13 STEPS FOR A GREEK EXIT FROM THE EURO
The following is a nice overview here of how a Greek exit could play out (via Wall Street Rant and Variant Perceptions):
“1. Convene a special session of Parliament on a Saturday, passing a law governing all the particular details of exit: currency stamping, demonetization of old notes, capital controls, redenomination of debts, etc. These new provisions would all take effect over the weekend.
2. Create a new currency (ideally named after the pre-euro currency) that would become legal tender, and all money, deposits and debts within the borders of the country would be re-denominated into the new currency. This could be done, for example, at a 1:1 basis, eg 1 euro = 1 new drachma. All debts or deposits held by locals outside of the borders would not be subject to the law.
3. Make the national central bank solely charged, as before the introduction of the euro, with all monetary policy, payments systems, reserve management, etc. In order to promote its credibility and lead towards lower interest rates and lower inflation, it should be prohibited from directly monetizing fiscal liabilities, but this is not essential to exiting the euro.
4. Impose capital controls immediately over the weekend. Electronic transfers of old euros in the country would be prevented from being transferred to euro accounts outside the country. Capital controls would prevent old euros that are not stamped as new drachmas, pesetas, escudos or liras from leaving the country and being deposited elsewhere.
5. Declare a public bank holiday of a day or two to allow banks to stamp all their notes, prevent withdrawals of euros from banks and allow banks to make any necessary changes to their electronic payment systems
6. Institute an immediate massive operation to stamp with ink or affix physical stamps to existing euro notes. Currency offices specifically tasked with this job would need to be set up around the exiting country.
7. Print new notes as quickly as possible in order to exchange them for old notes. Once enough new notes have been printed and exchanged, the old stamped notes would cease to be legal tender and would be de-monetized.
8. Allow the new currency to trade freely on foreign exchange markets and would float. This would contribute to the devaluation and regaining of lost competitiveness. This might lead towards a large devaluation, but the devaluation itself would be helpful to provide a strong stimulus to the economy by making it competitive.
9. Expedited bankruptcy proceedings should be instituted and greater resources should be given to bankruptcy courts to deal with a spike in bankruptcies that would inevitably follow any currency exit.
10. Begin negotiations to re-structure and re-schedule sovereign debt subject to collective bargaining with the IMF and the Paris Club.
11. Notify the ECB and global central banks so they could put in place liquidity safety nets. In order to counteract the inevitable stresses in the financial system and interbank lending markets, central banks should coordinate to provide unlimited foreign exchange swap lines to each other and expand existing discount lending facilities.
12. Begin post-facto negotiations with the ECB in order to determine how assets and liabilities should be resolved. The best solution is likely simply default and a reduction of existing liabilities in whole or in part.
13. Institute labor market reforms in order to make them more flexible and de-link wages from inflation and tie them to productivity. Inflation will be an inevitable consequence of devaluation. In order to avoid sustained higher rates of inflation, the country should accompany the devaluation with long term, structural reforms.”
Step 14 – cause total political panic/mayhem in the other peripheral nations as the decline in the new Greek currency results in a highly competitive economy, an autonomous monetary state and the likely end of their depression….
Why not just pass a law creating the “new drachma” which specifies that all euro denominated debts can also be paid by new drachmas at a 1:1 rate. And that government employees will start being paid in new drachmas rather than euros (at a 1:1 rate). And you would need to have a bank holiday while the new drachmas are being printed and distributed to the banks in exchange for any euro notes that they may have on hand.
I don’t really see any need for currency controls. Let people keep whatever euro cash they might have on hand. The new drachma would have immediate value because it could be used to pay taxes and euro debts. But of course, as the Greek government starts printing lots of new drachmas to pay its workers and its debts, the new drachma would quickly drop in value compared to the euro.
Because everyone would want to get as many Euros out of the country as possible, that would grind the whole economy to a halt because everyone wants to have Euros in Payment. So even if the government says 1 new Drachma = 1 new Euro the guy selling you good might see it differently.
If you are a Greek shopkeeper and you suddenly find that most of your customers are being paid in new drachmas and can only withdraw new drachmas from the bank, you will quickly be forced to accept the new drachma, or else go out of business. I think that Greek shops would probably accept either new drachma or euros, with the new drachma being worth somewhat less than a euro.
Also Greece is a country with miles and miles of coastline and lots and lots of private boats. I wonder how effective the Greek government would really be in preventing euros from being smuggled out of the country if Greeks really wanted to get them out.
Mental masturbation (something MMTers seem to enjoy) because Greece knows it is better off staying with the Euro.
‘I think that Greek shops would probably accept either new drachma or euros, with the new drachma being worth somewhat less than a euro.’
Somewhat less…yeah, just a bit, I’ll start the bidding at 50% less. I’d imagine you’ve never heard of Gresham’s law? Savers will save in Euros, spenders will spend drachmas, it would never work.
If EUR up it will reduce competitiveness of Europe products right?
But why every good news and risk on EUR always UP?
current good news create bad news in the future for EUR ..
But I don’t know, I’m not an economist..
I really hope more and more Greeks start to learn and understand that leaving the Euro may actually be the best decision they can make right now (instead of being terrified of it).
Sadly, Europe doesn’t believe in good decisions – it thrives on making bad ones…
MMT as an ECB Alternative
February 27, 2012
Michael Hudson
http://michael-hudson.com/2012/02/mmt-theory-as-an-ecb-alternative/
Kind Regards
Problem with this scenario is that the Greeks don’t want to leave the Euro. They will have to be forced kicking and screaming to leave. Only if Germany/ECB/EU imposes conditions so onerous, so draconian that the Greeks cannot accept it, only then will they leave.
If I were a Greek, I would get my savings into Germany, or even better, into the USA immediately. Any money I didn’t need to pay current expenses would leave the country immediately. I wouldn’t wait for redenomination to occur. I would either convert my savings into dollars in US Treasuries, or into good EU stocks through a German brokerage firm. I would also be buying US Gold Eagles and embedding my stash under a concrete floor.
If you withdrew your Euros as notes and stashed them securely, there is no need to get them stamped. Just stash them securely until things blow over, then smuggle them out of the country later.
Cullen,
What happens to the Target2 liabilities in the event Greece leaves? I suppose that the ECB will be forced to simply monetize them, won’t they? (Whenever there is a net transfer of Euros from Greece to other EU States, the Greek Central Bank accumulates a liability of that amount of Euros in the Target2 system.)
The existing Greek standard of living would quickly be destroyed by inflation if Greece adopted the new Drachma. The Greeks are not fools. They will never voluntarily leave the Euro. They would rather keep squeezing the Germans and the Troika for multibillion dollar bailouts in exchange for unenforceable promises.