I hadn’t thought of this but yes

“We are in an extremely dangerous situation. Greek companies have been excluded from the electronic transfers of Europe’s Target2 system. The entire Greek business community is unable to import anything, and without raw materials they can’t produce anything,” he said.

It’s not just the cash is it? Bank closures really do mean bank closures, don’t they?

You don’t need many days of this to kill off swathes of an economy.

It’s not quite that absolutely nothing will be happening in that economy. But imagine that economic activity halves for a week….just the the one week that the banks are closed for (some hope it’s only a week, eh?). That’s 1% off annual GDP just there. Meaning that there’s absolutely no hope of any form of budget surplus this year, is there?

Further, say a deal is done. Greece falls into line. Banks reopen: everyone, but everyone, will drain every penny from those banks. ELA will rise from he current 90 billion to what, 130, 180 billion? And the ECB’s not going to finance that, is it?

I don’t see how they come out of this without the banks bust: meaning a recapitalisation and that means the new drachma.

What am I missing?

42 thoughts on “I hadn’t thought of this but yes”

  1. How long before stocks of vital things run out? Medicines, parts for repairing machinery, that sort of thing.

  2. Bloke in Germany

    If Sunday’s referendum goes the wrong way (I suspect many here will think the right way) we will be sending food parcels by the end of July. Probably earlier.

    The ECB will do “whatever it takes”. That’s fins short term. What has to happen, longer term, if Greece stays in the euro is:
    (1) massive economic reform, not the drip-drip-drip approach of the last 5 years.
    (2) write down of most or all of the debt in return for (1).
    (3) Greek banks broken into good and bad bits, with the good bits sold to northern European banks, as the first stage of integration of the eurozone’s banking sector.

  3. Was on Swiss radio news this morning, and extends to things like hosting, dropbox and all kinds of things. Apparently some Greek expats are helping businesses make payments abroad.

  4. It didn’t have to end like this. The ECB could (and should) have stood more firmly behind Greek banks, while at the same time refusing to accept any additional Greek government debt as collateral. The banking system and the euro would have survived, regardless of any further mess the government made. We wouldn’t be talking about food parcels.

  5. @AndrewM
    Of course they could all have stood by the Stability & Growth pact, but no-one wanted to when the going was good.

    Germany couldn’t criticise Greece for doing what it was doing.

    The whole thing is an undemocratic farce. They should have been preparing Greece for a soft landing outside Euroland. Instead, with the help of the Greek government, they’re going to crash out in the worst possible way.

  6. “Perhaps what we are witnessing is the birth of the first true federal EU state.”

    Or the explosion of the federasts’ wet dream of one.

  7. ” They should have been preparing Greece for a soft landing outside Euroland. ”

    Again, politics trumping economics.

  8. If it only lasts a week, they probably won’t lose 1% of GDP as businesses will rely on stocks of raw materials etc.

    If it lasts much longer though…

  9. Andrew M said:
    “The ECB could (and should) have stood more firmly behind Greek banks, while at the same time refusing to accept any additional Greek government debt as collateral.”

    Trouble is, what better collateral was there? If they take private debt there’s a valuation process needed, otherwise the banks just offer all the crap that they know won’t be repaid (of which I suspect they have good supplies).

  10. Got to be some sort of a record for the commies?

    To take a flailing economy and completely kill it off in under 6 months.

    How long does €500m last, even with capital controls? Would the banks have to have literally zero euros left before they declare themselves bust?

  11. @Andrew M

    Richard is right. There is no other collateral that the Greek banks could have offered. ECB rules are such that government debt is the favoured collateral and by allowing the Greek banks to lend to the government and use it as collateral, the ECB helped everything hold together while they negotiated. This is one of the reasons why the Syriza government was so miffed about the T Bill ceiling – not only would it have allowed the government more slack, but it would have created extra collateral for the banks. Crap bad collateral, but legally collateral. Which is why Draghi held the line at the existing T bill issuance level. (Mario Draghi comes out of the entire crisis pretty well – he has trodden the line well and made some ballsy decisions but has also rebuffed some of the idiocies from the Greeks really well.)

    Bank solvency
    Greek NPLs end 2014 were estimated at E72 billion, net of reserves at E30 billion around 35% of domestic loans. It’s probably far worse now.

    https://www.fitchratings.com/gws/en/fitchwire/fitchwirearticle/Greek-Bad-Bank?pr_id=982516

    The ECB has been incredibly generous (lax if you are German) in their determinations of solvency at the Greek banks.

  12. Dan

    Illiquid, not insolvent. They’ve been insolvent for years. But they had implicit government backing.

    Even with capital controls, E500 million wont last them through next week. If they vote NO, my guess is that the ECB refuses funding and they’re paying with IOUs within a week. Tax revenues collapse to zero and pensions and wages will need to be paid in IOUs by the end of the month. Their only hope would be instant and full capitulation to the EZ. Even if they vote YES, there is a significant probability they still fall out.

  13. I know it’s due to the federast politics of the issue, but really, any sane person would have had a plile of New Drachma initially valued at 1:1 with the EUR in a secret underground lair somewhere, ready to be distributed to the banks during, I dunno, a 1 week bank holiday with capital controls.

    Monday on the week after, people going to the bank find themselves with handfuls of New Drachma instead of EUR.

    Or am I missing something?

  14. Perhaps the Greek people will start doing what the Germans did in the aftermath of the second world war.

    Use cigarettes as currency.

    I wonder how many packets of 20 will I need for a slap up meal and a couple of beers in a nice cafe?

  15. abacab

    Not just the Eurocretins. Imagine what would have happened if the story got out that the government had printed a shedload of New Drachma. Bank collapse overnight.

  16. ken said:
    “Imagine what would have happened if the story got out that the government had printed a shedload of New Drachma. Bank collapse overnight.”

    Is that really much worse than bank collapse over the weekend?

  17. BiG,

    “(1) massive economic reform, not the drip-drip-drip approach of the last 5 years.”

    The Greek people won’t let it happen. Culturally, Greece is like the Scots, only rather than being about 45/55 Magic Money Tree believers, they’re more like 60/40. Eventually, they’ll have to realise the Magic Money Tree doesn’t exist.

    It’s why I’m against any support or aid at this point. The Greeks have to learn these lessons, and if that sinks in after a load of them are starved or dead in civil war then so be it.

  18. Considering the state the rest of the West is in we don’t really have a lot of room to be looking down our noses at the Greeks. Yes–the are the worst of the feckless–but we are not in a much better state. And considering that it was the failure of one Austrian bank in 1929 that is thought to have kicked off that mess, the main issue we should be concerned about is the danger of this caper spreading outside the borders of the Grekless.

  19. I agree with Mr Ecks.

    For the rest of the EU to lecture Greece about over-spending is rather as if Charlie Kennedy had criticised Oliver Reed’s drinking.

  20. Creditanstalt failed in 2931. Not the cause of 1929 therefore: but the cause of much that followed 1931.

  21. Tax revenues is an interesting one: how is the government going to get the money that it desperately needs without opening the banks and so allowing everyone to take their money and run?

  22. “Tax revenues is an interesting one: how is the government going to get the money that it desperately needs without opening the banks and so allowing everyone to take their money and run?”

    just take it?

    “Imagine what would have happened if the story got out that the government had printed a shedload of New Drachma. Bank collapse overnight.”

    Gonna happen either way on Monday. Might be less problematic if they handed out New Drachma, which would effectively serve as IOU’s until recognised and traded internationally.

  23. Voting “yes” and leaving the euro is (probably) a necessary condition for Greece to have a recovery. Unfortunately it’s not a sufficient condition. The reforms that she needs will not be imposed by the present marxist government, nor any democratically elected government you can think of. Impasse.

    The alternative, a “no” vote and imposition of the necessary reforms by Germany will, conceivably, lead to a terrorist resistance movement.

    Well done, Troika. Well done, Greek populace. Complete failure of politics. Good idea the eurozone, eh lads?

  24. Use cigarettes as currency.

    Why not use M-Pesa? Already operating in Albania and nearby Romania, and Vodafone is one of the biggest service providers in Greece.

  25. Good idea the eurozone, eh lads?

    Wind turbines. Stay with me on this. Wire up the UK with lots and lots of wind turbines and it doesn’t matter where in the UK the wind is blowing. Great idea? No, leftist claptrap. The reality is that if the wind isn’t blowing somewhere in the UK it is likely the wind isn’t blowing anywhere in the UK, because that’s how the weather in the UK works.

    Similar thinking with the Eurozone, if one country gets into trouble then the others bail it out. Great idea? No, leftist claptrap. The reality is if one country is in trouble then the bet is all of them are and there’s no one to do a bail out.

  26. So Much for Subtlety

    JeremyT – “Russia will step in to prevent a Greek disaster and stick it to the EU.”

    I remember the days when the likes of Ironman and Bloke in Germany accused Samuel Huntington of racism for daring to suggest that culture matters – that the break down in Europe was along Catholic (and Protestant) vs. Orthodox lines

    Here we are in post-Christian Europe and yet the Russians are still supporting the Greeks just as the Greeks opposed the war in Kosovo against their fellow Orthodox Serbs.

    The problem is that the Russians cannot afford it.

  27. Dear Mr Worstall

    So we have a few big and powerful men using the plight of 11 million people to strut their stuff at a grand level, demonstrating their qualities to the world.

    Disobey and look what will happen to you.

    The Greeks played their part in this tragedy, egged on by the few big and powerful, because that’s what was needed – an example.

    The EU superstate is to be forged out of crises which will leave many millions of real people bruised, battered and quite possibly dead, but for the big and powerful the end will justify the means. It always does.

    It’s a game with prizes and the big one is power. When that is won, we can look forward to the purges and the gulags for all manner of interestingly arbitrary reasons: So you were an avid follower of Mr Worstall? Yes? 25 years hard labour… No? 25 years hard labour.

    And when the state takes control of food supply, we can look forward to starvation.

    Was it ever thus?

    If the Greeks’ resistance helps bring about the end of the EU crime syndicate, I for one would applaud them and do what I could to help mitigate their suffering.

    Would a gold backed Drachma help?

    DP

  28. So we have a few big and powerful men

    Nah. By historical standards, these lot are pygmies. Were they genuinely big and powerful men, the running of Greece would have been stripped from them years ago. They’d be lucky to retain mere scraps of their culture.

  29. Am I the only one who thinks that the situation would have been much better by now, had the Greeks been firmly ejected from the Eurozone when all this crap first started?

  30. Well you are missing the inevitable contagion to Portugal, Ireland and maybe France. Why wouldn’t there be a run on their banks on Monday as well? Once the markets prove they can bust open something once, they will do it again.

    If the great and the good have any sense they will do anything to avoid Grexit.

  31. @John Davis

    Economically that was always the correct solution. And yes they would be in recovery by now. The private sector would not have imploded by as much and the public sector would be slimmer

    @ Hveðrungr

    There will be no contagion to the rest of the European periphery. There was a small bump when the referendum was announced, but the reality is that one has to be truly *special* to be kicked out of the Euro.

    The immediate threat of contagion was real back in 2012 and in 2010, which was why the EU conned the IMF into helping with Greece.

    In the medium term Grexit implies the potential for problems in the EZ – it is no longer irrevocable, but in the short run (eg until the next major crisis), Greece is not a threat.

    It’s even possible that Grexit will strengthen the Euro as it becomes clear being a defaulter (eg Greece) will not be permitted and this fosters greater efforts in the periphery and the markets decide Greece is a special case. Of course in the next crisis, an orderly exit might look more attractive to some countries.

    The problem for Syriza is that their threat is a fairly minor one in comparison to giving Podemos or 5SM a shedload of money. So no, not anything by any stretch of the imagination.

  32. What is certain is that if Greeks end up starving and engaging in civil war, there will be many blaming it on neo-liberalism and austerity measures. The lesson that welfarism on borrowed money is unsustainable will be determinedly lost on those with their noses firmly in the trough.

  33. I have very clever Chinese in my office (a tech company) who will look at me with a straight face and tell me that Mao did no wrong and it was just people under him that fucked things up. These people have parents and grandparents who lived through the great leap fwd and cultural revolution and cant see the fundamental problem with it. Does anyone here think the EU won’t come out of this blameless just like Mao is amoung the Chinese?

  34. SMFS, re Russia supporting a Greek exit: The problem is that the Russians cannot afford it.
    It’s not very expensive to provide financial support for the move to an alternative currency. And the returns are immense – not just stopping the inexorable advance of the Euros, but knocking a hole in NATO. Well worth deferring part their ICBM upgrade programme for a few years.

  35. Tsipras and co are expendable and will be expended. In fact, seen from Brussels, the whole Greece thing is a sideshow. The important thing – the only important thing – is that The Project stays on track.
    And it will.
    They’ve invested half a century in this, a little local difficulty in the Balkans isn’t going to stop them.
    In the end it will turn out that this is another beneficial crisis: I don’t know how they will pull off the trick, but they will; the EU and the EZ will survive, and become stronger, and the foundations will turn out to have been laid for the next stage of ever-closer Union.

  36. “the foundations will turn out to have been laid for the next stage of ever-closer Union”

    Well, quite.

    This crisis simply underlines the fact that a currency union requires political union. After all, Germany and the UK are there as examples.

    I guess the hope was that the Euro would survive long enough for the EU population to be ready for the next step. However, regardless of “the narrative”, separatist bigots are not confined to the UK.

    Simply agreeing on the first ECB head took how fucking long? And in the end, they could only agree once they threw the rule book out of the window*. Had basic economics got a look in they’d have called a halt right there.

    * The rule being that the ECB chief had to be appointed for 8 years to strengthen his independence. The French wanted an additional rule, stating that the chief had to be French. The compromise was to appoint a non-Frenchman for 8 years, so long as he promised to resign after 4.

    You can’t defy gravity.

  37. Never mind gravity.

    You can’t defy reality and neither can the EU cunts. The “beneficial” crisis line is cock. Every crisis–even ones that might increase their political power– take them down economically. Unless their ultimate aim is Agenda 21 (it might be) that is a dead end. Europe may end up under their heel but by then it will be a 3rd world shithole that the Chinese could destroy out of petty cash. The euro-commissars can fuck up a lot of peoples lives but they will lose in the end.

Leave a Reply

Your email address will not be published. Required fields are marked *