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Yannis Varoufakis: When push comes to shove? Exposing the incredible threat of Greece's forced exit from the eurozone
... even if the Greek government were thus convinced to bite the bullet and start the exit process, the result would be a most definite unravelling of the eurozone. The reasons are evident to anyone prepared to simulate in their mind the train of events that will follow such a decision.

...

Of course, none of the above prove that Germany and the rest of the surplus countries will not, at some point, decide that they want to cut Greece off; that they are no longer prepared to share the same currency with the likes of Greece et al.

But if they choose to jettison Greece from `their' monetary system, the only sensible way in which to do it is by opting out of the euro themselves. In other words, rather than lean on Mr Papandreou to make his grave announcement to Greek parliamentarians on some bleak Friday afternoon, it is Mrs Merkel who will take the initiate (perhaps in association with like minded governments in Austria, Finland and Holland) and declare Germany's exit from the euro.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 05:08:34 AM EST
Why is nobody considering the possibility of issuing a local-currency/scrip/"greenbacks" without formally exiting the Eurozone?

Greece could, over a weekend, instruct its banks to set up accounts in ND while retaining existing Euro accounts. ND would start out at the exchange rate with the Euro on January 1, 1999, but float thereafter. ND notes could be printed. Both Euros and ND would remain legal tender in Greece. The government would announce that it would redenominate all its domestic obligations to ND at the initial exchange rate. Capital controls (tax on outflows, and border controls) would be instituted to retain the greece economy's existing Euro reserves as a backing for the ND.

Because of Gresham's law, ND would circulate extremely fast compared to Euro cash, which would be hoarded. In fact, were Germany do attempt to issue New-DM, the New-DM would be the one that would not circulate, being perceived as more valuable than the Euro by the German public. Gresham's law is funny that way.

The least disruptive wa yout of the European currency crisis is for deficit countries to issue local currency à la Wörgl without formally exiting the Euro, and to institute capital controls. After all, France and Denmark have already temporarily suspended Schengen so what's the big deal with temporarily taxing capital flows?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 05:26:22 AM EST
[ Parent ]
  resorts to "Make-their-own-competing-currencies" wasn't foreseen and ruled out from the first?  That would surprise me--even from a bunch of folks like the E.U. executives whose lack of foresight is astonishing.

ECB  Article 105a ?

   "In all Member States but the United Kingdom, the NCB has the exclusive right to issue banknotes." (36)

   does it matter if they're called "script"?

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Mon May 30th, 2011 at 11:53:06 AM EST
[ Parent ]
  link-y link:

     http://www.ecb.int/pub/pdf/other/bnlegalen.pdf  

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Mon May 30th, 2011 at 11:54:51 AM EST
[ Parent ]
Doesn't mean that the banknotes have to be Euros, does it?

It says the National Central Bank, not the European Central Bank.

Also, the government can issue its own IOUs. Any bearer credit instrument accepted by a third party can be used as money.

Also, another argument I usually give against this monopoly of money issue is that, by the time the case makes its way through the European Court System and Greece is slapped with a fine, either Greece will be solvent again or the EU will no longer exist.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 11:58:45 AM EST
[ Parent ]
The right article is
Article 128
(ex Article 106 TEC)
1. The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union.
(CONSOLIDATED VERSION OF THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION [PDF])

So, the monopoly of issue applies only to Euro notes and that something is not legal tender doesn't mean that it cannot be generally accepted.

So Greece could create a new unit of account called the New Drachma. It could redenominate all obligations between Greek counterparties in the new unit of account. It could issue certificates in denominated in the new unit of account. None of this violates the letter of the article.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 12:16:18 PM EST
[ Parent ]
   Wow.  Okay then.  

   Hmmm.  I see I don't have enough CHF, since I still have some Euros left.  

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Mon May 30th, 2011 at 12:38:36 PM EST
[ Parent ]
They could also formalize barter-exchange systems such as the BX system in the USA.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 30th, 2011 at 01:51:48 PM EST
[ Parent ]
Why doesn't Greece just default and let others try to kick it out of the EMU. And meanwhile, start a state bank, backed with all of the assets the ECB is demanding they "privatize", and issue local currency, commission public works, make loans for farmers and businesses which will make domestic consumables, etc. paid in the local currency. By requiring tourists to make payments in local currency they would get "hard" currency. They then should institute protective tariffs for domestic agriculture and industry -- The American System, a la Henry Carey's Harmony of Interests political economy.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 30th, 2011 at 01:45:53 PM EST
[ Parent ]

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