Re-Drachma?

Modern Drachma Coins

Modern Drachma Coins

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A brief description of the Greek Drachma that was used as a currency unit for about 3000 years:

http://en.wikipedia.org/wiki/Greek_drachma

h/t to R. de Haan in comments here which points at this article:

http://www.spiegel.de/international/europe/0,1518,761201,00.html

Athens Mulls Plans for New Currency
Greece Considers Exit from Euro Zone

By Christian Reiermann

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union — regardless which variant is ultimately decided upon for dealing with Greece’s massive troubles.

The article goes on from there to describe all the dire things that would befall Greece if it took this action. It ignores two very important points (or minimizes them). In emphasizing just how a Greek devaluation would double the national debt of Greece, it ignores the option of a Greek re-issuance of existing bonds. Greece could, quite simply, announce an official exchange rate for New Drachma, announce that all sovereign debt was now converted at that exchange rate, and then issue a circulating currency that it could inflate. The existing holders of those “Euro” bonds would be converted to holders of “Drachma” bonds despite what is printed on the paper they hold…

That would let Greece simply inflate away the massive debt it will never repay anyway.

The great losers here would be Germany and France (who have largely funded the bailouts).

The other major benefit to Greece is that they could once again use the favored tool of “bugger the currency” to make folks feel better while they are being screwed over. All their national pensions could be paid in full (just not buy as much), nobody would need to deal with “austerity” or taking a pay cut (just not be able to buy much with that ‘full pay’), and everyone could get back to living beyond their means for a while longer (until their lenders just stopped lending). Rising prices of food and fuel could be blamed on OPEC and the USA. Rising prices of products could be blamed on China and Germany.

But Wait, There’s More!

Where this gets interesting is that, should it work, you can rest assured that Portugal, Ireland, Italy, and Spain would be thinking “Austerity or Currency? Decisions, decisions…”

There would be a modestly rapid removal of several other countries from the Euro Zone, and the Euro itself would come under some significant pressure.

To the extent that the EU tried to force Greece to stay in the Euro “Or Else”, it could spread into an exit from the EU (and thus a destabilization of THAT political body).

The potentials here are just amazing.

What I Expect

I often rail against “expecting at” things. But everyone expects. So I recognize my expectations, while I just make sure that I act on what facts happen on the ground. Basically, it’s a ‘base line’ for measuring reality, not a decision guidline.

With that said:

I expect Germany will find a way to increase the “restructuring” and to make it even easier for Greece to not use that “nuclear option”. This will lead to the rest of the PIIGS wanting their share of the trough too… So we’re going to find out just how big IS that German Wallet… and how much the German people are willing to pay to be in this marriage with a spouse who has a Credit Card Problem…

At best we can have Germany supporting the PIIGS in a lavish lifestyle based on a hope of someday being repaid. At worst we can have a decision for the Euro to join the devaluation parade as a way to make life easier for the PIIGS. In between would be a German Popular Revolt (as they don’t get much out of this in either case).

Then there is always the possibility of the whole EU / Euro Zone doing a ‘rapid self disassembly’…

Now THAT would be fun to watch! ;-)

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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28 Responses to Re-Drachma?

  1. All empires dis-assemble sooner or later, Roman, Greek, Ottoman, British, Soviet, whatever. The EU will fall to bits one day (or else become an expensive talking shop like the UN) and that is the end of that.

  2. E.M.Smith says:

    Saw a denial, by Greece, of the article; on the crawler on one of the financial shows.

    Then again, they must deny it; and especially so if they really ARE going to do it. Like central bankers always say they will defend the value of the currency even when printing it like crazy…

  3. R. de Haan says:

    If Greece fails it will cost the Dutch State and it’s Nationalized Banks (ABN AMRO) about 60% of the BNP, probably more.

    The ‘probably more’ remark is based on the fact that Portugal, Italy and Spain also have been lending money
    to Greece with ABN AMRO as one of bank partners.
    This also applies to the German Bank.

    In short, it’s a mess, it’s a mess, it’s a mess.

    Some people are going to burn their fingers in a way they are not going to forget lightly for the remainder of their lives.

    Maybe (hopefully) this will teach the Dutch political establishment to stop walking in front of the (EU) brass band.

  4. R. de Haan says:

    E.M.Smith
    “Saw a denial, by Greece…”

    I really think they have no choice.

    They simply lack the support of their population who is not willing to pay the bill of the speculators or accept the harsh tax measures and budget cuts.

    It will simply destroy the country.

    Getting out of the EU and restoring the Drachma will provide them with a head start and all the benefits you have described.

    Maintaining the EU/IMF = UN regime will mean slavery for generations.
    It’s as simple as that.

  5. R. de Haan says:

    Here is what dr Richard North, EUreferendum writes about the subject with several other links besides Der Spiegel.
    http://eureferendum.blogspot.com/2011/05/greece-stains.html

  6. R. de Haan says:

    German “Wirtschaftswunder” has a weak heart
    http://www.zerohedge.com/article/deutsche-bank-put-volume-surges-greek-news

    A very weak heart.

  7. R. de Haan says:

    This is what our friends from Zero hedge had to about about Der Spiegel announcement.

    http://www.zerohedge.com/article/breaking-greece-threatens-leave-eurozone-reintroduce-own-currency

    Also read the updates.

  8. wolfwalker says:

    “Now THAT would be fun to watch! ;-)”

    In a horrifying slow-motion-train-wreck kind of way, yes, it would.

    Much as I dislike the eurojerks and their attitude toward the US, I really don’t want to see the whole eurozone slag down. Because there are a lot of good, honest European folk who don’t deserve that fate. And because our own economy would soon follow.

    But I honestly don’t see any other way this can end.

    Which is why I have little confidence in the immediate future, for both Europe and the US.

  9. E.M.Smith says:

    @R. de Haan:

    BNP? Basic National Product? Bank Net Product??

    I’m pretty sure that you’ve got it right.

    There are two kinds of people: Those who divide things into two groups and thous who don’t…. Oh, wait, wrong topic ;-)

    Those who face reality and see that they must “do the right thing” and would rather decide when to take poison to kill them selves or when to walk into certain death in hail of machine gun bullets; and those who would rather be deluded about it and have the fantasy that everything is just fine and let someone else give them the poison unawares and be told that they have magic Ghost Shirts that will prevent bullets from killing them.

    The PIIGS are in the latter. The Germanic / Deutche / Dutch / Flemish / … folks are in the former. You can marry them up in one society with 50 to 100 years of intermariage and cultural homogination (USA) and it can work. If you put them in a life boat together unassimilated and one group is drilling holes in the bottom while the other is building a sail… well, things are going to get messy…

    @Wolfwalker:

    I’m from the “Tell me I’m going to die so I can have a nice party before I walk head held high into the hail of bullets” group. All that German/ Swiss Amish and Viking / Saxon English part of the family (though the Celtic part has a bit of it too…)

    So yes, I’d find it “fun to watch” in a “liberated from long term bondage by cuttiing off your hand to dump the manacle” kind of way. Yes, I’d rather keep the hand… but given a choice of a liftime of subjugation or a 1/2 a life time as a free man named “Lefty”, well, call me Lefty…

    So I’d rather watch Europe regain its freedom and national sovereignty as a collection of free and self reliant states named Lefty than watch is slowly ferment into a New Rome with a new Caligula…

    Any pain and suffering would be less than the alternative…

    Then again, I like to know that I’m about to march into the machine gun fire…

  10. E.M.Smith says:

    @R. de Haan:

    I just love this line from that link:

    Needless to say, as the news has leaked out, Greece has been quick to deny the Spiegel claims, the rapidity and sharpness of the denials suggesting that there many some truth in what has leaked out.

    It just shouts: “Here there be people with clue!!!”

    The bottom line is that either the PIIGS adopt a Germanic Austerity and Discipline, or Germany adopts a love of hyperinflation, or they get a divorce.

    Given that Germany knows full well what inflation does, that’s not going to happen. Given that the PIIGS are not going to have a cultural brain transplant, that’s not going to happen. SO the default is?…

    My guess is that it will take about 5 years to finish. (First major event in about 6 mos to 1 year after an interim restructuring fails).

    The more interesting quetion to me is what currency will NOT be part of the “race to the bottom”?

    Swiss Franc?

    The Yen is already as near zero interest rate.
    The US$ is joining them ( 1/4% and moribund).
    The Euro is about to implode.
    The Yuan is nailed to the merchantile crusifix.
    The Brazilian Real is subject to New Socialism.
    The ….

    Maybe it’s the Looney and the Aussie? As “resource currencies” they have a good basis. Then again, they are embracing the Global Warming nonsense and the whole deindustiralization thing.

    Frankly, Other than the Swiss Franc, I’m just not getting good vibes on all this stuff…

  11. Chuckles says:

    I’m shocked, shocked I tell you that we haven’t yet had anyone mention the old Goon Show trope, or the more modern variations –

    We need a Grecian Urn…

    What’s a Grecian Urn?

    Considerably less since joining the Euro…

  12. Hugo M says:

    As I understand the message, it is more meant to denounce Greece and steer it away from the only sane option it is left with. When I can stand to read that German propaganda magazine, I always ponder the 2’nd and third derivative. E.M. Smith, you said: “At best we can have Germany supporting the PIIGS in a lavish lifestyle based on a hope of someday being repaid”. But that “lavish lifestyle” allegation is almost pure media drivel (as is the “pigs” alliteration). Germany, the proverbial “world champion” in exportation, has always kept a large trade surplus. Mainly German banks, backed by public export credit guarantees, have fostered this inherently tense situation for decades, much like constantly loading a large capacitor until breakdown is imminent. While a good part of these exported goods is said to have been military in nature, the deeper reason for the imbalance is the lower productivity in the less developed countries. But our financial system tends to maximize such contrasts at any hierarchic level.

  13. Adrian Camp says:

    What if I were a Greek, and I had my money in a bank in euros? Would they just be converted to drachmae at the new rate? I might have that money in a german bank. Wouldn’t I be far better off if I did?

    Is there a flood of euros leaving Greek banks? What about cash? It is easy to devalue say the ruritanian dinar to the new ruritanian dinar. Everybody has to hand in the old and get the new at a given rate. But to devalue the greek euro when you might be holding cash euros which will still have the same value elsewhere? It has always seemed to me that the complications will defeat the intent.

  14. Hugo M says:

    Adrian asked: “Is there a flood of euros leaving Greek banks?”

    Interesting question. If the Greece government really had decided to fall back to a national currency, they had to prepare a monetary reform in secrecy and then act quickly succeed with minimum damage. It is my understanding that the Spiegel piece pre-emptively tries to press the Greece government away from that idea by maximising costs.

  15. R. de Haan says:

    @Adrian Camp
    If I were greek citizen with money in the bank I would exchange my money for solid gold.

    I don’t trust any German bank, as the German bank system is the first to fall.

    I don’t trust the Euro currency because the Greek exit of the Euro Zone will as stated, devaluate the Euro by 50%.

    More drastic, if I was a Greek citizen with some money I would leave the country.

  16. R. de Haan says:

    E.M.

    BNP = GDP = total earnings of a country
    http://www.greenfacts.org/glossary/ghi/gdp-gross-domestic-product.htm

  17. R. de Haan says:

    EU To Greece: “We Want To Help You Help Yourself”… And We Want To Own You After You File For Bankruptcy
    http://www.zerohedge.com/article/eu-greece-we-want-help-you-help-yourself-and-we-want-own-you-after-you-file-bankruptcy

  18. E.M.Smith says:

    As I understand it, each nation can “mint or print” a certain number of Euro (that have a national marking on them). This has interesting “implications”.

    For example:

    1) Greece simply declares those “Greek Euro” to be “Greek Drachma”. Now ALL holders of those particular Euro must soft them out in transactions and a large load of them come rushing back to Greece.

    2) Greece leaves THOSE as Euro, but comes out with new Drachma currency and declairs all “accounts” as denominated in the new currency. The “Greek Euro” currency continues to circulate “wherever” as a Euro (but Greece can not mint or print more of them and must redeem any that are presented). I.e. swap a “Greek Euro” for a German or French or Irish Euro…

    I expect they would take path #2. If they took path #1, then folks anywhere with French (or Italian or Dutch or…) Euro currency would hold them AS Euro for as long as the Euro is stable. Even folks in Greece. So the quantity of “Greeks cashing in Euros” would depend entirely on which Euros they held.

    But if Greece took path #1, then they would have an overnight “done deal” complete with circulating currency and would only need to start minting and printing any new Drachma as drachma were needed. The repatriation of “Greek Euro” currency into Greece would likely be swift, but the monetary impact minimal as it just aleviates the need to print a heck of a lot of Drachma in a hurry. It would, however, be a royal PITA to everyone in EuroLand as they would need to closely inspect every Euro in every transaction (including vending machines…)

    At any rate, the least “problematic” path, IMHO, is path #2 with a temporary “dual currency” motif as both Euro and Drachma were used in trade inside Greece.

    OK, strategy:

    In either case there is pressure / doubt on the Euro. You need a non-Euro currency to hedge that. British Pounds or Swedish Krona or Swiss Franc or …

    In either case, as a Greek, you know your currency is going to “take a hit” via inflation. I’d move all cash as quickly as possible into anything other than Drachma (even into Euros temporarily).

    To the extent the non-Euro currencies are being buggered by their central banks, you avoid them. If it’s hard to find a decent alternative, then you buy a commodity or physical goods. That can be land, gems, paintings, gold & silver, even some stock shares with durable value) until the dust settles.

    That still doesn’t stop the government plan. They still have all the electronic accounts swapped and all the paychecks changed over to Drachma (and there is far more of that than there are coins in circulation). They also get to swap any “paper” they like into Drachma (though that would likely require a departure from the EU to reclaim the sovereignty needed to do that by fiat.

    FWIW, I’d not put MY accounts in a German Euro account under this circumstance. I’d move it to a Swiss bank or maybe even Japanese Yen or Canadian Loonies…

    Aussie Dollar if they decide not to drink the AGW Koolaid…

    @R. de Haan:

    Any country with about 20% unemployment and embracing a “green jobs” agenda “has issues’…

    @Hugo M:

    Not saying I like the German Approach… just saying that they have the bank power to swing “weight”… Talking about capacity, not moral rectitude…

    Per “Lavish Lifestyle”: I mean that in a “spend more than you make” meaning more than in a “spend giant absolute sums” meaning. Anyone living beyond their means is being “lavish” in that sense. The whole point of doing the currency thing is to continue to spend more than they make and be more “lavish” with benefits than their purse can support.

    @Chuckles:

    Glad someone saved me from needing to do the embarrasing deed ;-)

  19. Adrian Camp says:

    I understand that some folks in the Eurozone have for years been picking through their euro banknotes and getting rid of the nationalities they don’t trust by spending them first.

  20. Level_Head says:

    And some small shopping regions of Europe have moved off of the Euro and back to local currencies or scrip, very unofficially. That’s been true for a couple of years at least.

    The will of the population and will of the banking and government interests are producing clear conflicts — but none of them are likely to result in a stable, gold-backed currency for Greece or anywhere else.

    ===|==============/ Level Head

  21. R. de Haan says:

    @E. M., “So the quantity of “Greeks cashing in Euros” would depend entirely on which Euros they held”

    Extremely difficult to filter out the Greek Euro’s (bank notes) from all the other nationalities.

    In the Netherlands for example it’s very hard to find a Dutch 50 Euro note.

    It will also be very difficult to declare the Greek notes
    ‘invalid”.

    This means the Greek notes will continue to circulate for a long time.

    Greece could even decide to print some more, just for the fun of it. It’s all Monopoly money now.

  22. E.M.Smith says:

    @R. de Haan:

    Per the wiki here:

    http://en.wikipedia.org/wiki/Euro_banknotes

    under serial number, the Greek notes are the ones with a Y serial number. Doesn’t look like it would be all that hard to spot Yxxxxxxxxxx

    but what do I know, I have money that all looks like it is molding… ;-)

  23. E.M.Smith says:

    @R. de Haan:

    Well, something on that page crashed my browser… so I’ll just have to assume it’s what I already know:

    There is NOTHING at all to prevent another “flash crash”. All the original causes and issues are intact.

    This is a direct result of the swap from the “specialist / floor broker” model to the “integrated electronic market”.

    The old system had individual stocks traded on individual exchanges (primarily, some were dual or more listed, but even then had a dominant location). That exchange had a “Specialist” for each stock. That Specialist had some very special privliges, but it came with some very special obligations.

    First, and formost, the Specialist brokerage MUST make a market in a stock. You offer 1,000,000 shares, they have to find a buyer or buy it themselves. For this reason, a non-specialist floor broker would often handle large orders and go physically ask the Specialist what kind of “size” can be moved at what kind of price. Thus trades might take 2 to 5 minutes to execute. For massive trades, the non-specialist floor broker might choose to set it out over a couple of days (and the Specialist might ask a back room broker to make some phone calls to shop around a large block of stock). In theory this can still happen a little bit in the NYSE.

    But most stocks are now traded electronically. There are many more “market maker” brokers who are theoretically supposed to always “make a market” but there isn’t the same kind of “MUST make a market” (or go broke trying or else you lose your seat on the stock exchange) any more. There also is an expectation that trades will execute in seconds, not days or hours or even minutes.

    At the same time, many more positions are electronically bought and sold by computer with no human deciding to “sell” at any given time. Some of the packages tend to have synchronous behaviours too. “They all go together when they go”… I’ve heard numbers up in the 1/2 to 2/3 of all stock trades as computer driven…

    OK, how this interacts and leads to a Flash Crash is pretty simple. (but most folks didn’t realize it could happen, and many now think it can’t; but it can).

    Oh, and one other thing, the removal of the “uptick rule” that required short sellers to wait for an uptick in prices before they could short means they have an inducement to dump a big load of shorts all at once in a tearing hurry (like we just saw in Silver) to scare the herd into a stampede.

    So, a lot of folks set their computers to have a 5% or 8% or maybe even a 10% “stop loss order” (often an automatically ratchetting upward ‘trailing stop loss order”). As a price rises a bit excessively (and it can be the agrigate price of the whole market, tracked via computer) it may hit an “automated sell point” in one of the trading computers.

    That is, it may be programmed to say: RSI Over 80 2 days, MACD at crossover, Price rate of change flat -> Sell 1,000,000 shares at market.

    So a couple of orders like that hit, and the price drops a bit, this makes the guys computers that have “MACD past crossover” start selling too. It also causes all the “stop loss at 2%” orders to sell.

    Repeat.
    Repeat.

    About this point, the market makers are up to their eyeballs in sell orders and don’t have much in the way of buy orders showing up. Bad JuJu.

    Now in the Old Days, they would just halt trading in the giant orders and shop them around for 3 or 4 minutes, then print a “block trade”. Today, they just push back from their computer console for a minute and all their exiting “buy on these conditions” get hit with the flood of computer sells. This has a bad consequence.

    A dealer will have an ‘order book’ with published buy orders like:

    1000 @ $50
    1000 @ $49.50
    2000 @ $40
    500 @ $35
    100 @ 20
    and sometimes something silly like:
    100 @ $1

    That last one is usually just there so they can have SOME quote showing even if the others get hit. The expectation is that it will not be seen during normal business hours but mostly just shows up when the pull the other bids at the market close. I’ve seen those “silly bids” after market close some times.

    But if a Giant Flood has knocked them down to their $35 bid, most of the time that means some OTHER market maker is still “bid $40, as it’s kind of ‘way crazy low’ compared to the $50 regular price (but it CAN happen on news like “CEO Busted” or “Earnings gone”…)

    In a Flash Crash, the orders to sell come in so fast (computer generated) that they swamp ALL the market makers existing bids, and they have not had time to figure out what is happening and put new bids up. In the last Flash Crash, the Market Makers were stunned to see the Dow plunge something like 500 points in minutes, and just took 60 seconds to stop tapping keys and THINK. During that time, bids were hit with “sell at market” all the way down to the “way crazy” $1 type bids.

    OK, in theory they have put in some “circuit breakers”. But in theory, we already had some last time. And last I heard, those “circuit breakers” hit at about 1000 points of dive. Not exacly comforting…

    But since no SINGLE Market Maker is THE Exchange specialist in a stock, they can’t be held to task for not buying an unlimited quantity of stock with no idea why it is being dumped with “at market NOW” sell orders.

    Add that the professional shorts know this and nothing prevents them from starting the cascade failure with massive shorting (no uptick rule), and you see why I get nervous when I see a ticker getting close to key “way overbought” indications (expecially in thin and volatile tickers like SLV)…

    At any rate: Yup. We’re still computer driven markets with computer driven cascade failure patterns in the interaction. We’ve got some minor cosmetic changes that are supposed to stop it next time… but that’s what they have said after each spectacular market crash…

    Have I mentioned lately that Economics is called “The Dismal Science” for a reason?…

  24. Chuckles says:

    @R de Haan,

    ‘Its all Monopoly Money now.’

    It’s never been anything but Monopoly Money.

  25. Robert L says:

    How about these PIIGS cede some land to their debtors to cover their debts – sort of capitalism applied to national territory.

    Clear all Greeks off of Rhodos and cede it to germany for instance, I bet there would be plenty of buyers for some agean soverign property. Maybe Turkey would be interested in owning the rest of Cyprus?

    Italy could lose Sicily or Sardenia, Spain the Canaries and Portugal the Azores or Madeira to more responsible creditor states. Though not sure if anyone would want Irish or Icelandic territory.

    It would be a good lesson and quick resolution for spendthrift nations around the world and a way for PIIGS to recover from the brink quickly.

    Along the same lines perhaps USA could hand over Marshall Islands and Hawaii to the chinese?

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