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Saturday, July 11, 2015

My Guess Is Grexit

And in fact, I believe that's been the basic target all along. The problem is that there was no support in Greece for a return to the drachma.

You can either see Tsipras as the most brilliant politician ever or the worst. He has, in a just a few short months, created a political consensus for the austerity measures that would be needed if Greece were to return to the drachma, he has unified the country's deeply antagonistic political factions, and he has orchestrated a situation in which there will be an internally plausible story that Greece was forced out which will elicit a patriotic embrace of otherwise unpalatable measures, along with significant expatriate support. The austerity deal was interesting - the corporate tax rate is surprisingly low, and I would expect there's been some quiet background dealing with some very wealthy Greeks.

I don't think there will be support among about seven countries for any significant further loans and write-downs (Germany, The Netherlands, Finland, probably not Malta, Lithuania, Latvia, and Estonia). Probably either Slovenia or Slovakia would not assent. Luxembourg probably wants a Grexit.  Luxembourg and Malta are under a German hammer because of their banking systems, and would swap their support for a polite No for German assurances to back off on banking sector reform. There have been three strong "Neins" for several years - Finland, Germany and The Netherlands - but in the EU you need four or five.

Juncker has been talking all along about a humanitarian support package in case of Grexit, and I expect that Tsipras will come home with that, interim support for Greek banks, and something from the IMF to support trading. Maybe the wealthy Greeks will agree to dump some money into a specialized import/export bank, and the IMF will agree to backstop it??  

 

Comments:
I hope very much that' you're right about this. It would be the best possible outcome, given the situation. I suspect that the Greek referendum was a nasty wake-up call for the Eurocrats.

 
If you think things are bad now with Grexit then just imagine what will happen if this same thing eventually happens in Spain.

Nobody, and I mean nobody, wants to spend the majority of each day reading the Wall Street Journal about... brace for it...

Spandex

For hecklers, it's the global economy that just keeps giving, lol. Sigh.
 
Neil, I think Syriza may have planned this - but as I say, they didn't have the support at home for it. This may have been the only way to get there. I'd be amazed if they don't have a back-up plan in place, a protocol to switch internal electronic transfers to drachmas, and if they haven't been running the printing presses non-stop on those "Y" Euro notes, which will buy them a few weeks.

And once it's official they'll start printing drachmas.

I am a very simple-minded person. If it looks like a particular thing, I assume it is that thing. In order to go back to the drachma, they would have to shut down the banks for a few weeks, they would have to get the Europeans to give them the kick, and they would have to get Parliament to vote for austerity measures. They have accomplished all that.

The plan that was passed in Parliament on Friday is the plan they would need to go forward. Paying the pensions in drachmas automatically cuts them.
 
Mark - tragedy and farce are now so intertwined, who can tell the difference???

I think you may get in trouble for publishing those pirated videos of the Fed at work, though. Your career in international finance is just about over.

Perhaps you could team up with Varoufakis?
 
Your career in international finance is just about over.

It has gone to the dogs? ;)

Well, at least I knew the risks going in, which is more than can apparently be said for those crazy ivory tower whiz kids who thought up the grand Euro experiment.

It's a bit like designing a roof made of tissue paper. Works great on calm sunny days but that's about it, lol. Sigh.
 
You mean - it rains????

Call Paul Krugman immediately and advise him of this.
 
It could be worse, Mark; could be Italex.
 
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