Pulling The Plug?

[Tim]

Did anyone see the thought-provoking article in today's Ekathimerini?

http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_22/07/2012_453217

Looks to me as though the troika are going to offer Greece 'take it or leave it' terms on the bailout and are positioning themselves to pull the plug on Greek Eurozone membership if Athens doesn't toe the line.

Back on the drachma before Christmas?

Tim

[fuzer]

The people have "toed the line" ! The rich billionaires jumping the sinking ship buying property in London and the rich bankers have screwed every one. There the ones who should toe the line!! Once we hit the Drachma there is only one way > up !!!

[filippos]

Once we hit the Drachma there is only one way > up !!!

I'm in agreement on that.

An interesting 'back to the Drachma' piece here.

[Clio]

http://hat4uk.wordpress.com/2012/07/23/ ... ant-to-10/

[Kilkis]

Central banks printing money, e.g. through quantitative easing, effectively steals the savings of those who have been prudent to repay the debts of those that haven't. The ones who benefit are the rich who have got their wealth out of the economy that is devaluing and who largely caused the problem. The ones who suffer are the poor who can't and didn't. I think the Euro was a stupid concept from day one but I don't think an exit to the drachma is going to be a panacea for the man in the street. He/she is going to get screwed even more.

Those who have their wealth outside the Greek economy because they are foreign nationals might think they are insulated from the effects but they aren't. If there isn't electricity, petrol, heating oil, medicine, imported food to buy then being able to afford it isn't much good. They might also like to consider that the country where their wealth is held is also stealing it by the same mechanism. All the large western economies are defaulting on their debt by stealth.

Warwick

PS There is a very serious error in the Telegraph article:

"As it happens, most sovereign debt is issued under local laws. In this case, an exiting government could simply redenominate its debt into the new currency at the official conversion rate, applying Lex Monetae. "

This was indeed the case in Greece before the financial crisis started but it is no longer true. The transfer of private debt to official debt through the bailout mechanism and the restructuring of bonds has meant that the majority of Greek debt is now held under UK/EU law. The Greek government has no power to re-denominate it at all nor can they declare it void. If Greece was going to default it would have been much better to have defaulted before taking any bailout money. If Greece tries to default or stops servicing the debt, as it would have to if it stops getting aid, the owners of this debt can continue to demand its repayment and continue to accumulate interest to it indefinitely. Greece would never be able to return to international money markets.

[concerned]

Seems to me Greece will be out of the euro at the end of September, like Kilkis says it won't be good because there's no money to import goods like fuel, medicine and the like, hard times may lie ahead for all of us

[filippos]

....... I don't think an exit to the drachma is going to be a panacea for the man in the street. He/she is going to get screwed even more.

I don't know that anyone has suggested leaving the Euro for a new national currency will be a panacea. In my opinion, if Greece leaves (or is "constructively dismissed from"), the Euro I think things will get much harder immediately, for Greek nationals and foreign residents alike.

I can see no way that Greece can repay its debts whether or not it remains in the Eurozone but I think recovery will begin sooner outside the Eurozone rather than within it. Bailouts so far have worsened Greece's situation, not just the enforced austerity but the debt burden keeps increasing (and most debt repayments are helping to shore up foreign banks, mainly French and German.)

Great isn't it? Eurozone countries say, "Here's a pile of money but you must give some of it back immediately to pay some outstanding interest which we need to prop up our banks. Oh, by the way, did we mention you now owe €xxx++ and we'll be back soon for the interest on it?"

Continue like that and things will never improve. Outside the Euro there's at least some hope of recovery even if it takes 10, 15 years or more.

Greece would never be able to return to international money markets.

That, I think, is a tad pessimistic but even if you're right it's not likely to make much difference to life here.

P.S. I agree with you absolutely, Warwick, about the ill conceived Euro project. From the outset it's been a fiasco waiting to happen. I think the Europhiles expected their plan for a politically integrated Europe to have been achieved before the chickens came home to roost.

[Kilkis]

... In my opinion, if Greece leaves (or is "constructively dismissed from"), the Euro I think things will get much harder immediately, for Greek nationals and foreign residents alike...

It is when the law of unintended consequences is applied to this scenario that worries me.

Warwick

[Tim]

I'm sure Kilkis is right. The whole Eurozone project was doomed from the start. The 'rules' for successful Optimal Currency Areas (OCA's) are taught in 'A' level Economics and the first rule is you need politcal union between the participating states before monetary union can take place - not the other way round.

Personally I think the whole misbegotten Eurozone house of cards will come tumbling down sooner rather than later and, as far as Greece is concerned, the only question is whether it exits/is dismissed before the Eurozone collapses, or leaves with everyone else when the Eurozone collapses.

I certainly agree that there will be a lot more pain before things improve, but a life outside the single currency is the only concieveable way forward.

Tim