Will Greece Leave the Euro?

[August1991]

I happen to think that there is a great chance that the Greek government will soon make payments in Greek drachmas.

Meanwhile, Greek banks (and ordinary Greeks) will still have euro bank accounts. (Many Canadians have US dollar accounts at Canadian banks.)

The key question is in which currency the Greek government makes its payments. The Greek government can make payments in drachmas, and accept (tax) payments in drachmas too. IMHO, this is the critical feature of a return to the drachma.

The euro would circulate in Greece, Greeks could have euro bank accounts or euro-denominated credit cards, just as Canadians have US dollar bank accounts, or US dollar credit cards.

I don't see this as a big problem in Greece - assuming that Greek civil servants, pensioners agree to receiving payments in drachmas rather than euros.

IMHO, this would be the easiest way to solve Greece's macroeconomic problems.

-----

As an side, I always wondered why a PQ government never paid its civil servants in "Quebec dollars". Scotland has its own pounds.

Edited May 19, 2012 by August1991

[punked]

I happen to think that there is a great chance that the Greek government will soon make payments in Greek drachmas.

Meanwhile, Greek banks (and ordinary Greeks) will still have euro bank accounts. (Many Canadians have US dollar accounts at Canadian banks.)

The key question is in which currency the Greek government makes its payments. The Greek government can make payments in drachmas, and accept (tax) payments in drachmas too. IMHO, this is the critical feature of a return to the drachma.

The euro would circulate in Greece, Greeks could have euro bank accounts or euro-denominated credit cards, just as Canadians have US dollar bank accounts, or US dollar credit cards.

I don't see this as a big problem in Greece - assuming that Greek civil servants, pensioners agree to receiving payments in drachmas rather than euros.

IMHO, this would be the easiest way to solve Greece's macroeconomic problems.

-----

As an side, I always wondered why a PQ government never paid its civil servants in "Quebec dollars". Scotland has its own pounds.

I don't think you are taking into account the actual repercussions if Greece got out of the Euro. It could trigger a bank run in not only Greece but the other PIGS countries. Which would most likely spell the end of the currency all together. The real question is how you handle it really.

There are some pretty good ideas on what would happen and how it could be handled here.

http://www.economicmusings.com/post/22988326533/what-history-tells-us-about-a-potential-greek-exit

[Michael Hardner]

Also, we're not talking about the central issue: defaulting on debt payments, and the effects of that.

[punked]

Also, we're not talking about the central issue: defaulting on debt payments, and the effects of that.

Greece's just doesn't owe that much. The real problem I think is the destruction of the European banking sector.

[Michael Hardner]

So are you saying defaulting isn't a problem?

[punked]

So are you saying defaulting isn't a problem?

I am saying if the Spanish, and Italians start pulling as much money as they can out of their banks and start maxing their credit cards out to load the trunks of their cars with Euros. Then start high tailing it as fast as they can to Germany to beat their own countries transition out the Euro and keep their wealth. No one is going to care about a Greek Default. If this was about a Greek default no one would even be talking about a bail out. The problems are much bigger then Greece.

[August1991]

I don't think you are taking into account the actual repercussions if Greece got out of the Euro. It could trigger a bank run in not only Greece but the other PIGS countries. Which would most likely spell the end of the currency all together. The real question is how you handle it really.

Your link, and sub-link, doesn't consider the obvious possibility where Greece leaves the euro-zone but the euro continues to circulate in Greece.

This strikes me as the obvious variant (and solution). Of course, this would mean that Greek government pensions, salaries, subsidies would be paid in drachmas - no longer euros. At base, this is what Greeks object to.

[August1991]

Greece's just doesn't owe that much. The real problem I think is the destruction of the European banking sector.

Huh? Canadian banks accept US dollar accounts and issue US dollar credit cards. Meanwhile Canadian governments make payments in Canadian dollars. This doesn't "destroy" the US or Canadian banking system.

So are you saying defaulting isn't a problem?

The Greek government already has, in effect, defaulted.

I am saying if the Spanish, and Italians start pulling as much money as they can out of their banks and start maxing their credit cards out to load the trunks of their cars with Euros.

Greeks (and Italians etc) have already done this. All their savings (all of their money) are denominated in euros. In this regard, nothing will change.

What will change is that the Greek government will start to make payments in drachmas. Civil servants, policemen, pensioners etc will soon be paid in drachmas - not euros.

---

Incidentally, this happened in Argentina when local governments started to make payments in local currency.

Edited May 22, 2012 by August1991

[August1991]

Look, I realize that any discussion of money invariably attracts as much bizarre, prurient interest as a discussion of sex.

(I reckon that both sex and money involve relations between people and as a sophisticated social animal, we are supremely, inordinately curious about relations between others.)

----

I just don't see this as a big deal. The euro continues to "circulate" in Greece and Greeks continue to have euro bank accounts (just as the US dollar "circulates" in Canada.) The Greek government prints drachmas and pays its employees, pensions, various subsidies with them.

Unlike sex, it's only money.

[TimG]

What will change is that the Greek government will start to make payments in drachmas. Civil servants, policemen, pensioners etc will soon be paid in drachmas - not euros.

A rather elegant solution to the problem.

[dre]

Greece's just doesn't owe that much. The real problem I think is the destruction of the European banking sector.

Thats not a problem. It would be great if the ECB fell apart, and when they do it will be their own fault.

[wyly]

Thats not a problem. It would be great if the ECB fell apart, and when they do it will be their own fault.

really, and you're looking forward to the repercussions that will be felt around the globe and here as well?

[dre]

really, and you're looking forward to the repercussions that will be felt around the globe and here as well?

Those repercussions are coming anyways and they are the result of the way these institutions operate in the first place. The longer you keep them around for the worse these problems are going to get.

[-TSS-]

It is quite interesting that it took a crisis of this magnitude to destroy the duopoly of Greek politics where PASOK and New Democracy took their turns with screwing up the Greek people. Usually they mustered about 80% combined votes. Last month their combined share was 30%

On the other hand, if even this wouldn't have collapsed their duopoly then one could have asked what would have. Very similar what happened to Fianna Fail in Ireland, their perennial largest party which was shrunk to a small party-status by the angry voters last year.

[August1991]

Thats not a problem. It would be great if the ECB fell apart, and when they do it will be their own fault.

The ECB and euro will not fall apart. The Greek government will print drachmas and use them to pay civil servants, pensions.

Greece will have two currencies, as Canada does. In tourist areas, Greeks will accept euros - and post the exchange rate. Otherwise, they will use drachmas.

Other than the extensive melodrama of CNN, I don't see a serious problem. In fact, the drachma is a solution. Heck, in 2014, CNN won't talk about this.

It is quite interesting that it took a crisis of this magnitude to destroy the duopoly of Greek politics where PASOK and New Democracy took their turns with screwing up the Greek people. Usually they mustered about 80% combined votes. Last month their combined share was 30%.

Key point.

As Margaret Thatcher said, Socialist experiments eventually run out of "other people's money". And supposedly "right wing" parties eventually get co-opted into the "Socialist experiment".

The State is not capable of substituting for a family. There is not enough money on the planet to substitute for dysfunctional families.

---

IOW, trust the Greeks to raise a greater question for the civilized West.

Edited May 24, 2012 by August1991

[Michael Hardner]

The State is not capable of substituting for a family. There is not enough money on the planet to substitute for dysfunctional families.

This is true, yet political types of left- and right- are always stepping in to suggest state solutions to problems. Why ? Because that's what governments do - solve our collective problems.

Government is us. If you think that it's bureaucrats and people telling us how to live with our own tax money, then you're completing a self-fulfilling prophesy by giving up on them aren't you ?

[eyeball]

Greece will have two currencies, as Canada does.

Huh?

[fellowtraveller]

The key question is in which currency the Greek government makes its payments.

Your premise is just silly.

1) International loans specify the currency of repayment, the debtor doesn't get to repay n worhtless currencies of its own choice. All iof Greeces current lans are paid in hard currencies, and Greece will be required to repay inn hard currency

2) If Greece adopts the drachma again, obviousy it will be worht F*CK ALL. Nothing. Sero. Anywhwerre, inside or outside Greece. Nobody is going to lend Greece anything, because they have no ability to repay- you may have noticed that at least, that Greece is having trouble paying its debts now.

If Greece moves to the drachma, their economy is massively screwed- unabl;er to pay back loans they now have, unable to get new loans, unabloe to pay civil servants in anything but a worthless currency thsat will undoubtedly suffer runaway inflation.

The won't leave the Euro unless forced out because they simply cannot face what that means internally, and they won't be forced out because the implications of Eurozone failure are far more important than a few hundred billion Eurpo in bad loans..

[-TSS-]

In the Greek crisis the traditional right-left division is meaningless. The country has been governed for years by two parties taking their turns, the left-wing PASOK and the right-wing New Democracy. Rather than parties both are family dynasties of the Papandreou-family and the Karamanlis-family respectively.

Both have been equally reckless in running the finances of the country.

[dre]

Your premise is just silly.

1) International loans specify the currency of repayment, the debtor doesn't get to repay n worhtless currencies of its own choice. All iof Greeces current lans are paid in hard currencies, and Greece will be required to repay inn hard currency

2) If Greece adopts the drachma again, obviousy it will be worht F*CK ALL. Nothing. Sero. Anywhwerre, inside or outside Greece. Nobody is going to lend Greece anything, because they have no ability to repay- you may have noticed that at least, that Greece is having trouble paying its debts now.

If Greece moves to the drachma, their economy is massively screwed- unabl;er to pay back loans they now have, unable to get new loans, unabloe to pay civil servants in anything but a worthless currency thsat will undoubtedly suffer runaway inflation.

The won't leave the Euro unless forced out because they simply cannot face what that means internally, and they won't be forced out because the implications of Eurozone failure are far more important than a few hundred billion Eurpo in bad loans..

If Greece adopts the drachma again, obviousy it will be worht F*CK ALL. Nothing. Sero. Anywhwerre, inside or outside Greece. Nobody is going to lend Greece anything, because they have no ability to repay- you may have noticed that at least, that Greece is having trouble paying its debts now.

If Greece moves to the drachma, their economy is massively screwed- unabl;er to pay back loans they now have, unable to get new loans, unabloe to pay civil servants in anything but a worthless currency thsat will undoubtedly suffer runaway inflation.

Devaluation and control of their own rates is exactly what Greece needs. If they had stayed out of the eurozone the markets would have fixed this problem many years ago... the market for Greek bonds would have dried up and they would have had to rebalance their economy.

The real disaster here is if Greece stays in the Eurozone and is forced to turn over all kinds of political control to the ECB as well as all kinds of important public assets and thats exactly what this "bailout" deal is all about.

International loans specify the currency of repayment, the debtor doesn't get to repay n worhtless currencies of its own choice. All iof Greeces current lans are paid in hard currencies, and Greece will be required to repay inn hard currency

Greece can just unilaterally change the deal. They would be unable to sell any bonds for a few years but in the long term thats a good thing.

They should follow Argentina's lead and extricate themselves from the debt spiral or eventually they will be paying most of their GDP in interest to the ECB.

[dre]

The ECB and euro will not fall apart.

Yes it will... its just a matter of time until theres a crisis in the ECB if they keep buying so much of their own debt. Greece is a comparatively small problem and just the tip of the iceberg.

Arbitrary currency unions are a really stupid and dangerous idea. The idea that these countries in the mediteranean should have the same interest rates as Germany is ridiculous. These countries suffered a false economic boom and too much borrowing driven by interest rates that were too low. It was a terrible idea to start with, and the sooner it all falls apart the better.

[Wild Bill]

This is true, yet political types of left- and right- are always stepping in to suggest state solutions to problems. Why ? Because that's what governments do - solve our collective problems.

Government is us. If you think that it's bureaucrats and people telling us how to live with our own tax money, then you're completing a self-fulfilling prophesy by giving up on them aren't you ?

There's a big assumption in your argument, Michael. You are assuming that it is a positive thing to trust governments as efficient vehicles to solve our problems. What if the way a government approaches a problem is not only poor but actually more harmful?

The old joke that an elephant is a mouse made by a government is an apt one!

You are asking for blind faith. If someone feels that his own observations and life experience suggests that his government is NOT a positive solution to a problem then it is only logical, even a sane decision!, to give up on them and seek other channels.

[fellowtraveller]

Devaluation and control of their own rates is exactly what Greece needs. If they had stayed out of the eurozone the markets would have fixed this problem many years ago... the market for Greek bonds would have dried up and they would have had to rebalance their economy.

The real disaster here is if Greece stays in the Eurozone and is forced to turn over all kinds of political control to the ECB as well as all kinds of important public assets and thats exactly what this "bailout" deal is all about.

Greece can just unilaterally change the deal. They would be unable to sell any bonds for a few years but in the long term thats a good thing.

They should follow Argentina's lead and extricate themselves from the debt spiral or eventually they will be paying most of their GDP in interest to the ECB.

The value of a nations currency is not in the control of the nation, and particularly not when the economy is small and the debt is large. The relative value of any currency is as measured against others and by others, not something that Greece can dream up on their own.

If Greece adopts the drachma it will be worthless inside and outside the country, and the results for Greek citizens will be catastrophic. They have no reserves to carry the country for a few days, much less a few years. They will have to pay cash for every import- Euro cash, not shiploads of worthless drachmas, and how will they get those Euros?

And no, they cannot unilaterally rewrite the terms of their loans.

Hey, I want to buy a boatload of essential pharmaceuticals to keep my aging Greek families alive and I will pay you with sticks and pebbles. No.

[dre]

The value of a nations currency is not in the control of the nation, and particularly not when the economy is small and the debt is large. The relative value of any currency is as measured against others and by others, not something that Greece can dream up on their own.

If Greece adopts the drachma it will be worthless inside and outside the country, and the results for Greek citizens will be catastrophic. They have no reserves to carry the country for a few days, much less a few years. They will have to pay cash for every import- Euro cash, not shiploads of worthless drachmas, and how will they get those Euros?

And no, they cannot unilaterally rewrite the terms of their loans.

Hey, I want to buy a boatload of essential pharmaceuticals to keep my aging Greek families alive and I will pay you with sticks and pebbles. No.

WHen Greece returns to the drachma is WILL be severely devalued. I never argued that point. In the long term though thats a good thing, and the drachma will stabilize after a few years.

The relative value of any currency is as measured against others and by others, not something that Greece can dream up on their own.

No the value of any currency is based on the size of the money supply in relation to the total ammount of goods and services in the economy.

And no, they cannot unilaterally rewrite the terms of their loans.

Yes they absolutely can. Thats whats known as a default and its happened quite a few times before.

They will have to pay cash for every import- Euro cash, not shiploads of worthless drachmas, and how will they get those Euros?

Thats the whole point. Devaluation makes imports more expensive and encourages domestic production, which is exactly what Greece needs. They have too much debt financed consumption, and not enough production. If Greek politicians hadnt made the collosal mistake of joining the doomed eurozone this devaluation would have already happened, and Greece would be in the debt crisis they are in now... there would have quite simply been no market for their bonds.

[fellowtraveller]

WHen Greece returns to the drachma is WILL be severely devalued. I never argued that point. In the long term though thats a good thing, and the drachma will stabilize after a few years.

I think you are grossly underestimating the impact on the people of Greece. Think in terms of having no money for hospitals, schools, pensions or civil service salaries. Nobody will lend them a cent and they have nowhere near enough revenue to sustain what they have now.

No the value of any currency is based on the size of the money supply in relation to the total ammount of goods and services in the economy.

Incorrect. Currency values and exchange rates are determined by the confidence of the international fiancial community in the stability of your economy, in relation to other economies. Printing money is part of that, but the main part is percetion.

Yes they absolutely can. Thats whats known as a default and its happened quite a few times before.

Default is entirely another matter than 'changing terms'. And defaulting does not release any debtor from the debt, what a novel idea.

Thats the whole point. Devaluation makes imports more expensive and encourages domestic production, which is exactly what Greece needs. They have too much debt financed consumption, and not enough production. If Greek politicians hadnt made the collosal mistake of joining the doomed eurozone this devaluation would have already happened, and Greece would be in the debt crisis they are in now... there would have quite simply been no market for their bonds.

Import/export ratios are not the problem with Greece, the problems include endemic tax evasion, extraordinarily shitty and cowardly management of their resources, and an epic amount of lying to themselves and their population about their situation for decades.

They are largely if not entirely the creators of their situation, and joining the EU over 30 years ago simply postponed the inevitable in these circumstances. I have little sympathy for the Greeks, and even that is dropping quickly as they continue to wank on endlessly. They don't get to just walk away from it all in any scenario

Edited May 25, 2012 by fellowtraveller