang out with economists. “Practical” is just about the last thing they do.

          As we said, and we have contacts with a good views of matters, there’s no evidence of any preparation. This is confirmed roughly 3 weeks ago by a very sympathetic-to-Syriza interviewee on Real News Network. He said they were totally embroiled in the negotiations, and were not thinking beyond that. And he was clearly concerned on their behalf.

  11. Paul Tioxon

    There is very little serious analysis mentioned anywhere about NATO and the Greek relationship to this mutual defense military alliance. The European Project, which is the effort to unite the various states of Europe into a single nation in the ruinous aftermath of WWII, I will call the United States of Europe, USE. And the 3 pillars of any nation or empire are powerful networks of politics, the military and the economy. The European Union, The EU, The Eurozone, The Euro, and NATO, the unified command of the military forces of the various states of the EU, all 3 together bind Greece with the rest of Europe. All 3 are inter-related so much so, that when one is missing, you have to call into question the real possibility of ever attaining a stable USE. And when you have 3 separate but equally important institutions for sustaining any kind of social order, and a state can opt out anyone of them, you are not building the necessary and sufficient institutional order to sustain civil society through stresses, but only for the good times.

    The UK is in NATO and The EU, but does not use the Euro. Finland, uses the Euro and is in the EU, but due to political blackmail from Russia, stays out of NATO completely. It doesn’t want to wind up like Ukraine. At least it didn’t until its faithful neutrality came under question here, and in Sweden as well due to Russian military activity in non-NATO Ukraine and the expansive Russian military activity of its navy and air force in and around the Baltic Sea.

    Russia does not seem to be demanding that the united territorial area known as China relinquish its strong military simply for having a border with Russia. Russia however can not stand the thought of NATO touching its borders, hence the supplication of Finland and Sweden to not arouse Russian displeasure in any measure. So, why is this even important at all? Well, the ideal nation-state should be unitary for the most part. Its sovereignty, its ability to have the absolute say over what it does within its territory and what it does via internal policy making should independent from external sovereign powers.

    For there to be a USE, it would have to have all members fully committed not by treaty, but by transformation into a unitary nation-state with politics, economics and military all in concert to maintain the social order. Sovereignty can not be a choice from Column A and a choice from Column B if you happen to touch upon Russian borders. Russia’s border should not determine the self determination of Finland or Sweden to fully embrace Europe and join NATO if THEY so choose. For there to be a USE you can’t be in NATO and the EU, but keep your currency, as the British do. So, it is no wonder that the Grexit can be glibly discussed as if it is a real alternative when EU’s own written materials indicate that leaving the Euro means leaving the EU as well. The treaties that constitute EU and Euro membership create a legally binding enmeshment if not full political integration. And in Greece, the NATO commitment would still be in force, if ever both those national decisions were reversed. So,while Greeks would be expected to fight and die to keep Germans safe from whatever, if Germany is ever attacked, Germany can tell Greece to go to hell and starve and die from lack of medicine by being cut off from the financial enabling system of banking which is necessary to operate any modern nation. Germany can plunge Greece into a Great Depression causing suicides, crime, homelessness, unemployment crippling civil society by withdrawing necessary conditions for day to operation. But the Greek army better come running when NATO calls! How heartless and stupid are the bankers and impossible is it for them to be left in charge of anything other balancing end of the day accounting? And of course, if it should ever come to pass, Greeks would not come running to fight and die in defense of the very same people who supported the banking interests dismemberment of the Greek people. NATO ties would be rendered useless.

    This is exactly the perspective that is bringing into focus the strategy of Syriza, which is an appeal to political resolution of the financial problem of a debt incurred that no nation could repay. Bankers are running the politics under the confirmation of the elected political figures of Europe who should know better, but do not seem to understand the problem is at a scale greater than economics and finance and whiz kid calculations. The nation-state is THE power of the last resort, just as the central bank is the lender of last resort. Instead, the power is being abdicated by the sovereignty of the nation to serve the market and banking interests at the expense of the destruction of Greece as a state along with its people as impoverished victims left destitute.

    The back and forth is just this political impasse of trying to invoke the power of the state to intervene on behalf of a debt that can not be repaid. And who else sees this situation? Interestingly enough, the retired American admiral, formerly the head of NATO, who characterizes the bankers as not competent to handle this geo-political situation. James Stavridis says:

    “For one, this can’t be left to the central bankers. They are not politicians and aren’t paid to be sensitive to the geostrategic and political implications of a Greek default and departure from the eurozone. At the dark end of the spectrum, losing any nation from the EU or NATO is simply terra incognita and would shake both organizations in fundamental ways while deeply weakening the idea of the European project generally.

    As the Troika conducts further negotiations, it needs to consider the value that Greece brings by virtue of its membership in the EU and NATO. The Greek negotiators have been making these points, but many on the European side tend to ignore them and focus only on the economic side — a natural impulse, but not the kind of 360-degree view necessary to fully assess choices under stress and pressure.”



    This is reported as a banking and economic story, a one dimensional perspective that only leads to maddening discussions, because the beginning, middle and end of the process are reduced to a demand for repayment of a freely incurred debt, that any honorable people and their nation should repay, and not act like dead beats trying to abuse the system. Even the referendum is trying to portray this political message. The Greek people along with their entire economy and government are too weak and are completely dominated by the greater powers at the core of the EU. The core nations can politically intervene. But they don’t want to for whatever reason made public and some still behind the scenes. The point is, that they can. The state should not be in service to the market and especially NOT under the circumstances of a disaster. Any disaster, whether natural like an earthquake or flood or man made like a banking collapse. It is time for European governments and the EU to come to the aid of it fellow Europeans in Greece just as they would as NATO if tanks and jet bombers invaded their land. At least with guns and tanks, it would be a fair fight. This isn’t even close.

    1. ChrisFromGeorgia

      Good analysis, though I quibble with this:

      It is time for European governments and the EU to come to the aid of it fellow Europeans in Greece just as they would as NATO if tanks and jet bombers invaded their land.

      But to follow your analogy logically, the European governments and EU themselves are the ones who bombed Greece and invaded their land.

      So they had to destroy the village in order to save it?

      1. Paul Tioxon

        No, it is time for the politicians to assert the power of the state over the markets. I understand the private banks have been taken out by the governing entities of the Euro, but those entities are not supposed to govern the sovereign member states, only their finances. The finances of Greece as a nation are not co-extensive with Greece as a nation. If nationhood is expressed through the policies of the representative government, that government must realize that rule by financial debt that can not be repaid due to insufficient capacity of the economy to produce enough to let people live and provide for the debt service as well, then the debt service must be abandoned not the people of Greece. This is a political fight to the death. Will Europe’s final say with authority be finance ministers, who are macro bankers, or elected representatives that provide policy for all of the people’s needs.

        The 3 European wide authorities that mimic a unified federal government are altogether not the government of Europe, but competing authorities none with absolute power, or as we like to say, sovereignty. The buck or the Euro has to stop somewhere, but it certainly can not stop at the ECB. The final political authority, the power to override a policy that is clearly destroying the people of Greece, austerity, can not be resolved by the creditors in charge who are only concerned with the financial dimensions being preserved even as the social order is cut to the bone. The bourgeoisie of a shopkeeper who only wants his money is insufficient for large scale public policy. Capitalism is being exposed, not in its corruption, as NC typically does, capitalism is being laid bare for its actual functioning being a disaster. Money was lent, money needs to be repaid, and austerity is the policy mechanism for making the lenders whole. Capitalism is doing its job and in the process taking pensions, health care, education, pubic health and education away from the people. The lenders are made whole, and Greece is made into a living hell. The strictly political appeal is the only exit from the existential threat to Greece. Just as various Arab organization fail to recognize the state of Israel, to their universal condemnation, the failure to recognize the state of Greece as deserving self determination due to financial debt is an outrage. Only asserting the absolute power of the state over its ancillary functionaries, like finance ministers and banking will solve this problem. It is why the military is not in charge of itself but under civilian control. The commander in chief as the president can fire generals, not the other way around. The EU political class must fire it financial bureaucrats in order to save Greece. Banking must be under civilian control just as the military is. That means politicians. With 61% of Greek citizenry voting NO, that is even a super majority recognized by the hidebound US Senate. Greece is not rich enough or armed with nuclear weapons and must rely on a political resolution. 90% of communication is non-verbal. As long as Syriza drags its feet, it is resisting. And at some point it will be clear that payment delayed is payment denied. Resist Resist Resist it goes along with Patton’s Attack Attack Attack.

        1. OpenThePodBayDoorsHAL

          Excellent. But we no longer have sovereignty or representative government, we have Capital that runs completely roughshod over those quaint notions. They have their own rule of law, steal $1000, get five years, steal 10’s of billions, get a bonus and a private island. “Consent of the governed” is dead, where was the “consent” when the long knives came out for Berlusconi, he made noises about leaving the euro so Goldman installed Our Man Monti, the so-called “sovereign” people of Italy were told “now is not the time for elections, now is the time for actions”. The hideous artifice of “government by bank” means everything, pensions, education, health care, infrastructure, *everything* is sacrificed on the altar of the offshore billionaire’s coupon payment. Citizen’s United and all, last time around we had that arrogant old amphibian Newt Friggin Gingrich who for a while was the primary front runner, he raised $11M, $10 of which was from one billionaire.
          “Before we would have said those Greeks fought like heroes, now we shall say those heroes fought like Greeks” – W. Churchill.
          This will swallow the known world unless someone stands up and says they’ve had enough, regardless of the consequences.

  12. jonf

    Sounds like a rock and hard place. Grexit is untenable due to cost and time. But as they are running a deficit won’t they simply run out of money without borrowing more? And doesn’t that mean they have to sign on to more austerity? I suppose they can be forced into even more austerity to run a surplus whether or not they sign on to a new program. But that may be as bad or worse than signing on to the EU demands. What is the winning strategy here?

  13. Christophe

    Yves, given the universal human tendency to attribute the cause of our unfulfilled expectations to others rather than contemplate the failure of our own predictive thinking, I imagine all actors will blame each other for this disaster for a long time to come. With future prospects as bleak as a new currency rollout fiasco, drastically increased austerity, or becoming a failed state, Greeks will likely begin accusing each other of causing their problems. New fault lines will be drawn, new hardships imposed, and new groups scapegoated.

    Do you have any idea where the current faults and disputes within the populace lie? If Greece were to break up, how many new countries would she be likely to give birth to? Compared to having a radical fascist leader impose patriotism on the nation so it can rebuild itself and begin invading its neighbors, breakup would be a much preferable option.

  14. Tiger

    Greece is screwed for sure. I wouldn’t say grexit leaves economy the sam . Obviously the Cyprus situation and worse is going to happe . But new creditors might join this party and new opportunities will emerge out of darkness. Maybe even FROM the eurozone. The point is that it’s important to tease out situations like this – capital controls etc – in order to appreciate what was there before but also think of new creative solutions. A messy grexit, whether I happens or is avoided, will teach other euro countries to prepare their exit in advance, unlike syriza did with it’s planless approach. This will lead to a self fulfilling non messy EZ breakup in a few years.

  15. Anonyomous

    So what do you want the Greeks to do, Yves? Would you like Greece to stay in the Eurozone and endure a perennial and indefinite economic depression? No one denies that Grexit is going to be extremely painful and difficult. In fact, Grexit would probably more painful in the short-term compared to continuing the game of extend and pretend. Greece should take the short-term pain in order to regain control over their economy, currency, and destiny. The alternative is to remain under the Troika which is dominated by an economic ideology that is guaranteed to wreck the entire Eurozone economy. The only real solution for the Eurozone to get out of this mess is to temporarily suspend the “Stability and Growth Pact” and the Maastricht Treaty requirements limiting debt and deficit until the governments can sufficiently inject enough fiscal stimulus into their economies to get their economies growing again. A write-down of public and private debts is also necessary. However, we all know that is not going to happen before the end of the current millennium because of the free market, Ivy League-endorsed economic ideology that currently pervades both the power and middle class echelons of European society.

    You and Lambert have no solutions to the Greek problem – just complaints about how Syriza and the Troika have behaved during the negotiations. (Did you two follow John Paulson and take long positions on Greek investments?) No one doubts that the negotiations have been messy. But there is a problem. So tell me how would you fix that problem? Bear in mind that the ideologues in the Troika and in Germany are not going to change their austerian stances any time soon. There’s also no political path at the moment for suspending the Stability and Growth Pact and Maastricht Treaty convergence criteria.

    You’re correct that Grexit increases the risk that Greece will become a failed state. Do you think that the current extend and pretend austerity policies won’t also increase the risk of Greece becoming a failed state? The Troika really don’t care if Greece becomes the European version of Haiti where people are eating mud on a daily basis. Do you not think that such conditions won’t lead to a failed state also? Give me and Greece a break!!!

    As an aside: Perhaps, the reason that most IT projects fail is because the big bosses like to outsource these jobs to cheap labor. You get what you paid for.

    1. Yves Smith Post author

      Let me turn this around: are you in favor of democracy? It appears not.

      The elected government, which ran on a campaign of staying in the Eurozone but getting a better deal from its lender, has called them blackmailers repeatedly over the past month and even more so during the campaign. It insists it wants to stay in the Eurozone. Polls have shown support for staying in the Eurozone runs at 60% to 80% and the Bloomberg post I linked to showed support still remained high despite the ECB, a Eurozone institution, squeezing the banks dry of liquidity last week and scaring off tourists, a big source of income to Greece, during the crucial summer months.

      And regarding IT projects, the fail rate has always been that high, including on Wall Street, where IT people are very highly valued (I know one who made over a million dollars in the 1990s) and were generally consultants (which means they are on premises and are effectively employees). Even back then you had bit IG projects fail all the time. It’s much more a function of user inability to specify their needed adequately. They get some stuff back from the developers and add and change requirements.

        1. Yves Smith Post author

          Yes. Each and every one of the nineteen members has to agree, and that includes Finland. In some countries, most importantly Germany, that means a Parliamentary vote.

          When most people think of “creditors” they think of Merkel, Hollande, Lagarde, and Draghi.

          In fact, 60% of the debt to Greece was loaned by the Eurozone countries, and their taxpayers will bear the losses. So when you talk about “creditors” you are talking first and foremost about the citizens of the other 18 Eurozone countries.

          1. Vince

            Most of that debt is from beggar-thy-neighbor Germany running massive trade surpluseses. They deserve to have their excess savings written off. Unbalances are unbalancing.

    2. OttoGrotewohl

      Yup. All we’ve read here for weeks is how the Greek people oppose exit. Well, if the 61% No vote today is a rejection of the idea of exit, I’ll eat it. Actually, its a first step toward the creation of a Greek workers state, an end to the exploitation by the corrupt ruling class that’ runs Europe, and a blow to the war mongering of the criminal NATO/Pentagon leadership that threatens suicidal conflict with Russia. If justice is to be served, there now ought begin a series of arrests and public trials of the domestic version of these filth just to get the idea across of what’s coming for them worldwide.

    3. Cano Doncha Know

      “(Did you two follow John Paulson and take long positions on Greek investments?)”

      LOL 5 hours without a giddy post-vote article about “the aroma of deflation” (or whatever is their usual approach to the latest economic crisis)… that’s gotta be it

    1. lambert strether

      I hate this. I like Golem, but the first link I go to has for its text “Earlier this year Russian also signed a deal with Cyprus to give Russian ships access to Cypriot ports.” So I go to the link. The headline is “Greece, Russia Strike Preliminary Gas Pipeline Deal,” and in the text “The agreement, which isn’t legally binding,…”

      So it’s not about ships, and it’s not a deal. Other than that…


  16. T

    Trade Credit Offsets (TCOs) could help Greece a lot in the immediate future in relation to import/export challenges regardless of currency issues.

    Maybe they could contact M-CAM, who are in a position to deal with the international economic, geostrategic and humanitarian complexities, and who have a track record for integrity. In any case they would be able to bring some fresh perspectives, whether or not TCOs were part of the mix.

  17. TheCatSaid

    BBC predicts “No” vote to prevail. “With more than 20% of votes counted, results from the Greek referendum suggest voters have rejected the terms of an international bailout. Results published by the interior ministry showed about 60% of those whose votes had been counted voting “No”, against some 40% voting “Yes”.”


  18. John k

    U keep saying how bad it will be if Greece exits. I think everybody accepts that. But everybody also accepts that staying, and running an ever growing primary surplus, is also bad.
    Krugman looks at a 1% surplus… The deal is 1 now and 3 in 2017! One example is Romania when C? Paid off the foreign debt.
    So the proper discussion u should have is, what will the economy look like under the two scenarios in say 3 or 5 years?
    My guess is that if they leave there will be aid coming in from the outside, e.g. The U.S., Russia, China, Greek diaspora, investors, plus wealthy Greeks will repatriate money as prices fall.

  19. TheCatSaid

    We’ll soon learn whether Syriza was right that a “No” vote will strengthen their bargaining position. The BBC is posting various conflicting stories about whether the Eurogroup will or will not meet on Monday. (First it said they would, then a little later it said they wouldn’t. Who benefits by the mixed messages?)

  20. George Phillies

    Oxi = 60+ to 40- (No wins in landslide).

    Of course, there are people saying all sorts of things about EU rules, but the EU seems to view its rules the way many Montanans view speed limits. Consider deficit rules as applied to France. Expel Greece? We’ll make the outcome of the vote retroactive to yesterday. Yes, that’s the local attitude toward rules. Tell the Greek Central bank to print new Euros…The printing press and warehouse facilities are in Athens, not Berlin. To any port of outcome there are rule-based obstacles. which rules will doubtless be obeyed by all sides as well as the Greeks obey their tax code.

  21. TheCatSaid

    The comments are appearing at the bottom of the thread instead of under the desired comment, in two attempts.

    My most recent above remarks are meant to be replies to Lambert regarding “This is becoming ridiculous”. (Who is he referring to?)

  22. Edna M.

    I don’t think the 80% number that people have been citing for Greeks wanting to remain in the euro (at any cost) is accurate. Before the referendum vote we were told that the vote would be evenly split between YES/NO. Now, despite closure of banks and threat of ejection from euro (made by certain EU officials), it looks like the “No” vote will gather over 60%. After seeing how the crowd of enthusiastic supporters of NO embraced, even deified, Tsipras, I think that with a few speeches, if Tsipras so chose, he could turn around popular opinion on the euro issue. After all, the NO voters must at least be aware that their vote to reject the creditors’ offer carries with it a risk of an exit, a risk apparently they are willing to take.

  23. myshkin

    With the apparent no vote is it possible the troika would support a temporary grexit; Greece could start to undo the damage of the Golman Sachs fix from 2001 worked with Papadamos’ crowd? At the same time they would have to begin to demonstrate a serious determination to start collecting taxes, they might start on the 50b euros salted away in Swiss banks.

    If the Eurozone offers Greece the incentive of reentry upon making progress on cleaning up the books and reordering the finances it would not only immediately benefit the current crisis but possibly point the way for the unworkable currency zone to work through future local meltdowns. How the debt write down is resolved is another nearly insurmountable problem but there are some signs, the recent IMF report for one talking about some give in this area.

    It is hard to conceive of a way Greece could quickly and smoothly return to the drachma but with so much on the line it is also possible the troika might help with a temporary greek currency float. Schäuble has been less confrontational in tone, “Schäuble told the Bild newspaper that the choice before them on Sunday was between holding on to the euro and being “temporarily without it.” Other, “Economists have mooted the notion of a period in which Greece might go back to its national currency, the drachma, while its economy recovered.” – Guardian

    This assumes a lot of good will and intentions where there have been few in reality and it is unclear what the tensions between Schäuble and Merkel and the Eurozone partners, the troika etc. will resolve but it is a glimmer of hope perhaps.

  24. dbk

    Looks like the ~final percentage is 61.5 OXI, 38.5 NAI (= yes). Interestingly, for the first time ever, the voting by prefecture (of which there are ~ 50) was unanimous – not one voted NAI. A pollster I heard a few minutes ago suggested this was significant, as it indicates that the urban working classes united with the rural poor – normally there is a split.

    About 30 minutes ago, the opposition party leader resigned.

    1. John Yard

      Landslide 60 – 40 for ‘No’. The ‘institutions’ may crush Greece, but their opponents are no longer marginal or fringe across the continent. There are strong reasons for Italy, Spain , Portugal, and France to exit the ‘zone – national self-interest – and the incapacity of the EU Commission and Brussels is self-evident.
      If the EU Commission was smart , it would bind Greece to the ‘zone past the Spanish and French elections.
      BTW, “no’ ran a great campaign. There was clearly a majoritarian thrust to the campaign, in contrast to the usual left minoritarian / sectarian self – destruction.

        1. hemeantwell

          We’ve been in Athens the past five days. From what we’ve been able to glean, Syriza and other left groups put on a intense campaign in working class districts away from the city center where our airbnb is located. TV coverage has been oligarch-managed, just awful. (Our host frowned when we turned the TV off as she showed us around.) One person we spoke with said she only watched a debate between party reps and was appalled to see how the moderator let the center parties (Tariq Ali’s “extreme center” term seems apt) viciously attack the Syriza rep, who managed to remain calm. The ANEL spokesperson was so disgusted he walked out of the studio. Our informant, a pensioner (went to a pension because she had been working 2 days a week) said she had been unsure how to vote, but this performance decided her in favor of OXI.

          We didn’t track referendum predictions closely, but they were usually “too close to call.” We did hear of a leaked memo from New Democracy to a TV station discussing faking poll results. Given the results this should be taken seriously.

          Kouvelakis had a post at Jacobin that goes into a bit more detail re the referendumcampaign. He also notes that Syriza was not doing enough to discuss Grexit options, leaving people more vulnerable to abyss fears.

  25. blowncue

    I just sent an email to my congressman exhorting him to push the President to push to inject a mediator like Bill Rhodes, or Bill Richardson etc. into negotiations, if at all possible. A desperate email, on my part. Which also assumes Greece’s counter-parties will have time for them, as opposed to putting out new, more local fires.

    1. lambert strether

      Obama may say some nice things, but that’s all. First, he’s pro-bank, as the bailouts show, and second, he’s got the Puerto Rucan situation to deal with, and he’ll want to be screwing them as hard as he can.

  26. Mattski

    The middle class–no matter how progressive it may style itself–fears violence; the poor (that is, 99% of humanity) lives it, daily, through the grind of poverty, disease, and hunger when not openly aggressed against by the police state that operates everywhere for the poor. MIddle class analysts, no matter how progressive they may style themselves, will forever counsel caution in such matters, tell us how many are going to suffer. But what looks like slow death to the middle class is already fast death for the poor, and the planet cannot survive this system for much longer–austerity is ecocide. The real honest experiment that is the creation of a socialist alternative must begin now and everywhere. Beginning now will save more lives than muddling through eternally.

  27. c (too)

    Greece turmoil sends Australian dollar below US75c for first time since 2009
    Sydney Morning Herald – ‎1 hour ago‎
    The Aussie dollar dropped below 75 US cents to a six-year low as the heightened risk of a Greek exit from the euro added to slumping commodity prices in spurring traders to sell the South Pacific nation’s assets.

  28. Rajesh

    What if they miss they miss the July 20 payment to the ECB? Could the other Euro countries force Greece to exit the Eurozone?

    1. Robert Dudek

      There is no legal provision for kicking Greece out of the Euro. The ECB has already “suspended” Greece’s membership by limiting liquidity and forcing Greece to enact capital controls. As long as those capital controls remain, Greece is de facto outside the Eurozone.

  29. vlade

    I’ll repeat myself from other thread.

    Czecholovakia split the currency at much less notice that Greek banks ever had. Some of the problems (like cards Clive describes, and ATMs as well), weren’t problém due to the lack of penetration of the market, but all the IT, ISO code etc. existed, and some of them were even worse (around the IT, especially). Re notes, a simple solution is to print EUR notes (which Greek gov’t can), and then debase them with something – so that ECB can’t claim they are counterfait EUR notes, but the existing proces can be bent (Czech used franking of the old CSK, which probably wouldn’t work that well).

    That doesn’t mean it’s easy, but under pressure of necessity a lot of things can happen much faster than otherwise.

    I was going to write on capital controls, seems events overtook me. There was no chance in hell Greek gov’t would stop food payments. Which of course means that capital controls are porous, but they always are (just ask Chinese).

  30. rsj

    This is insane. There are tens of thousands of more complex (and better written) systems than this. The author is claiming that when faced with a permanent depression or needing to roll out a new payment system the Greeks will be forced to choose depression because “OMG it’s complicated! We’ll need new cards!! New software!!”.

    The Greeks have very talented software engineers and payment system professionals. They can make their own money. Then they will need to pay for exports with foreign currency, like much of the world. The Greeks can make their own payment system. The idea that banking is some magic that crude people will never be able to take into their own hands is both condescending and ignorant. Financial tech implementations are generally crude and out of date in comparison to the tech found in more modern industries. Supply chain management software is often much more complex, and yet individual firms can replace their supply chain management system. It’s a pain in the ass, but when survival is at stake you do it.

    1. Yves Smith Post author

      Have you ever done IT? I have have chief technology officers of top Wall Street firms as clients at various points in my career. There are plenty of cases of major development projects, both at single firms, and projects across firms (industry initiatives) that failed, as in never got done. We are talking expenditures of $500 million (at then Merrill) and over $1 billion (across firms on a bond platform) that were a total waste. And these places had established IT operations which were widely considered to be solid (you have to be or you go out of business rapidly) and knew what they were doing (BTW none of these were my client but these failures were well known in the industry).

      Bank and financial services IT have extremely demanding requirements. These are actual conditions. Payments systems have to run to mission critical standards, much higher than for normal IT. If you haven’t developed to the standard required, you aren’t allowed to connect to the international systems. The Vatican (a nation state) is an example. The fact that it has to deal with legacy code isn’t the issue. No industry has remotely the transaction volumes and fault intolerance of the financial services industry. The fact that you are comparing it to other industries shows you have not even begun to think this through. The money part of all the supply chains of all other industries combined runs over payment systems! And that’s before you get to all the stock and bond and foreign exchange trading they do.

      You may not like it but that happens to be the case. And this is one of the reasons the Greek government has rejecte

      Plus as the post lays out, the changes are not in the hands of Greece, but are significantly in the hands of parties outside Greece.

      1. Erwin Gordon

        As an IT consultant for the last 25 years, what you are saying is true about IT projects. But what you’re missing is that banks and most financial service firms live in the stone age. The banks are not only insolvent and have been for a long time, any person with half a brain would know NOT to keep the funds in a bank because their money is not being warehoused at all. Nor is there any real insurance. And as for mediation between creditors and lendors, please. All of this stuff can be done far cheaper, far better and a far lower cost using P2P platforms. All the tools for eliminating banks are already in place. We are just one major crisis away from people starting to wake up and use it.

        As for the scalability, that will come with experience as more and more commerce uses the system. But given the fact that we now have ample experience with systems that can handle hard real time limits of say 2 seconds to complete a transaction while handling thousands if not millions of transactions per second, that expertise will just move over and be used to scale up systems based on virtual currencies.

        1. Nathan Tankus

          this is delusional. even if anything you were saying was true, there still needs to be people on the other side to accept payments. the idea that in a month or two greece could not only get a relatively small kludge but create an internationally used payments system that will be used the world over is insane.

          Show us a detailed plan for how your scheme works the world over or please stop trolling us.

  31. Erwin Gordon

    Or Greece could leverage the existing payment systems that exist for numerous virtual currencies. Going back to issuing drachma notes is just stone age thinking. Plus they can leverage functionality in the blockchain to automate a number of process such as bookkeeping, taxes, etc. What matters is that the stabilise the situation internally as quickly as possible. As long as they have goods and services to trade, they will always find willing counterparties.

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