Greece Brandishes Drachma, Threatens Euro Exit

Greece needs to make some payments in April. For a corporation like Apple, cash in these amounts would be a rounding error on the balance sheet. For the country of Greece, it’s becoming an insurmountable obstacle. That’s how broke Greece is.

No more than €462 million is due the IMF on April 9. A few days later, €1.4 billion in T-bills come due, and in a few more days, another €1 billion in T-bills. Then on May 1, Greece needs to pay the IMF €202 million in interest. In total, Greece has to scrape together a little over €3 billion this month.

But it won’t be able to make even that first payment to the IMF. Not unless it skips paying salaries and social security. To make both payments, it needs new money from the Eurozone “institutions,” as the Troika is now called – that is, from taxpayers in other countries.

But that deal is hung up after the Syriza government has done everything in its power to alienate and confuse even its most ardent supporters in the Eurozone.

Complicating the issue is that it’s the IMF that’s first in line. If Greece fails to pay the IMF on April 9, it would have a one-month grace period. Then the IMF’s executive board would declare Greece to be in default. No developed country has ever dared to default on debt owed the IMF. And things might get hairy very quickly.

That default on IMF debt would constitute an event of default for the European bailout fund, the EFSF, which under the provisions could cancel its loan facilities and declare the principal amounts due immediately, according to Bank of America. This would then cascade out from there into a massive default.

So Greece is preparing for the next step apparently. That’s what “sources close to the ruling Syriza party” told the Telegraph. And this leak too could be part of the game the government has been playing to stiff its creditors out of even more money.

“We are a left-wing government,” an unnamed senior official told the Telegraph. “If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer.” In other words, those salary and social security payments will be made one way or the other.

“We may have to go into a silent arrears process with the IMF,” the source said. “This will cause a furor in the markets and means that the clock will start to tick much faster.”

That elegant phrase – “cause a furor in the markets” – I’ll get back to it in a minute.

“They want to put us through the ritual of humiliation and force us into sequestration,” the source said. “They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us. If that is their objective, they will have to do it without us.”

“We will shut down the banks and nationalize them, and then issue IOUs if we have to, and we all know what this means,” the source said.

What this means is that the government is now preparing plans to revive the drachma and. It’s preparing to exit the Eurozone.

“What we will not do is become a protectorate of the EU,” the source said.

“They want us to impose capital controls and cause a credit crunch, until the government becomes so unpopular that it falls,” he said. “They want to make an example of us, and demonstrate that no government in the Eurozone has a right to have a mind of its own. They don’t believe that we will walk away, or that the Greek people will back us, and they are wrong on both counts.”

The Syriza government wants Greece’s creditors to make even more concessions than they have already made to prior governments. And it’s doing everything in the book to force these concessions through. So far without success.

Because there is one thing these good folks don’t get:

Officials in Europe and elsewhere make decisions with one eye on the financial markets. In 2011-2012, stocks plunged when EU bailout meetings didn’t go well or when a Greek politician insinuated that Greece might exit the Eurozone. It triggered fears of contagion. There was paranoia and panic. Investors were losing money!

Not this time. Euro government bonds have soared to where €2.2 trillion of them sport negative yields. The German DAX was up 22% in the first quarter and nearly 100% in three years. Greece has been surgically disconnected from the financial markets – except those in Greece!

That phrase – “cause a furor in the markets” – with which the source via the Telegraph threatened Eurozone politicians doesn’t apply anymore. It has been obviated by events. There may be a few ripples if Greece returns to the drachma, but there won’t be contagion. The only “furor” will be in the Greek markets.

That’s what these Syriza folks don’t get. Times have changed. That method of extortion worked wonderfully in 2011. But now, it no longer works. They miscalculated.

Greeks love the euro. A Grexit is unthinkable for them. They’ve had plenty of experience with the drachma. No one would trust the drachma. The government would devalue it even faster than Draghi can devalue the euro. For the Greeks, the drachma has always been a way for the government to steal from them. They don’t want to return to it. They want to keep the euro.

And the most powerful force behind hanging on to the euro? Government officials and politicians, including the current generation, expect to get their rich pensions paid in euros. They don’t want their pensions to be converted to drachmas either!

All decision makers in the Eurozone know this. They’re scratching their heads, marveling at these politicians in Greece who appear to be the only ones who don’t know that the threat of returning to the drachma – so skillfully leaked – backfired and hit the Greeks.

As for the creditors, they’ve known for a long time that they’ll never get all their money back. They just haven’t explained it to their taxpayers.

But here is the thing: the Greeks could solve the crisis on their own, if they wanted to. Or do they know something that others don’t? Read…  If Greeks Did This, the Terrible Crisis Would Be Over

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  24 comments for “Greece Brandishes Drachma, Threatens Euro Exit

  1. NOTaREALmerican says:

    Interesting post. Not only of about the posturing of going to the drachma but you’ve also wrote a concise summary of what the purpose of all societies is: “Government officials and politicians, including the current generation, expect to get their rich pensions paid in euros. They don’t want their pensions to be converted to drachmas either!”

    Governments, everywhere, exist to enrich the smart-n-savvy people of the society. Doesn’t matter if it’s Greece, California, or San Francisco.

    Btw, what you wrote is also why your “solution link” titled “If Greeks Did This, the Terrible Crisis Would Be Over” is 100% wrong. The Greek smart-n-savvy people are the ones not paying their taxes; they run the place, why would they pay taxes too? They wouldn’t be very smart-n-savvy if they did. Now, if you had titled your piece: “If the Greeks who are the part of the average passive clueless semi-psychotic majority of humanity Did This, the Terrible Crisis Would Be Over” but, see… that title is just (well) ridiculous. The “average people” have never been able to figure-out who the predators are.

    The reason we (those of us with Economic Morality OCD) are all here is that the smart-n-savvy people, all over the world, have created roughly the same system in every country in order to feast off their dumbasses. The Economic Morality OCD people just can’t stop obsessing about this, so we write and read blogs about it.

    Just how life works: predators and prey.

    • Wolf Richter says:

      Thanks for your thoughts. BTW, the linked piece – “If the Greeks did this…” – was very much tongue-in-cheek, but with a very serious point.

  2. Julian the Apostate says:

    Syriza really do seem to be a clueless bunch, bringing a knife to a gunfight. I look forward to the pix of empty shelves, the flight of capital, and the ‘brain drain’.

    • mrbloom says:

      Be careful what you wish for….

    • You and Wolf are misguided. Someone has bet on the nation of Greece staying in the Eurozone. Somebody is going to find out if the counterparties can pay. That is why this little nation can hurt the Eurozone badly.

      If we believe in the sovereignty of nations we have to be rooting for Greece.

      • a Texas libertarian says:

        I think we’re all rooting for Greece to leave; I know I am at least. Just like I rooted for Scotland to leave the U.K. Even though Greece (and Scotland) is much ‘lefter’ than the rest of the EU, I think they are only going to learn how to govern themselves somewhat properly (ridding themselves of socialism) if they stop getting subsidized by tax payers in the rest of the EU.

        “For the Greeks, the drachma has always been a way for the government to steal from them. They don’t want to return to it. They want to keep the euro.” – I love this little paragraph. I think Wolf could have added the sentence – “That way they can use other people’s governments to steal from other people.”

        After all, that’s the whole game of democracy – to be on the side which benefits at the expense of the other side. What better way to do that than to get some other country to foot the bill?

  3. robert h siddell jr says:

    Syriza to the EU: We bought air with the money so give us more money or we’ll blow our brains out! EU to Syriza: OK, here’s the money but first sign over the Title to Greece. Syriza: We would rather die first! EU: No, you are our slaves. Syriza: We’re gonna pull the trigger! EU: Well OK but don’t damage our collateral. Syriza: We’ll print Drachmas! EU: Euros beat Drachmas; we will buy Greece on the cheap. You took the Devil’s money and now you are going to get screwed coming and going and the same applies to Spain, Italy, Portugal, France.

    • a Texas libertarian says:

      Nice synopsis! Gotta love it when central economic planning goes to $h!t.

  4. Petunia says:

    If the Greeks were smart they would default. If they were really smart they would default and convert to the Yuan, a soon to be SDR component, which will be fully convertible. They can only come out ahead by being fearless and at this point they have nothing to lose.

    • Tom says:

      > If the Greeks were smart they would default.

      Hey, it worked for the Icelanders.

    • Robert says:

      I think the last vestige of pride and self-respect makes this unlikely- to have to use paper money from the country that first inflicted it on the world is bad enough, but to see the figures of Aristotle, Plato, Pericles vanish and be replaced by …Mao…that would be only less bitter than hemlock.

      • Petunia says:

        “Pride and self respect” from a vassal state of Goldman Sachs…ummmmm

  5. SteveK9 says:

    Greece will probably leave. They can’t go on the way they have (and no, it’s not because of lazy Greeks, profligate Greeks, or anything of the sort), so they won’t. What is likely is that after some turmoil they will actually begin to recover, and that will mean the end of the Euro, because Spain, Portugal, and Italy will follow. The Euro will be used by Germany and its vassal states. The meeting between Russian President Putin and Greek Prime Minister Tsipras, on April 8, will be interesting.

    • retired says:

      I need to admit that the graphs & charts,along with economic theories,leave me confused & bewildered!I can’t make head nor tail out of them!
      However, I do have some ideas about politics,history & human nature.I believe that the EU is finished.
      It cannot survive,the people in the member states will revolt against it!
      Austerity & the EU are similar to a cancerous tumor in an individual,the individual must go in for surgery to have the tumor removed!They may buy time with medicine(injections of Euro credits)but in the long haul this only postpones the end.If they go into surgery to remove the cancer(Austerity) they
      may not survive the operation but at least they have a chance,if successful, of surviving cancer(austerity) free!
      They really have no choice,no nation can survive the austerity needed to pay down the leveraged debt’s of the financial sector,these debt’s are so huge that they can only end in default!
      The EU represents the bankers & plutocrats,their method of rule is buying off the mobs through the welfare state,bread & circus’s for the mobs.The EU has run out of bread but the circus goes on!
      When a ruling elite can no longer buy off the mob it’s only other option is to call out the troops to suppress unrest.The EU has a big problem,…it has no troops!
      The peoples across the EU,like Greece,were enthusiastic about joining the EU with the promise that they ‘would get something for nothing’.Now it is dawning on these people that they had heard wrong,’they were not getting something for nothing’,’they were getting nothing for something’
      Human nature,being what it is,these people are very angry & want to get out!

  6. Peter says:

    I am reminded of my favorite story – known to Wolf as “Alexis Sorbas” – and to us, as “Zorba the Greek”. You remember – the project to reactivate a defunct soft coal mine, using shoring timbers transported from a mountain top to the sea on an ill-conceived monorail cable system. After everything went to hell, Zorba exclaimed: Hey boss, did you ever see a more splendiferous crash?

    What happened after that – nothing – life in the village went back to its former routine.

    I think that sums up the situation in Greece. Without wanting to trample on anyone’s pride, what does Greece have to offer: For me, only one thing – location. All other talk about who wants what is bullshit.

    It makes no difference if the Greek economy is denominated in Drachmas or Euros or whatever. Life will go on in Greece. What will make a difference is if Greece hypothecates its land and mortgages its soul. Thereafter, Greece, for the Greeks, is nothing.

  7. Mary says:

    Thanks wolf. The only thing that is surprising me is why do people refrain from the calling the “peoples’ government” of Syriza for what it really is-a bunch of socialist thugs.

    Oh, I forgot. It is those Greeks who elected the thugs in office hoping to get a free ride.

  8. Julian the Apostate says:

    MrBloom I do NOT wish for it. I simply see it coming. “It’s about the future…some people think the future means the end of history. Well, we haven’t run out of history quite yet…people can be very frightened of change…”
    -Captain James T. Kirk
    Star Trek VI, The Undiscovered Country

  9. Michael says:

    From what I understand there is no provision in the Treaty of Lisbon that would enable the European Union to throw out Greece or any other country for that matter who say decided to default on their debts. Any changes to the Treaty of Lisbon to expel a nation would require the unanimous support of all member nations including that of Greece. Therefore Greece could actually default on all its outstanding debts, remain in the European Union and even still keep the Euro.

    The genius central bankers have created the largest debt bubble in history with ridiculously overvalued government bonds, $2-3 trillion worth with negative yields in Europe alone. If it isn’t Greece who defaults first it will be Portugal or Spain. It’s going to happen. It’s just a question of when. The European Union can pretend all they like that a Greek default is of no significance but a default would be devastating. As Jean-Claude Juncker, President of the European Commission, once said, “When it becomes serious, you have to lie”.

    • retired says:

      I keep thinking of the Disney classic ‘Fantasia’.
      The financial elites think that they are very intelligent with their schemes & conspiracies.
      In reality they are not so smart,…just clever & cunning!
      In the Disney movie Mickey Mouse is the Sorcerers Apprentice.
      He believes that he can get out of the task of cleaning out the sorcerers tower by doing the work himself! Mickey decides instead that it would be easier to do this by using magic,he feels that he knows as much as his master!
      As most people probably know,his conjuring goes wrong & he ends up with a thousand mops,brooms,& buckets of water which are completely out of his control & are flooding the tower with water!
      The Bankers & Oligarchs remind me of the ‘Sorcerers Apprentice’.They have created & nurtured a financial Frankenstein’ monster that is spinning out of control at an ever faster rate.They are plotting & scheming desperately trying to find a way out of the mess they made!
      At this point they need a master sorcerer to magically clean up the debris!

  10. chris m says:

    as we all know that the Greeks have been withdrawing
    their money from their banks for the past 4/5 years.

    however, what i would like to know is this.
    surely these deposits are nearly all in the form of cash
    ie euros, but they arent just ordinary euro notes.
    they are euro notes with a greek signature to them.

    should things turn nasty between the ECB and greece,
    and the greeks eventually do withdraw from the eurozone,
    and there is a greek banking collapse etc.

    what happens when those Greek-euro notes that survived
    (the banking collapse that follows ) return home.

    in my opinion, ECB could declare a greek-euro note to be
    inferior to any other euro banknotes ,particularly those from say germany

    after all its just a piece of paper, and in theory at any rate
    its value could be open to opinion.

    the greeks dont just need to withdraw their money from an insolvent banking system, they also need to “convert” that potentially useless paper money
    into something useful, like silver,gold, non-perishable commodities etc

  11. Victor Berry says:

    Crippling European “war reparations” played a role in the rise of the Nazi Party. Will crippling European “banking reparations” have a similar effect on Greece?

  12. Jerry Bear says:

    Those debts can NEVER be repaid. Get that? The attempt to force Greece to do so has brought the country to the verge of ruin and destitution. Levels of outright hunger are constantly edging up. I am sorry for all the billionaires who own Greek debt, but they are just going to have to do without. Better that than Greek children should do without food. The greeks MUST repudiate their unpayable debts, must depart from the Eurozone and MUST return to thr Drachma. They will need also, at ;east for a while, to introduce some sort of socialism to prevent mass starvation. Then and only then will they be able to dispossess the rich criminals who own so much of their economy and got Greece into this mess in the first place. Then finally, they will be able to start rebuilding their nation. The purpose of a national economy is to develop the resources of that nation and meet the needs of its people. It is NOT only to merely provide investment opportunities for billioinaires! Now if investment can be worked into the framework of the first two goals then so much the better, But that is not emphatically the case with Greece. There, the big investors have brought that country to the edge of ruin. They have to go and too bad if they suffer losses. They can far more afford that than the people of Greece can afford to lose the means of existence.

    I agree that Southern Europe will probably follow suit and the European Union will come crashing into ruin. I suspect the Germans really want that so they can preside over a hegemony involving only Northern Europe. I don’t think the Euro is going to last too terribly wrong either. What is going to happen has been inevitable for a long time, who is really surprised? But maybe you heartless slaves of Mammon ought to think of the Greek people too, at least once in a while.


    JerryBear growls softly…….

  13. Julian the Apostate says:

    Jerry Bear, are you related to Gov. Moonbeam? Talk about putting the cart in front of the horse. Greece-and the rest of the Western nations-are in this mess because socialism has run amuck and destroyed the free market by turning it into a casino with very bad odds. Socialism is not the cure for socialism. When mooches become desperate enough they turn into thieves. And it seems the ECB via bail-ins are going to just expropriate bank deposits. When you’ve run out of victims to fleece good luck feeding the children-or anyone else except for the little tin plated politburos

    • Jerry Bear says:

      It is Capitalism that has been running amuck, socialism has largely been surpressed at every turn. Free market fundamentalism is destroying the entire world. The Casino we see is the result of Capitalism no longer being able to develop genuine productivity. Instead it turns to speculation and the creation of fictitious capital. All this was predicted in great detail in Das Kapital.
      As for Satan Herself, you need to grow up and stop letting that silly childish philosophycompletely ruin your ability to think straight. Ayn Rand became one of the most venomous misanthropes who ever lived, Her great vision was the destruction of Western Civilization and the death of the great majority of the human race. How could you let yourself be brainwashed by something so sick?

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