Why Central Bankers Should Not Be Trusted With Money: Greek Exit Edition

Readers have hopefully taken notice of India’s botched effort at demonetization. Our Jerri-Lynn has chronicled the chaos it has created across the economy, particularly for farmers and the poor. One story we linked to described how a company that did not deal in cash nevertheless took a huge revenue hit.

One problem with any effort to demonetize or introduce new currency is that it needs to be done in secret so as to prevent retail and business customers from gaming against the central bank. Even so, India’s effort showed a shocking lack of understanding of how currency was actually used in the economy, as well as an abject failure of planning.

Outsiders might chalk this up to India being India, as in famous for not having the greatest bureaucracy.

But we were stunned by an exchange yesterday with an economist who has written things that are quite sensible in the past. The subject was a Greek exit from the Eurozone, since Greece is up for yet another bailout negotiation. The IMF is saying, as it has for the last two years, that the Greek debts are not sustainable and it therefore needs debt reduction, meaning writedowns. But as we describe longer form in a related post, that is anathema to European governments. Under their budget rules, they’d need to recognize those as losses, which means they would have to raise taxes or cut spending to fill the gap. That would be economically contractionary as well as hugely unpopular.

In addition, it is possible that the IMF might be able to sit out or have a very reduced role if the Trump Administration does not pressure the IMF to stay in. It’s over my pay grade to sort out this far in advance how things might play out. The EU lenders regard IMF participation to manage the borrower country as essential, since they don’t have staff to do that sort of baby sitting. However, the irony here is while the Greek public hates the IMF due to its historical role, the IMF is now the most reasonable and sympathetic member of the Troika (which admittedly is a low bar, what the Japanese would call a height competition among peanuts). Thus the irony is having the IMF depart or play a smaller role is likely to result in even harsher treatment for Greece.

With this as background, our economist brought up the idea of a Grexit. While we understand why this idea sounds appealing (who wouldn’t want to flee from a cruel gaoler?), we looked at the operational issues in considerable depth in 2015. As hard as it may be for non-bank-IT readers to believe, it would take the better part of a year merely to get physical currency printed and distributed. But the bigger issue is that reintroducing a Greek currency, from a systems perspective, will take over three years due to how many parties are involved, how much non-standard code kluged over many years has to be reviewed, and how many parties won’t give a redo very high priority. There are good reasons why it took eight years of planning and three years of transition for the introduction of the Euro to go smoothly. And a ton of code and modules have been written since then.

Here was the, erm, remarkable idea that our economist offered, and it apparently came from “central bank people”:

I’ve spoken to central bank people. It’s no big deal.

You stack the ATMs with stamped euros. You can print them and stack them over a bank holiday weekend.

For imports the domestic CB sets up an account with the ECB or other domestic CB. Can be done in minutes. Like setting up a new savings account down the line. Ditto for exports.

Now anyone who knows anything about about bank IT knows that absolutely nothing happens in “minutes”. Even projects that seem trivial take months. And the IT part extends across banks and other payments systems participants. We won’t belabor that part here, you can read some of our many posts for details (see here, here, here, here, and here for starters). In comments, bank IT pros all said if anything our assessment was optimistic.

We got more detail in further messages:

The euro numbers would be wiped out. Either by reprinting them with new numbers or by bleaching them if they are physically stamped. You could physically stamp the currency in the banks in house. All they would need would be a barrel of ink, a bunch of stamps and some bleach to get rid of the serial numbers.

The ATMs need not change at all. They will look the same on Tuesday as they did on Friday. They will just spit out stamped euros that will now be counted as drachmas. The stamped euros can either be reprinted with an integrated stamp or literally stamped inside the banks over the bank holiday weekend with old fashioned rubber stamps.

I suggest you work though in your mind what it would take to collect and physically stamp huge amounts of currency. You need to sort the bills so they are all oriented the same way, then have them bleached and stamped, and then they’d need to be checked too.

But putting that aside, let’s turn over the mike to our payments systems expert Clive:

Dumb thinking must be rebuked on sight, in my opinion! Otherwise, it’s contagious… “The ATMs need not change at all.” Utter, total rubbish!

You are totally right about the bulk cash handling side of this suggestion – just “stamping” the old euros is a logistical nightmare because you have to be 100% sure you’ve stamped all legacy euro notes in issue. We’ll gloss over what you’re supposed to do with coins too. You can’t stamp those so presumably you’re supposed to manage without lower denominations of your currency and anything that needs coinage.

Economist X is such a clever guy normally, but as all-too-often happens, when people want to believe in something and they have gaps in their knowledge, they fill in the gaps with magical thinking that fits in with their idealised solutions. Unless you really – really, as in operational knowledge – understand how an ATM works specifically and the payments systems work in general then it is unwise to speculate and even more unwise to rely on that speculation.

First things first. let’s look at the ATM side. You can indeed fill an ATM’s cash hopper with anything you like, so long as it matches fairly closely the properties of the voucher it was designed to accommodate. So you can put euros in euro-compatible hoppers, dollars in dollar hoppers or whatever. If you, then, filled a €20 hopper with stamped €20 notes, it would “work” – the ATM would happily issue the “new” currency.

But let’s just stop there for a second.

Has no-one ever wondered why, exactly, such care is taken in note design by central banks to make sure that not only are one country’s denominations different within each currency, but also that each country’s notes are different to all other country’s? To stop precisely the scenario which is being proposed here

ATMs, parking meters, vending machines, self-scan checkouts and so on cannot — repeat – cannot be allowed to have a voucher inserted that can be mistaken for a different voucher. There would be nothing to stop “stamped” euros being taken into another euro-using country (and, I imagine, obtained at a huge discount to the old euro face value) and spent in such merchant equipment. Put it this way, if you could obtain unlimited quantities of these “discounted euros” in another country, then return to a real, proper euro-denominated country and spend them in automated checkouts, well, I would be on the first plane there to take advantage of this chaos.

Leaving that point aside and returning to the ATMs, okay, you can get the ATMs to issue the stamped euros. But what happens in terms of a money transmission system transaction? You put your card scheme (VISA, MasterCard etc.) card in the ATM, request the desired amount of “stamped” euros and then the ATM issues the notes. Let’s say you’ve asked for 100 “new currency units”. The ATM issues, say, 5x “stamped” €20notes.

But unless the ATM’s microcode and the card schemes are updated to know that this particular ATM is no longer dispensing real, genuine euros but now, instead, “stamped” euros, then the card scheme will assume that it has just given you 5x €20 “proper” euro notes. The card scheme of the card you’ve just used will send the transaction back to the account (either checking or a credit card account) which has issued you your card and will request authorisation for a €100 cash withdrawal.

I think you can see what’s coming next. If you are, for example, a tourist and your account is held outside the country, the card scheme will present a €100 debit request and, assuming you have sufficient funds on the account available to stand that, authorise the owner of the ATM to collect that €100 via the international payment system (there may be a long, long chain of banks and other parties in the end-to-end transaction). The settlement will happen automatically. But when you check your statement and see a €100 debit, you’ll say to your bank “hey, wait a minute, I didn’t get euros, I got those crazy stamped notes which were only worth about (say) $30”.

You’d request a chargeback. Depending on the attitude of the ATM owner, they might well refuse (I don’t see how they’d have any choice at all but to refute the chargeback) and do a chargeback reversal. The card scheme would be in the position of having to arbitrate.

Except they wouldn’t The card schemes are not resources and not prepared to even get involved in this kind of sticky mess. They’d – within 24 hours – block all transactions from the country issuing the “stamped euros”. Anything and everything coming from ATMs, EPoS, card-not-present and other transactions would get a straight decline when the authorisation was requested. The card schemes would show no mercy and cut no slack. Most likely, the offending country would not be allowed to participate in the merchant side of the card schemes for years to come, until the offered absolute certainty they wouldn’t be causing the sorts of trouble that the proposal below would generate.

Visa and Mastercard are both public companies in the US. They have no business reason to cut Greece any breaks. Mind you, “not participating in the merchant side of the card schemes” means not just that ATMs would be cordoned off, but all merchant accounts, such as retailers, hotels, restaurants, and car rentals.

No wonder why economists are so keen to get rid of physical currency. They can’t bring themselves to talk to operations people who might tell them their clever schemes won’t work.

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  1. Samhill

    Oh, ease up Yves, I know how to sell you on ‘stamped’ euros but unfortunately euros don’t have the needed portraits like USA money. Instead of new numbers how about stamping a gotee, mustache, and horns over each portrait? You couldn’t say no to that!

  2. craazyman

    Why can’t you sidestep all this by issuing a new drachma as a parallel currency? Keep the euro and avoid the IT mess described. Use the new drachma for local and regional cash transactions that help alleviate the misery of the most dispossessed of the populace. Like MMT says, let it be acceptable for taxes (if they’re willing to pay taxes that is). Deposit it in banks, withdraw it from banks and have it be convertable to euros. That may be “illegal” under EU law/ECB policy — I have no idea. But it would work (probbly anyway) — provided the now-degraded social & economic institutions are healthy enough to be re-animated by the energy of an available means of transaction rather than suffocated by the lack of it. If it worked, it could spark the economy and make Greece better able to pay back euro debts.

    1. Yves Smith Post author

      Huh? You still need to account for a new currency with banks which means drachma and euro accounts. Many people pay with credit cards, so all the EPoS systems up the chain need new coding to handle drachma and the price conversion to euros.

      1. craazyman

        If somebody can afford to pay with a credit card they probably don’t need drachma. Cash transactions by impoverished citizens are what a parallel currency could catalyze. If people are starving and can’t pay doctor bills or buy food or pay rent (all of which have regularly appeared in reports posted in your Links here) — and likely have no working credit card anyway — this ould help. They can have cash accounts at banks. The currency can be converted, at banks in person, into euros, etc.

        I think you guys are locked in to an “either/or” framework and can lose sight of the forest squinting at the infotech trees.

        1. Yves Smith Post author

          It can’t be converted unless the banks can account for what happened…which means dual currency accounting. They’ll need dual currencies regardless if they are to handle trade business for business customers.

          And the money they have in the bank would be force converted to drachma…instantly making them poorer in purchasing power terms for anything from abroad, which included most grains, fuel, and drugs. Anyone who thought a Grexit was happening would drain their accounts and hoard Euros.

          1. OpenThePodBayDoorsHAL

            On the cash side, they could just accept euros manufactured in Greece, they all have a “Y” in the prefix on the note. Greek euros would trade at a discount/premium to their Eurozone counterparts. Price everything in “Y’s” and pay local wages in them. Tourism would boom, Greece would be cheap again.

            1. Clive

              Oh no, not this one again. It keeps turning up like a bad penny, if you’ll forgive the pun.

              No. Remember that the euro is called (in EU) “the common currency” for a reason. “French” euros can be spent in Germany, “German” euros can be spent in the Republic of Ireland and “Ireland’s” euros can be spent in Greece and “Greek” euros can be spent in Italy.

              Forcing every euro currency user to check and then covert every euro note they either have or which comes into their possession bearing the “Greek euro” identification would inflict pan-EU disruption not to mention costs. Yes, Greece could try to take this action. But a) that would burn their bridges with the rest of the EU who would likely want to expel Greece from the union in retaliation. And b) it would be chaos in Greece as everyone would be hunting down “non Greek” euros which would be worth potentially double the face value of the “Greek” euros.

              And how would Greece replenish its stock of “Greek” euros without printing more of them with “Y” serial numbers? As soon as it did that, the ECB would say — rightly — they are engaged in counterfeiting.

              1. Praedor

                Again, so? (meaning the accusation by the ECB of counterfeiting). What is the ECB gonna do? Whinge? Throw a hissy fit? Glare?

                1. Clive

                  How about no wire transfers either to or from Greek banks to euro zone countries and expulsion from Schengen? And that’s just for starters. The previous bank holiday lasted just over a fortnight before Greece was forced into capitulation. That was a mild slap on the wrist compared to what else could be imposed.

                  1. Audrey

                    Some local currencies-albeit I am not sure how many of them are bitcoins- have been circulating in European municipalities sanctioned by their city governments , for example ,Nantes, Bristol, Sardinian towns…. I do not think EU institutions have taken any measures against this. It goes without saying that transferring the idea to an entire EU member is a different beast, as much politically as what its feasibility is concerned. What do you think?

              2. Jonhoops

                “a) that would burn their bridges with the rest of the EU who would likely want to expel Greece from the union in retaliation. ”

                Mission accomplished … sounds like Greece should follow this strategy.

                1. Clive

                  See above. Merely cutting off access to euro liquidity took Greece out to the woodshed the last time. And you want Greece to behave worse? Someone obviously never learned the lesson most of us get while still at our mother’s knee — the one about poking a stick into a wasp’s nest and how that works out for the boy who is holding the stick.

          2. mcarson

            What about using Argentina’s money? Already printed, coins minted, either forever or until Drachmas ready? That could happen pretty fast.

        2. Clive

          Greece isn’t quite a developing country yet (despite the eurogroup’s best efforts).

          5% of GDP is done via card transactions. And ATMs per capita is average for the EU.

          These are not signs of a society that can go cash-only overnight or even during the course of a few months. How, without expending capacity at bank branches (more tellers, more teller windows, more cash storage facilities, more cash distribution trucks) will the activity migration you’re suggesting be achieved?

          To avoid more economic shock, you want more cashless payments, not less. So this means that credit-worthy people should be encouraged to use card and other electronic payments to allow the existing — limited — capacity for cash issuance to handle the demand from those who are not eligible for a credit or debit card.

          And killing off credit cards wipes out a huge chunk of potential credit creation. The last thing Greece needs is a retail sector credit crutch because — even if they are credit worthy Greeks and have a line of credit (or their tourists bringing with them spending power via their credit cards) — you’re insisting they have to use cash.

          I hate to come here and bring only a tale of woe but I’d rather point out the limited treatment options available than proffer quack cures like yours that will kill the patient stone dead.

          1. craazyman

            I’m not going to get emotional but I’m a loss to understand what world you’re living in.

            “Killing off credit cards” “Cash only” — who said that? Why would that happen if the entire payment system and euro currency is preserved. Nothing would change. That’s what my first comment floated as a question — whether a “parallel” NOT “substitute” currency might be issued in small quantities where poverty is horrendous and where businesses and services could be re-animated IF there were a trusted means of payment.

            It’s not either/or or one vs. the other.

            It may not work but to frame my honest question as a “Quack Cure” is undignified rhetoric, as if this were a global warming debate. Do you have a that hard time going off your book or challenges in the area of reading comprehension?

            1. Clive

              “It’s not either/or or one vs. the other” — okay, name me one other example of a country which has run anything approaching an even vaguely stable economy with two currencies in circulation? The nearest I can think of — and it certainly doesn’t qualify for “stable” is Zimbabwe where petrol coupons became a quasi-currency after the official one perished in hyperinflation. Then there’s a whole raft of other countries where there is unofficial dollarization in response to a loss of trust and confidence in the sovereign currency. Neither of these “solutions” help the poorest and most vulnerable in these country’s societies. Rather, the benefit (as in, they have the least-worst impacts) is for those who can access hard currency.

              Now I’ll get to the quackery. One definition is:

              “the methods and treatments used by unskillful doctors or by people who pretend to be doctors”

              We’re not doctors in this context, but we are discussing methods and treatments. Your notion claims to be both retaining the ability to use card payments while at the same time introducing a new, parallel, currency which must be operated on a cash-only basis. So the rich (or not desperately poor, anyway) get hard currency and credit, the poor get the new cash-only currency? So when it comes to “Killing off credit cards” “Cash only” — who said that?, you did. You didn’t add “for the poorest in the country”, but I kindly fixed your omission for you in my reply.

              Decades ago, emblematic of the worst abuses meted out to workers in English mill towns was where the unfortunate mill operators were paid in “vouchers” which could only be spent in the “company shop”. Suffice to say, the owners and managers of the mills got hard currency (sterling) and could spend this or save this wherever they liked. If I squint hard enough, your “parallel” currency which might be issued in small quantities where poverty is horrendous looks an awful lot like those mill town vouchers to me.

              And this is supposed to be a help to the working class?

              If it looks like a duck, walks like a duck and quacks like a duck…

    2. craazyboy

      If they brought back slavery in Greece, then they wouldn’t need fiat currency. They would have fiat labor, which is more enforceable. Plus, for the drachma to be convertible with (non-counterfeit) Euros, someone would have to take the losing side of the deal. Not so likely methinks.

      For comparison, they do have a parallel currency system in panama, but no one uses the Balboa. They use US Dollars and they get them the old fashioned ways. Altho in panama’s case most of them just appear in banks! This is not quite the same as banks creating money. Or credit, depending on if the meaning of words is important when discussing these things. But even with slave labor, Greece still needs to get an acceptable foreign exchange currency. Maybe exporting slaves would work? It used to.

      This whole money for goods and services is really not as complicated as some people make it sound.

      1. craazyman

        I know I’m right. :-). These people here are technocrats with reading comphrehension problems and thhey lack imagination and protean creativity.

        When I channel this, it has the “ring of truth in my mind.”

        This is what I’d do: I’d print up some “euro Lites” with a picture of a really hot Greek woman on them in a toga and I’d say “OK Greeks, now’s your chance. You can use these to pay taxes! But you better pay them or these won’t be worth a drachma. If you do pay your taxes, then these are euro-lites and you can use them to cooperate with each other in small businesses across Greece. You can use them to buy food, beer, wine, ouzo, shots of tequilla, espresso and gyros. Or you can use them to pay for the bus. Or the train. Or your plumber.”

        That should get the dormant cooperation structures moving around and walking. They could deposit them in banks but if they wanted euros for them, they’d have to have the currency exchanged manually by a teller. Just like the old days, when Albert Camus went to the currency window and got his french francs for lira. Those were the days, The days when a shoe salesman could win the Nobel Prize and have it mean something serious.

        1. craazyboy

          They way I see it is just export all the hot Greek women to the playboy Euro trash and all the old, decrepit Euro rich perverts. They pay a ton of money for that already and why let all that money go to Slavic and Russian women? Just makes the Eurozone trade balance worse.

          Then, since the sugar daddies already buy the girls dinner, red wine, expensive clothes and a bed in a McMansion, the Greek guv can charge 100% tax because the girls don’t need money for anything. Then, the government doesn’t have to tax poor people with no money so the poor peoples’ money stays worth something. They can just buy them essential things. Call it welfare or something like that.

          Come to think of it, if there aren’t enough hot Greek women to support the whole country, then they could do the same thing with rich old Greek dudes. F*ck ’em and tax the crap outta them, I mean.

          1. craazyman

            It’s a perfect opportunity for MMT! They spend the money into existence to pay for medical care, relieve homlessness and hunger, pay for essential transportation services, etc. Get some blood into the body.

            But don’t print to the moon! Keep it disciplined and well planned, if they can. If they can’t, well, that would be a problem.

            If they can, the money would percolate around, save lives and give people hope, and fill up the lower levels of the street economy that don’t have access to euros — which is why they’re suffering so bad. It’s like repairing the foundation of a house. You repair the foundation, then you can build securely and make it bigger, where the euros take over.

            1. craazyboy

              I guess these hot Greek sex slaves will need pimps. Gotta make sure the Euro trash dudes and rich old farts pay up. Then collect the 100% tax from the girls and send it to the Greek government officials to properly distribute to the poor people. Next, firstly, jump start the economy with it and, next, continue to stimulate the economy.

              Back a few hundred years ago in Merry Ol’ England the street economy just used Spanish silver because the government didn’t know they should print money. Then Newton came along and they minted gold and silver real English money. I bet that would work nowadays in Greece too?

              1. craazyman

                OK I have to admit I didn’t explain the euro-lite idea very well. The intrinsic erudition should be self–evident but sometimes the moving parts need to be painstakingly explained. You think “Isnt it obvious!?” No is the answer. Not always. Not everybody has a mind that illuminates hints of possibilities into fully drawn and fleshed out holograms of deterministic clarity. Even though I do. Hahahahaahhah

                It’s true you’d have a hard time with convertibility, both for IT reasons and you’d have to defend it against a run, if due to lack of confidence if everybody saw it as a hopeless scam, wanted euros for their euro-lites and it went to zero like a drone whose sofware rebooted in mid air plunging to height h=0..

                So, the govermint would have to establish a tax value — say 2 euro-lites with the toga chick’s pic on them for 1 euro, accepted at tax time. That should fix the value — but people would have to pay taxes, no foolin. Then you’d have to defend the value by, say, only allowing paper money conversions at a bank at the fixed exchange rate of 2 to 1 and wth some kind of quota. That would give it a stable value and force people to keep it and use it.

                Then, the govermint could spend it into circulation through poverty and misery alleviating measures — critical social services, transportation services, food banks, etc. People would work for euro lites-based salaries or payments since they’d have value and they could spend them and pay taxes with them. You could also give them out as social payments to help alleviate miseery. This would get it circulating around. Of course you’d have to do this carefully. No wild eyed printing and handing it out to cronies and friends. It’s not necessarily an easy thing. And a crucial prerequisite is that social cooperational structures (both in terms of cultural stability and businesses/local economies/communities/etc.) need to exist, be capable of rejuvenation and require only a means of exchange for animation — that’s a really important idea that can’t be dismissed or minimzed. You can’t just create these from scratch, they have to exist as potentials and you have to simply animate something that’s dormant for lack of fuel.

                People could deposit euro-lites in banks and use them to make payments for ouzo, beers, whiskey shots, tequilla, night clubs, restaurants, espressos, gasoline, plumbers, carpentters, massages, cakes and pies, bus fares, taxi fares, fine Northampton shoes sold at retail stores, hotel room rents on Greek Islands, olive oil, feta cheese, gyros, bar tabs, scotch, doctor visits, visits to tourist traps, afternoon glasses of wine in cafes, after dinner drinks, brandies, cognacs, desert wines, cigars if someobdy wants, jewelry at a store, shirts and pants, and electrical services and vegetables.

                It wouldn’t do much good for buying 500 million euros worth of oil from an OPEC supplier, that is certainly true. But it might rescue people on the margin, who are in pain and misery, hungry, cold, hopeless and despondent. If you get them feeling useful and involved in society, it could only help cultural morale, improve social cohesion, catalyze stronger economic activity and ultimately make the euro work better and get the country off skid row.

                1. craazyboy

                  But it’s a problem with the massive amount of public, municipal, corporate and private debt Greeks have to pay back. Plus a large trade deficit not helping either. So nothing works money wise long term unless they can get debt relief, because they’d have to print a godzillion Euro Lites over time. But if they get the debt down, I read a few years ago that, ex debt payments, Greek national taxes did cover spending. However, they still have a massive amount of muni, corp and personal debt dragging them down.

                  So, barring debt relief or foreign aid from somewhere, I still think the hot Greek women should start shagging rich people for tax money.

                  The synergistic benefit is this will create jobs for Greek pimps, and it doesn’t take any school or training to be a pimp. Just think of Herc & Merc cavorting along the seashore and pumping the iron to be body build big! If all their hot women are leaving for northern Europe to shag rich people for mega euros, it should be easy to talk all the Herc & Merc bros to go along and be pimps. Provided they get a little on the side too.

                  Plus, the Greek government could always just tax rich people. That would would help a little too. They may need to put the rich people in jail to keep them from running away, but it would be one way to get all that muni bond construction spending back.

                  1. craazyman

                    It does make one wonder why the Greek govermint has such a hard time taxing people, espeecially rich people. You’d think they’d be the easiest to tax because “that’s where the money is” — like Willie Sutton and banks. But they seem to be the hardest to tax. It’s like taxing Mt. Everest. For snow. OK, well massive amounts are there but you have to climb to 25,000 feet to get at it.

                    There’s no way euro-lites will solve Greece’s debt problem. No way. The best they could do is solve the Skid Row problem and ameliorate the worst of human suffering. It needs to be kept in perspective. But doing both would be virtuous. I appreciate that conventional fiscal govermint bookeeping would require that euro-lites be “borrowed” from somewhere, creating more debt. That’s an intellectual/analytical point of traction for a considerable essay treating upon the idea of money — which I’m too lazy for now. But every debt — due to double entry bookeeeping — is also an asset. Some assets are concrete, like concrete construction projects. Some assetts are abstract, like goodwill on corporate balance sheets. The govvermint equivalent of goodwill is social stability, since no economic activity or taxation can occur without that. Valuing govermint debt is easy but valuing govermint assets is hard — or at least it’s subject to considerable uncertainty and indeterminism. As a result, the gap between the two lends itself ((no pun intended) to political hubris, invective, conflicting narratives, honest disaggreements, mudslinging and compromise. Would the asset associated with euro-lites, were they to be measured as debt, be hard to value and would it represent a positive ‘net worth.” I guess that’s a matter of opinion, but saving drowning people is a law of the sea and nobody questions whether it’s valid. They do it and congratulate themselves and give themselves honors and medalls of valor when they succeed.

                    1. craazyboy

                      A big problem in the modern neo-lib world is a lot of the debt represents stolen money that’s become a few peoples’ assets in a numbered Swiss bank account. Or it was “earned” in a legal way, but it sure seems like theft. But then it got used to buy all the non debt assets in the world. So now only a few thousand people own almost all the non-debt and debt assets of the world. If they foreclose on themselves, they net out owning the whole world outright. What a cool trick that is. Like Trump always says – They Are Winners!!!

                      But we all know that. So what to do. Steal it back is the only answer.

    3. TheCatSaid

      How would importers such as pharmacies and food distributors make their purchases in US$ or Euro if their revenue is coming from the new drachmas?

      It seems the problems arise from the IT/payments systems inability to translate one to the other until internal IT work is done.

      I believe many local work-arounds might be constructed (as in Ireland when the banks were closed for months in the 1970s and people issued and accepted IOUs), but import of key items would be the weak link.

      Has Greece done anything to become more food independent in recent years, as Russia has done? If so, that would allow a wider range of options.

      Any parallel or alternative has to provide a way for people to obtain basic life-saving necessities: food, medicines, fuel. AFAIK Greece is still heavily dependent on imports for these items.

  3. Praedor

    The chaos you highlight, about being able to take a stamped euro into another EU country and spend them as normal euros, is a plus! Greece should WANT to inflict such chaos on the EU. Do it, and cause the Looters of Brussels some real pain. It’s high time for Greeks to gain at the expense of the EU in the most damaging way possible.

    1. Yves Smith Post author

      Greece got a taste last time of what defying the Troika did for them. You don’t need tanks to subjugate an economy. If the ECB were to cut of Greek banks from Euro payment systems, that would shut their economy down pronto. Did you not pay attention to when they achieved a similar result in early 2015? Greece was having food, fuel, and drug shortages in a mere two weeks. Businesses failed too. The damage would have started going exponential had it gone on another week.

      Greece is not an autarky. It is a small open economy that isn’t self sufficient and also depends on the EU for trade, as in it also needs them for exports. It is in no position to antagonize a much more powerful party on whom it depends.

      Greece would not be putting up with all the horrid abuses now, including being an open air refugee camp, if it had better options.

      1. TheCatSaid

        It’s a pity Greece hasn’t been more proactive to become self-sufficient in food (at least), like Russia has done. While Greece doesn’t have oil & gas to sell, aren’t there possible policies to proactively move towards sustainability, at least regarding food?

        Greece could have used the most recent 1.5 years to move towards Grexit by starting to do the necessary IT work. I guess no one in Greece reads NC.

        1. Yves Smith Post author

          The problem is it isn’t just Greece. Major international banks and all the players in the various payment systems also have to do tons of extra coding. The parties have to agree on what code (as i 3 letter designation, like I believe GBP for the pound) will be used for the new drachma. Even that is an international standards issue. Greece can’t assume they can use the old pre-Euro code because that is probably floating around in the bowels of some legacy systems and could cause problems if used again.

          1. TheCatSaid

            The thing Greece has the most control over is to promote self-sufficiency in food. Medicines and fuel not so much, but why not food? And locally-produced herbal medicines?

            And they could promote local LETS-type currencies, even though their impact would be small and would not help regarding imports/exports/taxes/tourism.

            Doing something is better than doing nothing.

            1. dbk

              Actually, no, they don’t. A little-discussed EU institution called the CAP (=Common Agricultural Policy) has pretty much divvied up cultivation of food and animals in the entire EU, and countries really aren’t in control of their own agricultural policy, and haven’t been for a very long time (since the 1960s).

              The goal was to increase efficiency and decrease intra-EU competition, and the model was industrial-scale production.

              Greece is small (about the total area of Pennsylvania). It doesn’t have much cultivable soil (more than half the country is forestland), and what it has is generally poor, with only a couple of extensive plains where food staples can be cultivated, e.g. the plain of Thessaly, where wheat can be grown.

              Because of its mountainous and maritime terrain, with small plots (7 hectares average) of irregular land not amenable to large-scale cultivation and harvesting, Greece cannot benefit from economies of scale in agriculture.

              It produces fine wines in small quantities (too small for profitable export), and earns some funds through exports of vegetables, fruits, and fish (fresh/frozen/preserved). It also produces olive oil of the highest quality in Europe, which is exported to Italy where it is used to “cut” lower-grade Italian oils and then exported from Italy.

              There is a certain irony involved in the country’s having been designated to produce luxury-quality/exportable fresh foodstuffs, but there it is. Greece can never become an agricultural country in the modern industrial sense because of its geography; the idea that it would produce small quantities of a wide range of exportable luxury foods and seafood (with the longest coastline in Europe) must have seemed reasonable in the eyes of technocratic agricultural planning organs in the 1960s.

              The truth is, Greece hasn’t enjoyed food self-sufficiency since around 700 BC, when colonists from the southern part of the country began looking to the east (Asia Minor, the Pontus) and the west (Magna Graecia) for cultivable grain land.

              Now re: pharmaceuticals, I’m always puzzled by these comments when they arise on NC. Actually, Greece has a small but high-developed and sophisticated pharmaceuticals production capability, both for generics and as a partner in producing originator drugs. In fact, this is one sector capable of tremendous expansion. Drug shortages have more to do with bizarre pricing regulations, esp. on originator drugs, which drive up the price of some drugs beyond the ability of insurers (the state, that is) to cover the cost, and this results in a vicious cycle of under-production even though domestic facilities are operating below capacity.

              The EU has affected far more than the currency in member countries over the past half-century.

              1. TheCatSaid

                Small-scale mixed holdings using holistic management approaches such as those of the Savory Institute could enable subsistence agriculture. “Economies of scale” reduces land productivity at the most fundamental level. Land can be far more productive when it is not being downgraded by “economies of scale” using lots of inputs such as mechanization, artificial fertilizers & pesticides.

                There are probably some tales to be told about the Greek pharmaceutical industry to explain why the shortages are so severe. Most of them may do more harm than good, but I recognize that most people have drunk the Kool-Aid about modern pharmaceutical medicine being “advanced” and have little or no experience of the plethora of alternative approaches.

              2. Oregoncharles

                “. It also produces olive oil of the highest quality in Europe, which is exported to Italy where it is used to “cut” lower-grade Italian oils and then exported from Italy.”

                That’s idiotic. No wonder they’re in trouble. In general, you’re making a case for getting out of the EU, too.

                It’s really bizarre that an invention for such a valuable purpose – preventing further European wars – has turned out to be so destructive in practice, and might wind up precipitating yet another European war. It’s a lesson to us all.

                1. Yves Smith Post author

                  Why is that nuts? Spain is actually the world leader in olive oil production. You have two very large producers of commodity olives. Greece does make more in revenue terms on its acreage by going high end. There’s lots not to like about the CAP but that isn’t an element I’d hold up for criticism.

      2. TomDority

        It seems a sad state of affairs that the international community, the european union et al are not up in arms about their brothers and sisters being subjugated to “horrid abuses now, including being an open air refugee camp” because it has no better options.
        I suppose the EU would rather sink the ship than admit it has a holed boat.

        1. Praedor

          The looters that are the German populace and the Belgian populace LIKE the rape of Greece. They seem to think that the Greeks DESERVE it for needing to eat and breath. HOW DARE THEY! Plus, it allows them to carpetbag in and steal Greek realestate and treasures at fire sale prices.

          Germany is a leech. It sees the EU and all its internal transactions as zero sum. In order for Germany to make bank, all other MUST be raped. They MUST lose.

      3. Praedor

        How can they possibly starve MORE than they are now? The Looters of Brussels have already forced a HUGE swathe of Greeks to be, literally, homeless, penniless, hopeless. There’s no recovery possible under the current regime of the EU. ANYTHING that shatters it and helps destabilize the EU is automatically a good thing. Hell, Greece should push for all its destitute to flood Berlin streets and place a huge drag on Germany’s social services. Make Germany pay for what they’ve stolen.

        There is NO way to argue otherwise: what the EU has done/is doing to Greece IS VIOLENCE and it must be met with violence and ANY other tool the Greeks can muster to inflict pain upon their oppressors, whether that be via counterfeiting, robbery of EU carpetbaggers, flooding Belgian and German streets with restive Greek refugees, OR actual violence against their oppressors in their own countries.

        1. River

          I’d go one step further. Print 3 million EU passports, sell them to Turkey. As long as the forgeries are good enough who cares? Erdogan won’t.

          Have fun EU, you thought the migrant crisis was bad before…Greece could just keep a list of the numbers on the passports to prevent those people from entering Greece.

        2. UserFriendly

          It’s a wonder to me that Germany isn’t an international pariah. Can they go more than one generation without causing immeasurable pain and suffering in the rest of the continent?

        3. Marc b.

          Yes, I must be missing something too. Greece can’t leave the EU because of a problem issuing new currency, and if it had better options it would have already left. What a load of circular reasoning.

  4. Shom

    Why doesn’t Greece make a noisy effort in printing actual Drachmas? It might take all the three years, and might have the benefit of providing a few jobs if done locally, but they can always hold a “drachma system” in reserve, can’t they? This would just be like the Brexit drama that is playing out now; we’ve all known from the past summer that it is happening, but its not scheduled to complete for another two years yet.

    Creating a Drachma system in parallel would be a great government jobs system. It might give them some more leverage with the EU too, given Brexit is also happening. At the end of the day, if Greece and EU reach an amicable settlement, Greece can create souvenirs out of the Drachmas printed and try recover some of the expenditure. If not, Greece will be in a much less painful place than it seems to be now in implementing Grexit.

    The Indian demonization scheme, it can be argued, needed secrecy to fool the black market “demons” into submission (spectacular backfire resulted in the gov’t looks like an unhinged demon now). With Brexit hanging over EU, is there a reason for Greece not to make a noisy show of printing Drachmas just to get leverage in its talks?

    1. Shom

      Of course, Greece would have to fund this via their budget, and given the recurring funding crises, EU probably has line-item control over their budget. Still, it would be a major dick move politically to withhold funding if it in any way goes towards implementing a Drachma system.

      Any links/pointers on how Greece could realistically go about adopting the Drachma without EU’s help? Must there be a Brexit style two-year grace period that EU agrees to before Greece can adopt an exit?

    2. Clive

      As soon as you show your hand and — in effect — tell your population that you are preparing to abandon the euro what do you think the people in Greece will do? If they think that the new currency will be like some sort of alternative Swiss Franc, they might think “oh, great, we can’t wait for that marvellous day when we’ll trade out our euros for the new currency”. But if you think that is a likely outcome, you’re living in a fantasy world. What would happen instead is that euro notes would be withdrawn from the banking system in the run-up and hoarded or else repatriated from the Greek banks into other (non-Greek) financial institutions.

      Previously, the bank run was slow motion. This would be a bank run on steroids.

      1. dbk

        That would be challenging, given that currency controls in effect do not allow anyone to withdraw more than 420 euros per week, and inter-bank transfers to foreign banks require a complex paper trail for approval.

        1. Clive

          Suppose you had €100,000 on deposit in a Greek bank and you were faced with the possibility of a 20 to maybe 50% haircut. You’d certainly be, well, let’s just say well motivated to engage with any “complex paper trail for approval” and try to win a bureaucratic war of attrition. If I was in that position I’d happily tackle a stack of form filling a foot high if there was a way to avoid that situation. I suspect you would too.

          And banks where you can put money in but can’t get it out again do not have a winning marketing proposition for attracting retail deposits. Greece needs a sane banking system if it is to get itself out of the hole it is in. More weird and wonderful shenanigans are a sure fire route to more chaos. I am staggered that so many are egging on anarchic collapse from outside the country and calling it “trying to be helpful”.

          (post-Brexit, the UK too is heading down a rocky road with some rather big looking potholes in the way; I sincerely hope we don’t get this sort of external “help” from “friends” else we really are in trouble)

          1. Oregoncharles

            Is there any money like that still in Greek banks? I’d guess every bit is transactional – funds in transit that have to be readily available.

            I’d be more concerned about.ECB revenge. They’d just shut down the payments system, as they did before. That’s why Varoufakis was trying to plan an alternative. I’ve no idea how workable it would be (consensus here was not), but at least it addressed the problem.

  5. Charles

    In getting tired of reading how Greece cannot return to its own currency. It’s actually very simple as Warren Mosler pointed out in the past.

    All the Greek government has to do is state that all taxes are to be paid in the new Drachma and the government can start paying people in Drachma. People can continue to use their Euros normally… no need to stamp them.. http://www.truth-out.org/news/item/34147-economist-warren-mosler-if-the-eu-doesn-t-loosen-its-deficit-limits-greece-should-leave-the-euro

    1. Yves Smith Post author

      Lordie. It’s pretty clear you have never read any of our substantial body of work on this issue. We provided the links in the post. I suggest you read them.

      1. The Greek government can’t start dealing and paying in drachma without force converting the banks to drachma, since it can no longer backstop them in Euros. That means force converting all the accounts held at the banks. There’s no gradualism about this.

      2. The point above means the banks need to be able to account for drachma and euros in dealing with customers, since they will have to handle foreign exchange transactions like trade. That brings up all the IT issues you want to handwave away.

      Put it another way: the onus is on you to explain how someone imports or exports in your pretty story. Trade came to a screeching halt when the ECB imposed a bank holiday in 2015. And this was with the Greek population holding euros so they could carry them across the border and deposit them in banks there to allow for trade.

      Not having drachma recognized as a unit of account in correspondent banks means they can’t conduct foreign exchange or convert currency, as in drachmas to euros.

      Honestly, you have not thought this through at all. And even though Mosler has done important theoretical work, his background is as a trader who has never thought about the payment system plumbing. This is a case of not knowing what he does not know.

    2. Clive

      Please repeat after me: The euro is not any nation’s national currency. The euro is managed by the ECB. Do you think the ECB will let Greece adopt its own currency while still having euro clearing? The ECB told even the European Parliament to take a hike when it demanded the introduction of €1 euro notes. If the ECB ignores the European Parliament, why should it take the slightest bit of notice what Greece says it needs?

      You’re assuming that a new, non-euro currency could be introduced in parallel and that people could “use their euros normally” but have to pay their taxes in the new currency. How, then, do they exchange one into the other? Someone has got to provide euro clearing services for you to do that. The second Greece tells the ECB it is abandoning the euro, the ECB cuts off access to Greece’s ability to clear euros. Or do you think the ECB is a charity?

      1. Praedor

        Adopt someone else’s currency. An already established currency. The ruble or yuan, and provide with that adoption, benefits: military basing for Russian and/or Chinese troops or ships. Stick a burning hot stake in NATO’s eye and the EU. They would take notice of this action, an action that is 100% justified and EARNED by the EU and NATO. There ARE hardballs that Greece has in its arsenal if it has the intestinal fortitude to use them. The EU is NOT the only option, just as NATO is NOT necessity. Make them both come to realize this FACT. THEN see how willing they are to act human again.

        1. Clive

          Otherwise known as the “let’s join the Democratic People’s Republic of Korea in the gangster state club” option. Unless you’ve got nuclear weapons or a huge standing army — and preferably both — you’ll just end up like Egypt with a western-orchestrated military coup to “restore order”. That “order”, it goes almost without saying, is nicely aligned to the existing power structures (the EU, IMF, etc.)

          1. Praedor

            I mentioned Russia and China. Absolutely not North Korea at all. Established powers beyond the reach of NATO, the EU, and the US.

            1. Clive

              Great, we can start another proxy war between the US (or maybe the EU) and Russia but this time with Greece as the theatre?

              And whether it is defacto dollarisation, ruble-isiation or yuan-isiation, the result for the hapless country concenred is no different than labouring under the euro. If you live with someone else’s currency, you live with someone else’s rules. Why would Russia, China or anyone else treat Greece any better than the EU?

              1. Praedor

                Business interest. And basing rights.

                And image polishing. They could show all the victims of the IMF and EU that there is a better way other than forced destitution and starvation for the rich scumbags of Belgium and Germany. A huge propaganda win.

                Like it or not China is becoming a huge development force OTHER than IMF in Africa right now, and even in South America. The reason they have this “in” is because of neoliberal looting and murder promulgated by the US/IMF system. NO one likes the IMF.

                1. Moocao

                  I believe you have never been to China, or even know Chinese beliefs. The idea of China trying to ‘polish it’s image’ is nonsensical. China, or Middle Kingdom, doesn’t give a rats ass over any other countries as long as the interest of China comes first. This is pronounced clearly in the CCP Politburo policies and the Chinese Central Bank policies. The Chinese ALWAYS look for opportunities, but it MUST be useful to China somehow. Helping Greece achieves neither Chinese military dominance, nor economic benefits to China. Therefore, helping Greece, unless it would be a colonial experiment, would not be of Chinese interest.

                  And being a Chinese colony may not be quite the dream Greece wants to be in anyways.

                  1. Praedor

                    Uh…how is this different from the US? The US NEVER coups another (democratic) country, never bombs another country, or invades another country UNLESS there’s a net gain for the US (meaning corporations and neoliberal economics).

                    There’s no such thing as a humanitarian US intervention. US intervention ALWAYS comes with very nasty neoliberal strings. ALWAYS.

            2. Alex Morfesis

              Although in theory, greece has the largest tank capacity in europe by a large factor(ex-turkey), the capacity for greeks to shoot themselves in the foot and complain about the wrong things is sadly built into the dna…

              using an existing currency or set of currencies as parallel currency starting in the Aegean would perhaps be simpler if they could stop lying about historical fact in respects to turkey and allow “acceptance” of the turkish lira on a volunteer basis…but that would require not enjoying being raped by germans and that seems to be some type of 50 $hades of stupidity on the part of greece…

              The wir exists in parallel in Switzerland, but it is the swiss…

              Also…in case no one noticed…the greek central banker running the prison from the panopti..is the dunce finance minister who caused the real final over the edge problem in the first place…

              but like those who didnt notice the bombs dropping in far off lands to cause the refugee crisis now in court in usa from the decrees of don trumpioni, no one in greece is pointing out the insanity of having the greek version of tony soprano running the “banks”…

              Banks and tanks…greece needs the euro from the tourists and the “willingness” of the “clearing house” system to accept the currency/instrument as “legal tender”…

              The operative word is “accept”…if it is going to be forced, then you had better bring something to the table other than whining…

              Why is greece in trouble…many reasons including the insane fact the European system “insists” on having politicians as finance ministers who have zero background in finance…s&p / Moody’s go bonkers when an asian, african or southern american govt dares place a non professional running the treasury departments or finance ministries…but northern europe has an obviously different set of rules…

              Have to give schaeuble a standing ovation…no one in the history of the planet has ever pulled off a bigger ponzi scheme…

              there is no there there in the euro mark…hidden govt guarantees and subsidies, having other taxpayers pay for your military needs, being able to have berlin file bankruptcy in the last decade and no one in finance journalism even mentioning it beyond some friday afternoon blip…

              we know who the assistant director of parades is in detroit but most people would screem “not true” if you mention the state take over of berlin bankruptcy debts…

              Americans subsidize nato for the benefit of germany…nato is now and has always been the free military for germany act…the amount of money americans pay to subsidize the free ride for germany exceeds on a “yearly” basis the amount germany would need to pay out over 30 years to “bailout” greece…

              Greece is great at scoring “own goals”…chicago has nothing on greece in respects to a “second city” mentality…

              If Tsipras had a brain, he would call a meeting with mitsotakis (trudaeu of greece) & stournaras…walk into the meeting with a briefcase full of keys and just dump them on the table
              (ala trammell crow style)…

              & say…

              I am off to have some pasta carbonara on fokionos…let me know how it works out for you…

              and let the “opposition” choke on their own vomit…the only thing tsipras has left is his pride and dignity…thankfully he can wash off the damage with soap and water if he leaves now…

              today…right now…

              not call an election…

              have syriza boycott the next election…hand the problems off to new diploklepsimo…oops..new democracy…

              $chaueble thinks (& maybe rightfully so) syriza feels a need to “stay in power”…so now is the perfect time to sit this one out…

              Let schaeuble and mitsotakis own the mess…dont resist…abstain and boycott…do not attempt to be a solid oppo…submit…thus when uncle wheelchair does not have syriza to “blame”…his party will lose in germany from the disruption his ego caused…

              Tsipras needs to walk away…

              Give a speech on neo-surfdumb…

              Poul from the imf made some crazy statement a few weeks back the imf idea is that it will take 20 years to lower unemployment…

              20+ years…

              thomson needs to stop using the crackpipe in public…

              Man that was too long…

              pass the feta…

              yes…another shot of ouzo would be great…

              1. Pespi

                Nato justifies American military occupation of the strongest countries in Europe, and thus allows the United States to dictate terms to Europe whenever things get hairy.

                Why is Russia now a boogeyman? Because if Russia is a boogeyman, Nato is relevant again, the US gets to hold onto Europe’s reins for another few decades.

  6. RabidGandhi

    Two questions in this regard:

    1) Given the givens, shouldn’t every EZ country have a multi-year contingency plan for leaving the euro? True, as this post clearly demonstrates, there are high-level economists who tragically elide over the logistics and the amount of time that will be necessary to roll out a new currency, but in 2015 Greeks were literally starving and dying from lack of pharmaceuticals because their leaders had taken no steps whatsoever (say in 2001) toward preventing the country from being blackmailed by Brussels. Should FinMins have such contingency plans and would they entail a dual currency period as Craazyman suggests?

    2) While it’s a poor parallel, in Argentina’s case returning to a sovereign currency was not just a monetary matter, it also involved strong regional alliances with Brazil and Venezuela, who provided much needed aid– something that would be even more vital in the case of Greece or Italy, given their poor export mixes. Can an EZ country make any such contingency arrangements, or would they be blocked by the EU treaty ban on negotiating outside the EC?

    1. Yves Smith Post author

      Per above, no country can do this in isolation. They need the cooperation of all the big banks around the work and all the players in the very fragmented EPoS system (all those places where you swipe your card to pay and the ATMs where you get cash and make deposits). Bank IT budgets are already way way too low for all the stuff that ought to get done. They are not going to invest in a speculative project to help out countries that aren’t that important in terms of their total business. When it gets real, then the project will be added to the queue of the way too many things to get done.

      Argentina never gave up having its own currency. Its case isn’t at all like that of Greece where it would have to reintroduce a currency. It’s mistake was pegging the currency to the dollar. It wasn’t sustainable and breaking the peg led to all sorts of bad outcomes.

      1. peter

        That’s a pretty dark picture. During the last round of ‘negotiations’, a few years back, IT difficulties were also mentioned in many articles as the major impediment to any hypothetical plan ‘B’ on such short notice.. And not having a credible plan ‘B’ also meant a very weak hand. Once the ‘deal’ was made, it was easy for all to see that it would soon be negotiation time again. Then the question is, did they start to work on it after the last deal, and if not why not? Lots of unemployed people in Greece, as I understand it, and there may be quite a few coders amongst them. Maybe some good Syrian coders now too!
        Is it basically true then, that there is no point in even trying to break away from the Euro due to IT issues? Similar to ‘too big to fail’ is this ‘too connected to escape’? Then I guess we will we have this same discussion all over again in 2020, or so, and nothing will have progressed.

        1. Clive

          Exiting from the euro is perfectly possible, technically. But it will need several years of planning and competent execution. And some factors are outside of your immediate control and you have little influence over them — for example, you need to have a currency pair (old currency e.g. the euro and your new shadow currency) trading within a stable range (+\- 2% was the limit for countries in the run up to the launch of the euro) to avoid a “hard” cutover. The ForEx markets determine this for the most part.

          1. RabidGandhi

            Clive it sounds like you have a different answer than Yves. To the question “should EZ countries be preparing contingency plans to exit?” Yves says “not possible, because you need all the EPos players to work with you, and they can’t dedicate the staff until it’s a real plan not a contingency”, whereas you seem to think its technically possible but with very difficult external barriers. So, again, if you were a FinMin would you be preparing a multi-year contingency plan?

            Adding: I brought up Argentina not because the currency situation is parallel, but rather to emphasise that Argentina needed external help to get through its much simpler crisis. Can EZ countries arrange for such help under Maastricht?

            1. Clive

              Everything can be solved with enough time and resources. I assumed for the sake of argument above Greece could find both. They probably can’t. And as I also mentioned, some things are entirely beyond their sole control.

              1. craazyboy

                I’d say it would be pointless to try, and if the markets caught wind of it, any wealth that wasn’t bolted down would flee Greece, along with any people that weren’t bolted down. The reasons being that, while technically possible to make a system that will be capable of performing arithmetic and payment system, for any internal currency to work and be stable requires the country to have a economy, and the trade deficit and total debt have to be within reasonable limits. Greece certainly doesn’t meet the EU/Eurozone requirement on that now, and as I recall, actually cheated on the numbers to get admitted in the first place.

                Therefore, I agree with everyone.

            2. ChrisPacific

              I think they are the same answer. What I read Yves (and Clive) as saying is that it will need the cooperation of the EU to work. In other words, it needs to be a real plan, everyone needs to buy in, funding needs to be made available and all the players involved (including the non-Greek ones) need to be pressured to give it priority.

              This is not totally beyond the bounds of possibility – I seem to recall one of the EU officials floating the idea and suggesting that the EU might help fund it to some degree – but it requires all parties to be realistic and engage together constructively. That seems a long way off at best – it’s certainly not compatible with belief in the austerity fairy, which is a prerequisite for even discussing the issue at present (even Varoufakis was required to profess his belief as a precondition for entering negotiations, even though anybody who was at all familiar with his writing on the subject knew it was a lie).

              1. RabidGandhi

                The EU official you’re thinking of sounds like Schäubel when he offered Varoufakis a few billion for Greece to leave– an offer he knew Varoufakis wouldn’t take.

  7. Dr. George W. Oprisko

    Something critical is missing here……….

    Greece is authorized to print EURO notes and coin………… period!

    The solution is simple……..
    Greece isolates it’s central bank from the EU central bank via a “firewall” named the
    Greek Ex-Im Bank.
    Greece declares it has the right to issue EUROS without limit. The Greek Central Bank acts as lender of last resort for it’s member banks, providing liquidity in GEUROS, electronic, physical notes, and coin…….
    The Greek Government spends GEUROS into existence for goods and services, stimulating the economy.
    Use of bank cards continues for those with accounts in Greece, covering transactions in Greece, via nationalization of VISA and MASTERCARD operations in Greece followed by creation of a Greek national payments system virtually identical to Chinese Union Pay system.
    Tourists can spend physical EUROS in Greece, but will receive GEUROS in change. They must move EUROS into Greece the old fashioned way…….. ie: in Cash….. for the foreseeable future, until an electronic arrangement can be organized, probably bi-lateral currency swap arrangements.
    Fixing all this will put Greeks to work.
    The crap about bank accounting systems is a red herring. Given the state of current programming, it makes sense to have a team write a bank account management package in C using ORACLE, which has multiple-currency capabilities, using modern CASE tools.

    Then do a straight migration over a weekend, onto current production hardware with BSD as the OS.

    Said package would be limited to the minimum features necessary to manage accounts. This specifically would entail scrapping all legacy code en masse.

    1. Yves Smith Post author

      What you wrote is incoherent .

      No, Greece gets to print Euros only under the supervision of the ECB. It cannot issue Euros because it is the only the ECB than can control Euro issuance. Plus the notes are printed on special stock and I would suspect the ECB controls the supply.

      You have NO idea what you are taking about re the IT issues. You discredit yourself with your lazy handwave. I suggest you read the earlier posts we linked to above. We might be able to have an intelligent conversation after you have gotten up to speed. You have no clue as to how many moving parts, handoffs, and resulting independencies there are in a payment system. None of this and I mean none, can be done by individual organizations in isolation, which is your false premise.

      1. Praedor

        With what army does the ECB enforce its commands?

        ECB enforcement of ANYTHING is merely a gentleman’s agreement, not backed by any possible force, therefore it can be spat upon freely.

        That’s aside from any other issues involved with the above suggestion. The ECB is a (criminal) BANK, not a country, and has no army, only limp lawyers that are able to be ignored (or better, ARRESTED the instant they show up and try to “enforce” any rules).

        But then, I believe that in such rape and die situations, depleted uranium hardball is the best way to play. HARDBALL.

        1. susan the other

          It was Varoufakis himself 3 years ago who was explaining how difficult it was to change a nation’s currency and he invoked the example of the US air lifting palates of benjamins to Iraq in order to establish a functioning economy after the invasion. How’s that working now? Also ironic,maybe meant to be, was Schaeuble’s suggestion that Greece prepare it’s own currency system and use it to get out of the EU. Because Germany didn’t want to deal with Greece at all. Recently Schaeuble has accused the ECB of screwing everything up monetarily, and agreed with Trump that the euro is undervalued which causes Germany’s huge trade surplus. But maybe Germany would consider helping Greece out as Greece transitions. I hear Deutschebank is very creative.

        2. ChrisAtRU

          Some believe that it was Troika pressure that led to the replacement of the Greek heads of the army, navy, air force and the joint chiefs of staff under then embattled PM Papandreou. There was a proposed referendum about the Euro and Greek obligations at the time, and fear of a coup (warranted or not) was high. I’ll cite this article as an example. While it weaves through pro and con arguments, I find this tidbit interesting:

          “The new appointments include Lieutenant General Michael Kostarakos as the new head of the joint chiefs of staff and Lieutenant General Konstantinos Ziazias as army chief. Rear-Admiral Cosmas Christidis was appointed navy chief while Air Marshal Antonios Tsantirakis took over the air force.

          They will be taking over a time of disgruntlement in the armed forces, which have suffered large payroll cuts as part of austerity measures, and face the prospect of even deeper cuts.”

          You don’t want the people with the guns too unhappy do you?

      2. Oregoncharles

        FWIW: He’s talking stark defiance. In effect, they leave the EZ but continue using the Euro. That’s a way. One technical problem: I gather, from the prior discussion, that Greece prints ONLY 5 Euro notes. I suspect that means they don’t have the plates for the other notes and would have to make them. IOW, they’d be counterfeiting.

        As far as the IT stuff, I haven’t a clue.

        1. Lambert Strether

          > As far as the IT stuff, I haven’t a clue.

          Clive does, since he works in the field and has the requisite technical knowledge coupled with the ability to explain it. I suggest you read him, rather than reverting to he said/she said.

      3. Synoia

        It would cause a shit storm, but I do wonder about the Greek Government just crediting itself a few Billion Euros by Fiat.

    2. Katharine

      Even I can see that simple is the wrong adjective for your proposal. Greece nationalizes VISA and MASTERCARD operations in Greece? And what? Visa and Mastercard just take that and go on doing business with them? Somehow, from my limited knowledge, I don’t think that’s very likely.

  8. Teddy

    How do exactly these respectable experts remain respectable? I’m neither an economist or a payment system expert, and yet the quoted suggestion of easy conversion to another currency struck me as idiotic in an instant. Even before I’ve read the rest of the post I was already thinking about both the bulk cash handling angle and the card scheme problem. If an uneducated commiebloc prole can debunk the expert’s idea in a minute, what are these experts even good for?

    1. Praedor

      I still think there’s a 3rd way that would scare the living crap out of the EU, US, etc: first, in secret the Greek government should cozy up with Russia or China. See about the possibility of them taking Greece underwing while it then works on firing up its own drachma again. If Russia and/or China would backstop Greece in return for it leaving the EU AND NATO, then Greece has the winning play.

      Be set to go Russia/China and dump Europe and NATO IF the ECB and the EU doesn’t FIX its financial system NOW NOW NOW to stop the rape of poorer parts of the “union” (yeah right, a “union”). The rich parts of the EU SHOULD be backstopping the poor parts just like the US states do. Period. End of story. Anything else is violent crime.

      1. Katharine

        If my memory is not at fault, they tried to cozy up with Russia, and Russia wasn’t very cozy. The trouble with your idea is that it assumes the others in a relationship will act the way one wants them to. That doesn’t happen very often in real life: others have a damned annoying habit of acting in the way that suits their own notions of where there interest lies.

        1. Yves Smith Post author

          Your memory is correct. The rest of Europe and the US would see it as provocation of the most extreme sort even before it got anywhere. Putin is not suicidal.

          And why does Russia want to be responsible for an economic albatross?

      2. fosforos

        Socialist solidarity from the capitalist regimes of Russia and China? Really? You’re better off asking for charity from Schauble.

        1. Oregoncharles

          Schaueble did offer to pay Greece to leave the EZ. Might be an offer they should have taken.

          Big underlying problem: Greece wants to be part of Europe. The Greeks INVENTED Europe. (Take a look at a map: the Aegean and Black Sea are the only place there’s a clear natural boundary between Europe and Asia.) Throughout the entire crisis, polls showed majorities in favor of staying in the Euro – despite the big “Oxi” vote on austerity.

          Syriza never had a mandate to Grexit.

  9. TheCatSaid

    What is really tragic is that the whole house of cards is going to come down–ready or not, and likely the latter. It might take a year or two, but the Euro system is not sustainable. No one will admit it so the necessary IT preparations will not occur.

    The genuine problems will be more widespread and severe than even the impossible-because-of-IT-issues Grexit.

    It will be even more “impossible”, but it will happen nonetheless. Our societal resiliency and creativity will be sorely tested. Best to start now with the creativity side of things, like more of Lambert’s permaculture posts.

    A friend has developed a secure payment app that can use any conventional or non-conventional unit (e.g., eggs) for one-off barter or conventional payments and is scalable. He’s working with his team to get ready for a large-scale initial rollout. A suitable area in India would be a good starting place. I’m all for cash, but if cash goes down the swanee a private exchange app could be a life saver. Even so, we’re in for Hard Times. I predict lots of opportunities to reexamine our values, both individually and collectively.

    1. susan the other

      well that is definitely interesting – does a credit card come with that and is it all accounted for like blockchain, or blockchains of a zillion things, kept safely stored in the cloud. What a bizarre world.

      1. TheCatSaid

        I don’t know the technical details but the friend in question has the financial and technical and commercial credibility. (He developed the chip & pin security system going back decades ago–but unknown to others the version in current use in Europe and elsewhere was version 1; he developed versions 2 & 3 with even better architectures to be essentially impossible to hack and to be usable even by no-tech, no-bank subsistence farmers using just a cell phone. Plus you can use it to barter diverse things. It’ll be interesting to see what happens.

        He told me the Isle of Man asked him to develop an electronic voting machine in 1998. So he did, including the whole voter register database, etc. And extraordinarily secure. When the people who asked him to build it discovered it couldn’t be hacked, they were no longer interested in it.

        Personally I don’t think voting systems should ever depend on security or trust, they should be visible so that anyone can audit the votes of everyone. The point is, this friend understands security.

  10. José

    What about a negotiated – as opposed to a unilateral – exit?

    That was Schäuble’s proposal to Tsipras back in 2015 – Grexit plus debt restructuring. Tsipras didn’t take it because the euro was still popular in Greece at the time.

    But circumstances have changed now. Perhaps the time has come for a revival of the Schäuble proposal?

    1. Katharine

      From all that has been said here, it sounds as if that would be the only thing that might make the logistics manageable. But manageability is surely a doubtful concept, both politically and legally. If Greece accepts terms from a body that then disintegrates, what happens to those terms? I’m afraid TheCatSaid is right, and things are going to be painfully ugly, regardless of who might be theoretically right.

      1. susan the other

        Also too, China just bought the port of Piraeus and the last thing they want is an implosion of the EU currency – so China also has good reason to jump in. As Wilbur Ross said about Brexit: “It’s the chance of a lifetime” (for US financiers).

        1. Moocao

          The port of Piraeus might be China’s attempt at shipping goods without going through a middleman. If Greece converts to Drachma, then the port of Piraeus purchase would be a failure via a Chinese point of view. Make no mistake, China does not care for Greece exiting the Euro. They are invested into the Euro now and would like to have direct RMB -> EUR exchanges.

  11. voislav

    I think one of the relevant experiences here is that of Montenegro, which is using the Euro as its currency without being the member of the Eurozone. Montenegrin central bank buys Euros on the open market and buys new bills from the ECB that are shipped to the country. They are able to do it as they have an overall positive balance of payment due to small population and strong tourist industry. So in practice there are conditions where one can retain the use of Euro outside the Eurozone.

    Greece typically has a large negative balance of payment, so this kind of situation would have to be externally supported by Euro inflows, either debt or investment. Both of these would require ECB to be on board.

    1. bob

      “Greece typically has a large negative balance of payment”

      That’s the problem summed up nicely, without any morality or values attached to “negative”. The rest of the mechanics (banking) make it much, much more difficult.

      Most of the econ’s, and a lot of the commentariat here, just assume balance, and go from there.

  12. George Phillies

    ” There would be nothing to stop “stamped” euros being taken into another euro-using country (and, I imagine, obtained at a huge discount to the old euro face value) and spent in such merchant equipment. Put it this way, if you could obtain unlimited quantities of these “discounted euros” in another country, then return to a real, proper euro-denominated country and spend them in automated checkouts, well, I would be on the first plane there to take advantage of this chaos.”

    And why should the Greeks who are doing this care about this problem?
    Yes, they would have a problem with people arriving in Greece and spending real Euros as stamped Euros.

    Perhaps they could convert to the Renminbei…there are plenty of those lying around…and dent unemployment by replacing all their ATMs with bank tellers in the short term.

    1. Moocao

      Tell me when the Chinese Central Bank has a large enough heart to accommodate Greece. Those Renminbi don’t just materialize you know…

  13. pdh

    Greece can maybe find a tiny country that has a recognized currency, but that doesn’t really need it any more … like the Gibraltar pound (GIP)?

    Although Gibraltar is a British overseas territory, the Gibraltarians voted overwhelmingly for remain in the recent Brexit referendum. They can just declare independence, join the EU & the Eurozone, & let Greece have the GIP … the abbreviation even starts with a ‘G’. If they don’t want to go full Euro, the Gibraltarians can just switch to using the UK pound since they the GIP is currently pegged at 1.0 to 1.0 with the GBP.

    All the monetary infrastructure for the GIP should already exist. Somebody already makes ATM machines & prints currency, I would think. All the Greeks would need to do is swap out pictures of the Queen for Yanis Varoufakis … or something.

  14. Binky

    The point where NC seems to stop is the point where rationalism ends and the situation dissolves into chaos, authoritarian takeover (Greek precedent), or extreme neonationalism. At some point it may seem preferable to accept an extreme amount of suffering rather than continue under the yoke. The recent currency event in India shows that it would be disruptive in the extreme; but not everyone perceives that outside a small circle and there is no end of political mileage to be earned on such an issue. The recurrent theme of Zimbabwe/German hyperinflation is such a case, where the unique circumstances fall by the wayside in popular discourse in favor of simplified moral narratives.

  15. Gman

    Ironically and sadly the European debt crisis holds the dubious honour of saving the justifiably discredited IMF’s bacon post 2008. Bringing in a ‘neutral party’ like the IMF apparently gave the ECB and Germany a little more credibility as it pursued its punitive austerity agenda against wayward, feckless Greece.

    By the by, if Greece leaves the ‘one size clearly doesn’t fit all and never did’ European single currency it is bound to also leave the EU itself under the terms of the Lisbon Treaty, I believe.

    Article 50 will automatically be triggered if it elects to, or is possibly forced to do so.

    That said, what is done in the spirit of fraternity, in spite of what the doomsayers suggest, can be undone in the same spirit, assuming the EU isn’t hell bent on looking for revenge or making an example of its ‘former partner’ that is…..

    Bearing in mind that in the UK for example (I would assume Greece and others are broadly similar) only 3% of all money or ‘broad money’ is actually circulating notes and coins etc then this should be a relatively simple reversal of the 3 year long transitionary process that led to the introduction of the Euro across the EZ and the gradual removal from circulation of the various sovereign currencies francs, DM, lire etc at the time as both currencies existed in parallel and were both legal tender for a period of three years. This hopefully should help mitigate bank runs and capital flight, although preventing either completely is impossible in these circumstances.

    Greek sovereign debt will have to be redenominated in drachmas at some ‘auspicious’ point, but like ‘bankrupted’ Iceland post 2008, a newly independent Greece should make it known that future debt payments will be honoured but based on future growth – no growth, no repayment.

    It ain’t gonna be pretty, smooth, painless or quick, but it is doable, and unless Germany leaves the Euro itself or embraces a debt jubilee (yeah right) for Greece (and thus others) putting it off is just prolonging the inevitable.

  16. Chauncey Gardiner

    As an American I admire the EU project, recognizing that it is and will likely continue to be a work-in-progress. The design flaws in the euro were evident at its inception. Absent Teutonic/Troika flexibility in terms of monetary and fiscal policy, recognition of debt impairments, and willingness to accept debt writedowns, I expect there will be other nations in the “troubled sovereigns” mix in the future besides Greece. If Maastricht needs to be revisited, it should be. I would offer that it is in the long-term self interest of the vast majority of Europeans to do so. Attachment to neoliberal market ideology concerning the efficacy of relative price adjustments, together with an artificial gold standard, really don’t seem to be worth a high level of policy fealty to me.

    But setting that aside, I recall an article by Rob Parenteau posted here on NC some time ago in which he proposed the issuance of Tax Anticipation Notes (TANs) by the Greek Treasury as a possibility for the Greeks to reduce the severity of economic and social hardships to which they were being subjected under externally imposed austerity policies. I thought his proposal had merit, but suspect TANs have subsequently been considered and dismissed. I never heard nor read the reasons if that is so.


    1. OpenThePodBayDoorsHAL

      We live in an age where enormous, global, vastly stupid projects are proposed, agreed, and then implemented (think Euro, Iraq War, central banks buying stocks). The problem is that when these projects become giant smoking holes in the ground (Euro, Iraq, stocks at 28x earnings with no remaining connection to earnings or reality) there is no reckoning or accountability. We don’t collectively sit down and say “well, THAT was an incredibly stupid idea, just who are those experts who told us to do it, let’s be sure we never listen to their claptrap ever again”

  17. Jeff N

    so if I understand everything;
    1. IMF is done “helping”
    2. ECB won’t “help”
    3. Greece can’t continue paying its “debts”
    4. ECB will do something to Greece that inflicts pain

    what will #4 consist of?

  18. Oregoncharles

    Some thoughts:
    Somebody in Poland was reading NC, because they refused to join the Euro on schedule. I doubt that any country will at this point.

    I’m not there, but I think the EU’s treatment of Greece, to say nothing of the other deficit countries, was a big factor in the Brexit vote. Wanton cruelty, picking the wings off flies, has its price. By the same token, the vivid evidence that the Euro is a deadly trap is one reason for the rise of the various nationalist parties, both right and left wing, in Europe.

    Rigid = fragile. If nothing else, it’s apparent from these details that bank (and doubtless other) IT is a really major source of fragility. Sooner or later, as in 2008, something will happen that requires a quick response – which won’t be possible. In this respect, the Y2K bug was a major shot across the bow. No, it didn’t collapse the system, but people in IT at the time said there were breakdowns, they were just limited. It was still a disaster, because it cost billions and took years to make enough fixes to contain the damage. That one was predictable; what about ones that aren’t?

    What Clive and others are telling us is that sometime soon, banks are going to suddenly go offline, as airlines have been doing. Airlines stopping suddenly are a major nuisance; what happens when a major bank does? Well, that’s what precipitated the Great Financial Collapse.

    That said, I’m going to raise a category question: what is a systems problem, and what is a database problem? Seems to me there is, or there SHOULD be, a big difference. Us outsiders tend to see the currency issue as a database problem: you change some numbers in the database. The physical currency and ATMs complicate that, but they’re a small part of the economy – just the most visible part, to us. For another example, one would expect that big changes in trade, such as imposing tariffs where there are none presently, SHOULD be a database problem. The biggest hurdle is training more customs agents to handle the paperwork. That assumes that the system allows that kind of straightforward change – and we wouldn’t know that.

    I wonder how many of these IT bombs are scattered around society? My son works for a huge engineering company, as a computer jockey, and complains constantly about the systems he has to work with, along with corporate’s tendency to get rid of IT people because they’re overhead. This sort of thing may be one reason productivity isn’t increasing (not that that’s necessarily a bad thing.)

    IT bombs are just the sort of thing the Archdruid expects to bring down our civilization. Every time this issue comes up, I agree with him more.

    1. Oregoncharles

      OK, I was too dismissive about the ATMs. That’s just one example of the difference between a database problem and a systems problem, and probably not the only one when it comes to currency.

      The big, underlying problem: what isn’t sustainable won’t continue. One way or another, Greece (for example) isn’t going to stay in the Euro unless it’s drastically redesigned. That’s why Varoufakis is out campaigning for the redesign. Nobody now knows how it will happen, but it’s clear that if they don’t have the necessary time for the changeover, stuff is going to break – and not just in Greece. Our lords and masters have been busily removing all the firewalls, making everybody totally interdependent, so now when the US melts down (2008), Europe melts down, too, and so on. (China refused to remove its firewalls.) And the whole point of the Euro was to remove the financial firewalls among the participating countries.

      One point of this article might be that the ECB has no idea how fragile they are if there’s a sudden break. It’s possible that Tsipras’ big mistake was in not drilling that point in. Trouble is, nobody really knows what will break. Well, people like Clive might, but they aren’t making policy. And it’s chaotic: theoretically unknowable. Too tightly coupled to predict.

  19. Jesper

    The parallell currency solution/ideais at least a step/try towards doing something to get control of their own destiny for the Greeks. Not sure if the word parallell will be read even when made stronger….
    The NC-solution, correct me if I’m wrong, appears to be to continue to negotiate from a position of weakness and hope for the best?
    Of the two solutions on offer, parallell currency or do nothing, I’d respect the doer more than the one relying on hope alone.

    1. Praedor

      Violence against the EU, the ECB, is better than caving in and passively letting them murder you.

      1. Alex Morfesis

        Success is the greatest violence against the kyffhauser krewe…greece is not defenseless as it is rudderless…

        a little too clever and not enough smarts…

        wondrous opportunities and useless execution…

        Varoufakis…the great defender of hellas…a giant twitter following…

        does he use it to help promote anything to create jobs in greece ? Does he promote a different wine every day ?


        Tsipras father did business with the junta and his finance minister tsakalotos had a namesake relative that was “in” the dekemvriana/ pro nazi coup leading to the civil war and ended up military chief of staff of the army…tsakalotos also went to school and was friends with stournaras…the man who hi fived schaeuble and forced the shut down of the greek banking system after the second “oxi”…

        It is a tight noose the politicians have on greece…papandreou was a roommate in college of samaras at amherst…

        Greece needs a bernie sanders…

        tsipras is/was just john kerry…

  20. Sound of the Suburbs

    Politicians are elected to deliver the goods for the rest of society.

    The politicians sat back and waited for the Central Banks to deliver the goods.

    They forgot whose neck is on the line.

    Wall Street crashed the global economy in 2008 and things have never recovered.

    Western politicians sat back and left things to the technocrat elite in Central Banks.

    Being unimaginative technocrats, they entered an infinite loop of lowering interest rates and QE, and being ideologues, they didn’t really concern themselves with the fact it wasn’t working. It did keep asset prices up for the 10% that own nearly all the assets but that was about it, and inflation figures show the QE never really entered the real economy.

    Western politicians were so taken with the neoliberal ideology they didn’t concern themselves with the fact that the Central Bankers weren’t delivering the goods on the economy.

    The populists started to rise.

    The neoliberal ideology had told Central Bankers and politicians they were at the top because they were the best and they forgot leaders are there to lead and deliver the goods for the rest of the population.

    The Central Bankers and politicians just moaned about the populists, forgetting they were supposed to lead and deliver the goods.

    The populists rose in number until they started to win referendums and elections.

    The politicians need to get their fingers out, let’s hope they are not too late as the old order is being swept away.

  21. mauisurfer

    I am not an economist, not a banker, the closest i ever got to questions raised here was Tobin’s course in money credit and banking, and that was over 50 years ago.
    But I am a political realist, so those of you who think that Russia and/or China are going to help Greece, think about this for a moment.
    Remember when Ukraine “changed its mind” about making a deal with europe and decided that it would rather maintain its ties with Russia? The reason was simple: Ukraine economy was so tied to Russian economy that it would be a disaster.
    So then there was Kiev coup, the ties with Russia were broken and sure enough, now Ukraine is an economic disaster. Huge factories that used to make products in cooperation with Russia are now failures.
    So the idea that Greece can be “fixed” by some high minded help from Russia and/or China is NOT HAPPENING.

    1. alex morfesis

      correct…china and russia can not and are not worth having to “help” greece…but the country is mismanaged by its own fakelakia people on their kotera…the $hillary of greece, stournaras, the current head of the central bank in greece is a political and economic baffoon (not just buffoon)…

      the fredo of greece…

      dead trees died for this…



      if someone can tell me if this actually says anything about the actual non performing loans, please show me…

      all I see is “Count Floyd (schaeuble ?) saying…scary scary boo”

      nothing in the report describing with some form of useful empirical data

      which sectors have which non performing…

      the current valuations of the assets underlying the purported npl’s…

      are the loans for assets that are performing at full capacity and the debt can not be serviced anymore,

      or simply the enterprise is under-performing…

      no real time data to make and draw any conclusions…just dead trees…

      “we improved the blah blah blah by 45%”…

      ok, so you completed 100 loan mods last year and now you did 145 ??

      greece has a 45% occupancy rate for its hotels…where else in the world does such a load factor exist…this is not new…it is historical…

      greece has a marketing and promotions problem…just moving up to 60% would add 5 to 10 billion in revenues per year…but that would require a professional banking supervision system…not the stamering stournaras krewe who fumbled the ball from 2012-2014 as Finance Minister and has kept fumbling since as Central Banker/ Head of Bank of Greece

      however…the question is under what ecb rules can one use other currencies within the local economy without them tripping over the issue of “legal tender”…the euro is “legal tender” but other currencies can be used within the local economy and for commerce as long as there is no attempt to make it “legal tender”…

      for political purposes, it would be best for the currencies to be from large foreign countries looking to swing above their pay scale…

      Brazil, Turkey, Egypt, South Korea, Indonesia, even Mexico, Canada, Australia, Saudi Arabia…(would have suggested india, but…they have their hands full right now)

      Electing to use Egypt and Turkey as “currencies” would allow for easy transition flows since these are two large countries, and adding greece would be a bounce, but not an overwhelm…Turkey would be the better choice for economic capacity, but there is that history thingee, (and cyprus too)

      The EU and ECB could attempt to be annoying about it, but the rules are set and exist, and as such, they would be showing their waterboarding university PhD if they tried too hard to get in the way

      currently, greece has about 6000 atm’s…

      the value of having multiple countries have their money as currency, is that there is also a rule that would allow a forced acceptance of a new drachma if certain countries accept it…in theory the greek govt “could” create a transition situation…

      first as an unofficial swaps based “encouragement”…then an official acceptance of foreign currencies for contracts(foreign as in non euro),
      then a quid pro quo for accepting the new drachma…

      the issues is stopping the bleeding…

      today, don trumpioni signaled for greece to move to the drachma…if the white house is serious, it would make a public statement that greece is an extremely important part of the southern flank of NATO and as such could not allow the economy to collapse and if necessary, would dollarize the economy and guarantee deposits at 75-85% of balances…

      the IMF, for all practical purposes, is an american institution…
      $$$ talks…american $$$…

      there are other bold actions that could be taken…but tsipras does not have the kojones to think outside his steal a few crumbs, neo-“marxist” blah blah blah…

      time for him to hung up the gloves and let someone else into the ring…

      as to the “Junta” returning…nahganahappyn…just googtube greek protests…not the big ones…little ones, where you see grandpas and grandmas hitting police with sticks and pushing on them…the police in greece are used to push back…they don’t shoot someone for having the audacity to raise their voice during a traffic stop…like some other oecd country that we are all familiar with…

  22. VietnamVet

    Greece is the writing is on the wall. Existing systems (financial and political) are spinning out of control. Unless bad debt is written down, wealth redistributed to correct gross inequality and wars for profit ended, chaos will the spread from Iraq, Syria, Libya, Greece, Ukraine and Turkey into Italy, France and finally Germany. It is unavoidable. Plan for it.

  23. RMO

    Yves: This isn’t a snarky comment (though it could sound like one): I’ve read a lot here over the years about what Greece and the EU can’t do… just what CAN they do? The debt can’t be repayed, it can’t be forgiven, more austerity just digs the hole deeper, the EU won’t change the idiotic structure of the Eurozone to allow it to function. What does that leave? What can be done? What should be done?

    1. Yves Smith Post author

      I know many readers are upset on behalf of Greece to hear that there are no good answers. Americans in particular are fed a steady diet of individuals or small bands prevailing against seemingly impossible odds, particularly action movies. And Americans don’t have much appetite for tragedies or stories that convey bitter truths.

      Greece does not have the power to make any meaningful improvement in its circumstances. Its fate is in the hands of uncaring politicians in other countries and European institutions. as well as Eurocrats, who have no incentive to help Greece, indeed any politician in Germany, the Netherlands, Latvia, and several other countries would be committing political suicide to try to cut Greece some slack. In the 2015 bailout negotiations, its only advocate was France, and Greece managed to alienate them.

      Greece is basically a prisoner in a concentration camp. If it tries fighting the guards or escaping, it will be shot. Or it can try to hold out and hope circumstances change.

      1. bob

        ” If it tries fighting the guards or escaping, it will be shot.”

        Gotta disagree with that characterization. They won’t let Greece be shot. That would be the equivalent of a hard grexit, and the end of lots of EUR bank debt.

        They’re closer to vampires, with tasers. They need to keep it Greece alive, just enough, to be able to feed their banks’ balance sheets.

  24. Newtownian

    Thanks for your elucidation Yves.

    One fascinating corollary of all this seems to be that it is near imposssible for those 22 countries that comprise the European Union to do a Brexit without cutting their own throats whatever the local petty nationalists might want. Then there are stable countries in no hurry like Sweden and other countries who would lose much worse that the UK, like Hungary, who dont use the currency but will shortly see the British chaos and isolation as a warning.

    So all this talk of a total or north south breakup of the EU seems very premature because of the glue the Euro provides for better and worse. Money has always been really about relationships between people and groups and nations and here we see the implications in full flower the inbuilt resilience is relationships which is often invisible.

    Unless the rigidity of the Euro causes a continent wide crash……shudder.

    Care to comment?

    1. Yves Smith Post author

      We’ve been saying for years that Germany will eventually destroy the Eurozone by insisting on running large trade deficits within the Eurozone, yet being unwilling to finance its trade partners, or allow for more federalization of the EU or Eurozone so that other transfers could effectively recycle funds to the trade deficit nations. No one in New York or California cares all that much that they subsidize Mississippi, yet the idea of Germany subsidizing Italy and Greece is anathema.

      So the Germans will drive the Eurozone off the cliff. If some large country like France or Italy decides to exit, unlike Greece, the rest of the Eurozone will be forced to deal and sort out all the messy divorce issues. And many will assign blame to them when Germany was the perp.

      This is not going to end well. The only question is whether the unwind or restructuring is orderly or not.

      1. Oregoncharles

        this was meant for Yves’ response to Alex Morfesis, above.

        There were some very bloody rebellions in the concentration camps, with lots of dead Germans. I’m afraid you’re saying this is going to get really nasty. There are people on this board advocating that. Among other things, that would be the sudden end of the EU and a very hard landing for the Eurozone.

        Alex Morfesis is the only one making creative suggestions. I think he should be taken seriously, despite his flip tone. He’s right on one thing: Trump could make it happen if he really wants to, and can find the competence. Europe is still a colony as long as NATO exists. Might be the last chance to take advantage of that. Playing the badass is a real strategy, especially if you want people to do something they don’t want to do.

        How long until the French election? I suddenly think LePen is going to win.

        1. Yves Smith Post author

          “Lots of dead Germans” did not equate to escape by the prisoners, much the less the liberation of a camp.

          But you are essentially agreeing with my implicit point: despite the suffering in Greece, the situation in the EU and Eurozone are already plenty wobbly, and that was before Brexit.

          Don’t pin your hopes on Le Pen. For instance, from a new MacroBusiness post:

          As mentioned in previous reports a Le Pen win in the 23 April first round voting seems high given her current polling, but then she is likely to lose badly to the new favourite Macron in the run-off on 7 May. Even if she did win, electing a PM who is aligned with her views seems unlikely and this aspect may be a headwind when enacting on her more extreme policies.

          You are much more likely to see the tectonic plates start moving as a result of the Italian banking crisis.

        2. Oregoncharles

          No, the response to RMO – but it fits fairly well here. Sheesh; time for bed (it’s really only 11:30 here.)

      2. Synoia

        The only question is whether the unwind or restructuring is orderly or not.

        Not many orderly restructurings in Europe historically.

        With Germany unified, I’d bet on disorderly (War).

  25. Lune

    While I appreciate the technocratic insider’s view, why not look at historical examples? When the USSR split apart, the new countries eventually replaced the ruble. Yes, it was painful (although how much of the pain was from the breakup vs. Strictly the currency changeover would be hard to differentiate) but it was done, by multiple countries.

    I believe they originally started with ruble-pegged currencies, with parallel ruble denominated transactions still allowed, and eventually moved to free floating single currencies.

    Would Greece face a more challenging problem than eg Ukraine in the 90s? And more importantly, longterm, is the pain more or less than remaining under the thumb of the troika?

    1. Yves Smith Post author

      Ukraine in 1990 is the stone ages compared to the tech issues now. You might as well be discussing an era when abacuses were the norm.

      Plus with the USSR as a command and control economy, I doubt they had a payments system that played a huge role. People were assigned housing and so didn’t pay for it. Medical care was free. I believe people got vouchers for food. So the role of money was far more limited.

      Greece is a small open economy that is not self sufficient in food. It thus has to have an operational payments system. That is imperative for the survival of its citizens. As we’ve said repeatedly, a mere two week shutoff brought the economy to its knees and food shortages were starting. They were expected to become acute if they went into the following week.

      And do you forget that lifespans fell 4 years when the USSR broke up, and they were well below world norms to start with? That is a catastrophic decline.

  26. dbk

    At the risk of flogging a more-or-less dead thread, the problems of Greek EU membership are intertwined both with Greece’s own geography and history, and with the fundamental design flaw (whether bug or feature, I don’t know) of the Eurozone.

    While Greece belongs to Europe in the geographic sense, the country was ruled for more than four centuries by the Ottoman Empire. After WWII, it was the only European state from the Empire not to join the East Bloc – again, for what were essentially geo-strategic reasons (though historical reasons were often cited officially), viz., it served as NATO’s southeastern flank.

    Greece is geo-strategically important for a host of reasons (and has been since the Bronze Age), but economically it emerged from World War II with its infrastructure totally destroyed, and without ever having had the opportunity to pass through the natural stages that Western and Northern Europe had – the Renaissance, Enlightenment, & Industrial Revolution.

    Yes, there were Greek Enlightenment figures – largely, however, active abroad (think Korais), and they played a major role in Greece’s gaining its liberation from the Ottomans; yes, there was industrial production in the 19th century, much of it imported from abroad and run by foreign-educated entrepreneurs (one thinks of the Fuchs family, for example, who started Greece’s first brewery), but none of these had developed organically as in Europe’s western and northern states.

    So what we have is a country which is geographically vital but historically very different from Europe’s industrial and post-industrial powerhouses. It is small; its land is poor; its population remained mostly uneducated until after the Civil War (1950), and it had experienced 400 years under the Ottomans. These are not small disadvantages.

    Given all this, plus the fact that Greece had been in debt to one or more of the Great Powers for more than half its life as a nation state, perhaps joining a monetary union that was not simultaneously a financial union was too much to ask. To pick up on an analogy Yves has used in the past as well as in her comments here – how could Alabama or Mississippi or Arkansas or West Virginia survive today if federal funding was not recycled to these poorer states? In this sense, all those who identified the Eurozone’s fundamental flaw as an absence of financial union, including but not limited to Varoufakis, have been proven correct, though plenty of historical proof was already available on this.

    Greece continues useful to the EU – it is a source of highly-educated, visa-not-required labor for Germany and Great Britain (well, for now) in particular; it’s a source of potential profits to EU and international investment achieved through forced privatizations (China’s purchase of the Port of Piraeus was mentioned above; Northwest Greece has valuable mineral deposits still untouched; the Southeast Aegean has large deposits of natural gas), and, unfortunately, it’s now proving a convenient holding-area for tens of thousands of MENA war refugees – which suits the rest of Northern and Western Europe.

    I think Greece will have to wait and see what happens in the EU, in the halls of power – Frankfurt/Berlin, Brussels. It can’t act unilaterally. This sounds pessimistic, I know. But I’ve been convinced by Yves’ analyses for some time now, and they’re being confirmed on the ground.

    I’m not spending much time any more following day-to-day politics in Greece; I tell my friends that decisions are being taken elsewhere, and that’s what we need to follow. It’s financial mishaps and political developments in the big and powerful states – Britain, France, Italy and above all, Germany – that will determine Greece’s fate.

    And that’s pretty much how it’s been since 167 B.C.

    1. James

      Greece is very useful to the EU, but the EU bureaucracy would cut of its nose to spite its face if there was political capital in doing so.

  27. James

    If the Greek government, after the last troika debacle, didn’t learn a damned thing and didn’t arrange to have a gigantic secret stash of Drachma in a bunker somewhere, plus forcing the banks to implement the appropriate software changes (parallel bank accounts, auto conversions, or whatever is necessary), then they are dumb, stupid and incompetent. Which they probably are. Even Yanis Varoufakis was on the verge of some kind of parallel payment’s scheme working back in the day, so even then they knew they had to have a backup plan.

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