Let’s just say the grexit is going to happen.
What kind of stunt will Greece pull to move off the Euro? Clearly there are all sorts of permutations but the key one will be getting the country on to a footing where it can pay at least its grocery bills.
The reason a country wants to be in the Euro is simple, the world and its trading players love the Euro. The bad news of the euro is that a co7unrty in the euro has to be kind of German to not get into trouble. If you are kind of an Argentinean kind of euro denominated country, you will borrow in Euro’s on the basis that Europe will bail you out, blow the money to buy votes or curry favour to your mates and end up in a hole you can’t get out of. Hence crony Greece is in a vortex of financial collapse.
However there is a simple way out. The country goes bust. Greece has gone bust often in its history and been in default, so it is said 25% of its recent history. So going bust is a real option and a road countries often take. After all it wasn’t so long ago, 1998, self important Russia defaulted. Although the country is now once again in a financial pickle, there was soon no shortage of Russian yachts parked in the harbor in Monaco.
So how might a Grexit pan out. How about this. “Hello citizens, all your Euros are safe, but from now on all payments from the government for pensions will be in New Drachma and tomorrow morning our new currency will be born at 1 New Drachma to the Euro. All unsecured debt to the government will likewise be paid at this ratio.”
Affectively this would create a massive haircut on the Greek governments liabilities as very quickly a collapsing Drachma follows and inflation explodes. Translated into economics, pensions, government pay, outstanding bills get cut in half. Debt and liabilities to real GDP are slashed. Exports rise, imports dive, there is a righting of the balance of payment imbalance. This is why countries have high inflation. Its how profligate economies overspend and get away with it. Inflation’s purpose is to finance deficits by stealth, which is why so many indebted countries hate deflation.
That aside, that will be a mild version of a Grexit. It horribly painful. However if you are going to have pain, why not go the whole way. “Hello citizens. Tomorrow morning when banks open you Euros will be Drachma. We will convert your balances and all debts at 1 Drachma to 1 Euro. Long live Greece.”
All the Euro go to the government, which use them to pay off its international debt or perhaps to pay for new pleasures. All debt to the government remains in Euros and all debt of the government swap in to Drachma. The Drachma implodes, inflation rips and the government ends up with a war chest of euros. Its horribly painful but if you are going to go, go BIG!
There are of course many other potential ways to Grexit, but these two in my mind are the most likely as they are simple and doable quickly. The first is more likely because it doesn’t need New Drachma cash, but if that’s already printed, then the nuclear option is also highly likely. If we hear of convoys of lorries heading to Greece from either Germany or the UK, where 1 & 2 top bank note printer do there thing, you will know Grexit is about to occur. My only question is, what currency will they pay the printer in?