How Long Before Greece Leaves the Euro Zone?

I find it ironic that a country which defrauded its way into the Euro Zone is likely to be the first country to exit the Euro Zone. Despite a raft of hasty denials by just about everyone in Brussels, it now seems all but inevitable that Greece will bail on the Euro when they default on the €110 billion bailout they received just one year ago.

Of course, this all started on Friday when an article came out in Der Spiegel claiming that Greece was mulling an exit from the Euro due to near-daily violent protests and the apparent failure of austerity measures. An emergency meeting of European finance ministers was convened in Luxembourg in response to the report, which they all denied. Methinks they doth protest too much.

Here are the facts:

  • Greece will default on the bailout loan - and soon.
  • There is no provision in the Maastricht Treaty (the treaty which gave birth to the Euro) for ejecting errant members - once they're in, the Euro Zone is stuck with them.
  • There is, however, a relatively new provision included in the Lisbon Treaty which allows Euro Zone members to leave the Euro Zone of their own accord - where they are then free to debase their new currency in predatory and self-serving ways relative to their former partners.

This has the potential to get very ugly for the Euro. I doubt many traders are too concerned about the loss of a heavily socialized tourist economy, or even the €110 billion. What sends shivers down the currency market's collective spine is that Greece could provide the blueprint for higher-profile departures from the Euro Zone.

Ireland is already quietly admitting that they'll never be able to re-pay the €250 billion bailout they received, and that's a far more significant Euro Zone economy to lose than Greece. How long before the stronger countries start looking for the door? They certainly don't want to be left holding the bag.

It's fair to call me a Euro skeptic. I have been since 1999 when I saw firsthand how weak the Portuguese economy was and the escudo was one of the first currencies to yield to the Euro. But these are dark, dark clouds on the horizon, and it's going to be interesting to see how the Euro survives.

What do you guys think the over/under is on Greece pulling out of the Euro Zone? And should there be a provision in the Maastricht Treaty for the expulsion of member countries?

 

Is it possible for the euro to gain long-term from this? Yes it will be tumultuous and volatile for a time and there is a significant chance the euro may implode, but take away the pigs and most of the euro countries are relatively strong. Pair that with the ever diminishing dollar and weak yen and the euro seems still seems the lesser of three evils.

Making money is art and working is art and good business is the best art - Andy Warhol
 

The euro might gain long-term in this by strengthening the requirements for new countries joining the EU. Something that needs to be added to the Maastricht treaty would be a "get out of here" clause if the country fails to meet EU rules several times. It would also force France and Germany to follow the rules the European stability pact, which they have been constantly ignoring although they signed it.

Such a clause would make sense since in all clubs, members can be kicked out for bad behavior and non compliance to the rules. I see the union like a big house party... you come in and expect to behave and not get too wasted. The greeks shows up, drink a f*ckloads of ouzo and trash the place. What should the host do ?

On a more serious note, I dont think Greece will be able to default on its debt, not for economical reasons (there are plenty of them) but rather due to political ones. Merkel and the ECB bought loads of greek bonds so these crappy assets have been transfered to them. A default would mean severe losses, and maybe a collapse of a couple of banks. This article by the economist supports the idea.

Restructuring the greek debt might be the only option left standing. Banks which would have bought greek credit default swaps would be screwed over since a restructuring of debt is not considered as a default in most contracts.

Im a pro-european, although I admit that the commission is doing some pretty stupid things at times (common agriculture policy, carbon tax etc etc...) I think that member countries have a lot to loose from the fall of the euro and the breakdown of the union. Unfortunately politicians lack vision and fail to see the economical benefits of such unions. If you look at history, most monetary alliances failed to date. Latin Monetary Union (LMU) = FAIL , Scandinavian Monetary Union (SMU) = Fail, Franc des Colonies Francaises (CFA) = FAIL etc etc....

 
Best Response

Greece has so much to gain from leaving the Euro. With a more flexible monetary policy it can work at its deficit (expanding it but also being able to print $$) and the obvious devaluation of the drachma that would occur would make it really cheap for tourists to vacation there. More tourism = more tax income = more manageable debt situation? As long as they can control inflation it would be very advantageous to eave the Euro. That said, they should probably wait for another Eurozone sponsored bailout. They get more $$$, more time to fix themselves, and if for some reason it works out great, but if not (and it prob won't) they just got a lot of cheap money.

Honestly the whole Eurozone idea is retarded. Obviously its not that hard to trick them into getting it. The monetary policy is regulated but not the fiscal policy (in any meaningful form) and the differences throughout Europe are huge. Even though America is far larger, Europe is a bunch of autonomous nations, rather than a unified federal system. The cultural differences- as seen by the Greek Socialists vs. say France's Marne Le Pen's party (id what it's called, but they are gaining popularity)- is pretty much insurmountable. Every time Greece tries to implement austerity measures there are riots, threats of coups, and votes of no confidence in government. The euro would be far better off if they let Greece leave, I mean Germany is geting royally screwed, but it's gonna be worse if they keep paying for screwups everywhere.

Know who else is getting screwed, the U.S. .We provide so much of the IMF's funding it is retarded. Why do we waste so much of our money on the UN, IMF, WTC, etc.? I'm not talking just in nominal terms, we pay more than our GDP is a percent of the world's economy. And all of these bodies work against us. The UN never supports our wars, the IMF throws money at hopeless shit, we don't even recognize the ICJ, it's so dumb. There is a difference between internationalism and stupidity. Put our $$$ where it's gonna work- not where we sponsor Kim Jong Il and Gaddafi to put up in NYC for free.

http://www.youtube.com/embed/sHuH5TxcO10

Jus sayin'

Reality hits you hard, bro...
 
MMBinNC:
Know who else is getting screwed, the U.S. .We provide so much of the IMF's funding it is retarded. Why do we waste so much of our money on the UN, IMF, WTC, etc.? I'm not talking just in nominal terms, we pay more than our GDP is a percent of the world's economy. And all of these bodies work against us. The UN never supports our wars, the IMF throws money at hopeless shit, we don't even recognize the ICJ, it's so dumb. There is a difference between internationalism and stupidity. Put our $$$ where it's gonna work- not where we sponsor Kim Jong Il and Gaddafi to put up in NYC for free.

Post of the day.

Completely concur! Why we ( the U.S.) prop up so many mismanaged, wasteful, ill-conceived, and worthless investments/initiatives as a we do is beyond any realm of reason or logic from a shear economic vantage. Our foreign financial policies suck! That it is believed we recoup, what equates to philanthropy, through export of finished goods to foreign benefactors of U.S. capital infusions into global systems or our flat out charity (foreign aid) to poorer countries is ludicrous. Not every U.S. dollar sent as foreign aid comes back, unlike our domestic welfare system (avg. of 101.5% of every dollar spent on non medical social welfare programs. How's that for scary?). Scrap foreign aid, withdraw from the U.N., let the IMF go bankrupt, and let it be known we are not a here for your abuse or to be taken for granted.

Time to take care of sh*t. Global economy...yes. Global charity and whipping post...not so much.

U.S.= Hank Rearden; Philip Rearden= The World

 

Also, if any country should leave the Euro, it's Germany. Their currency would be worth far more if they weren't exposed to the PIIGS or other weaker countries in the Eurozone. Both France and Germany are hurting themselves by exposing themselves to so many external problems that they cannot sove because they have no legislative power in that country.

Reality hits you hard, bro...
 
MMBinNC:
Also, if any country should leave the Euro, it's Germany. Their currency would be worth far more if they weren't exposed to the PIIGS or other weaker countries in the Eurozone. Both France and Germany are hurting themselves by exposing themselves to so many external problems that they cannot sove because they have no legislative power in that country.

You realize that your case has exactly the opposite result??? Germany is an export driven economy,and a strong euro hurts its exports.Germany has benefited the most from the common currency,simply because countries like Greece restrict euro's strength.

However I am very disappointed by the inaccuracies of this article.Irelands bailout is less than 100 bn,not 250 bn. They also do not say they will not repay the debt (I personally believe that they will manage to solve their problems),but that their banks wont pay the full amount to their creditors-bondholders.Totally different.

As far as Greece is concerned (and since I live there),it will probably restructure is loans (extension of maturity definetely,possible haircut).Politicians constantl deny this,but thats their job...Although situation is pretty tough,unemployment 15%+ etc,they are lying when they say that Greece has made tremendous efforts.Just tax increases,just one law concerning wage in the HUGE public sector,and nothing for growth...

 
SalGr:
MMBinNC:
Also, if any country should leave the Euro, it's Germany. Their currency would be worth far more if they weren't exposed to the PIIGS or other weaker countries in the Eurozone. Both France and Germany are hurting themselves by exposing themselves to so many external problems that they cannot sove because they have no legislative power in that country.

You realize that your case has exactly the opposite result??? Germany is an export driven economy,and a strong euro hurts its exports.Germany has benefited the most from the common currency,simply because countries like Greece restrict euro's strength.

However I am very disappointed by the inaccuracies of this article.Irelands bailout is less than 100 bn,not 250 bn. They also do not say they will not repay the debt (I personally believe that they will manage to solve their problems),but that their banks wont pay the full amount to their creditors-bondholders.Totally different.

As far as Greece is concerned (and since I live there),it will probably restructure is loans (extension of maturity definetely,possible haircut).Politicians constantl deny this,but thats their job...Although situation is pretty tough,unemployment 15%+ etc,they are lying when they say that Greece has made tremendous efforts.Just tax increases,just one law concerning wage in the HUGE public sector,and nothing for growth...

You are absolutely right that Germany as a major exporter enjoys seeing the Euro depreciate, however they cannot be thrilled with the prospect of being a major source of funding for the bailout of the PIIGS. The euro is doomed because of the various underlying economies. Each one has its own (often vastly different) inflation rate etc which will only serve to distort currencies long term, like Argentina and the US back in 2001.

The more worrying aspect is as someone said earlier, that Greece would be creating a blueprint for exit to be potentially followed by Ireland, Portugal, (Spain?) at a future time. Those losses would have a crippling effect on the currency.

What are the thoughts on Gartman's idea of the Euro splitting into two components, a northern and southern? I quite frankly have no idea what the mechanics of this would be, or if it is really viable. Would this be in line with the "Disaster Scenario" outlined in the CS report?

I just find it hard to believe that the EMU thinks it will be more effective for these countries to default, then to allow certain countries to exit.

Calm down, this shit isn't rocket science.
 

Greece might probably get kicked out soon (in addition to the weaker members). Their problems are dragging down the Eurozone and IMO they're living on borrowed time as far as the zone is concerned.

Still I Rise
 

We have to remember that the European Union was primarily a political vision, and the economic aspects were necessary side effects of that. They did after all not make a European anthem to support the economy, but they did bail out small peripheral economies to support the politics.

In terms of the political vision the EU has a mixed record. When it comes to dealing with matters outside the EU I feel people take consolation in knowing they are part of a more powerful entity, e.g. I feel confidence of people with regards to the US has increased. However when it comes to anything internal in the EU people see as other almost as much as strangers as ever before. People coming here from Poland are Polish immigrants, and people coming here from Ukraine are Ukrainian immigrants. There is no "EU/Non-EU" label.

In light of this I wonder whether perceptions of what the EU is or should be have changed at higher levels. Earlier the saying was that if a single country left the Euro the EU political vision would be dead. I would think that many in the EU system now want to keep their jobs and find the prospects of joint political power (conditionally, in some circumstances, when needed) appealing. Observing that this political vision is in any case not being realized and the increased fractitiousness in Europe, I believe the view should have spread that you can still have a European union on a slightly exclusive rather than inclusive basis.

Hence, as time passes and Greece doesn't get fixed, I think the move will be to keep the Euro but encourage certain countries to choose voluntary withdrawal. It's true that most currency unions have failed, but dropping the Euro entirely and letting a few poor economics make do as best as they can would to such an extent kill off the political vision that I don't think it will be chosen quite yet.

 
SpiderMonkeyOhYes:
We have to remember that the European Union was primarily a political vision, and the economic aspects were necessary side effects of that.

The EU was primarily an economic decision. It started off post WWII as a free trade area for coal and steel between France, Germany and a few other countries and evolved into a broader free-trade area following the signing of the Roma Threaty in the 50ies. The emergence of a political union became more of a necessity at the same time as the economic integration grew stronger. Because the more the economies are intertwined, the more political convergence you need. I am sure a political union was the goal of the EU "founding fathers" such as Schuman, but the only way they had to get there was through economic pragmatism. Remember these countries used to be mortal ennemies during the War.

Other than that, I have no concern.

 
Muskrateer:
SpiderMonkeyOhYes:
We have to remember that the European Union was primarily a political vision, and the economic aspects were necessary side effects of that.

The EU was primarily an economic decision. It started off post WWII as a free trade area for coal and steel between France, Germany and a few other countries and evolved into a broader free-trade area following the signing of the Roma Threaty in the 50ies. The emergence of a political union became more of a necessity at the same time as the economic integration grew stronger. Because the more the economies are intertwined, the more political convergence you need. I am sure a political union was the goal of the EU "founding fathers" such as Schuman, but the only way they had to get there was through economic pragmatism. Remember these countries used to be mortal ennemies during the War.

Other than that, I have no concern.

I guess we are saying the same thing.

 

I'd also want to add, in the spirit of 'liberalism with small l', that it's a good question whether a borrower who is charged a high interest rate and then defaults is the predator or whether the lender is the predator. Assuming everything is neatly priced I would feel neither party is really the self-serving predator either when the loan is made or when the default happens. Or maybe one is the predator at the lending point and the other is at the default point.

 

Greeks will never voluntarily leave if they can get more $$$. Even if they leave or get kicked out, yes they will default, but then the real show will start. That country has pretty much no resources, produces very little, or actually buys from its neighbors and repackages. If they were to get the drachma back there won’t be inflation, there will be hyperinflation and this time around either IMF will have to come in or …. well I cannot remember another scenario ever taking place. If they think austerity measures are bad now just wait for the IMF to step in, because if they default now no one and I mean no one will give them anything for free – like they are used to receiving everything. I think the Eurozone will push Greece into a heavy privatization process, where they sell off everything which is still government owned.

 

If Greece were to leave the Eurozone, it would still have to pay its debt. I don't see how they would be left to actually default.

When individuals default, their assets are seized. I think that, given the amounts at stake, other EU country would demand payment or seize Greek assets by force. I, as a EU citizen, would demand that it be the case.

To avoid such a fate, Greece would print drachmas to repay its EUR-denominated debt, strongly debasing the currency. With a depressed exchange rate, Greece would go back to being an almost-3rd-world country (with all exports and no imports) and provide a cheap vacation spot for EU tourists.

The joke's on the protesters demonstrating in the streets at this very moment.

[EDIT] The impact on the Euro? Tough call. A smaller Eurozone could afford higher ECB rates. Exports powerhouses such as Germany would also support its value. Or vice versa.

[EDIT2] What about EU-denominated corporate liabilities in a defaulting Greece?

 
mxc:
If Greece were to leave the Eurozone, it would still have to pay its debt. I don't see how they would be left to actually default.

When individuals default, their assets are seized. I think that, given the amounts at stake, other EU country would demand payment or seize Greek assets by force. I, as a EU citizen, would demand that it be the case.

Oh but its already happening ! They are selling assets to our asian friends. I herd they had a couple spare trillions to spend ;)

Link 1

Link 2

Maybe they should consider selling a number of their 6 000 islands? they could raise some serious cash !! Im pretty sure its still en vogue to own an island in europe...

 

Soveriegn nations dont default and have assets seized, they refinance / reprofile and go on paying (albeit with a haircut)....

I enjoy watching Americans sneering at European peripheral countries, without making the obvious comparison to the financially bankrupt states/households that run the length and breadth of your monetary union and are held together by a few pockets of solvency (manhattan=germany in this particular analogy). Yes, there are difficulties in the European Union, but they are nothing compared to the difficulties of our not too distant past.

The sheer scale of American financial bankruptcy is vast, your monetary constipation is the only thing holding off the great inflation that will finally finish off the greenback as a reserve and lead to emergence of the Asian fiat currencies as the only safe asset. Euro remains a safer currency as the ECB are not so vastly behind the curve on monetary policy as the fed.

 

The idea of having a monetary union, without perfect (human) capital mobility, synchronized business cycles and a synchronized fiscal policy is just rly rly rly terrible.

Politicians are retards, they have these deranged dreams they learned in their shitty politics courses. These dreams will now be crushed by economic reality. If they had actually listened to any economic advisor before creating the eurozone we could have saved ourselfs alot of trouble...

Greece was taken into the EU for valid geopolitical reasons back in the days. Those reasons did not exist any more by the time of the euro, should just have never let them in...

 

[quote=baddebt88]Here is a good report by Credit Suisse published in 2010 regarding the mechanisms to leave the EMU. Its not pretty:

http://www.arpllp.com/core_files/Leaving_EMU_150310.pdf[/quote] Ouch. So their best chance to save the euro is either federalize the monetary union, convince UK to join, or create a european version of the FRS? Need i reiterate how highly improbable any of that is? Federalization is the best option imo but the pork and politics would most likely leave them further in debt than what they already are.

Making money is art and working is art and good business is the best art - Andy Warhol
 

Does anyone else find it mildly ironic that regions once home to the foundations of modern civilization are so hopelessly mismanaged. Greek culture, politics, and thought have been forsaken for a bunch of lazy spendthrifts. MENA countries are little more than warring tribes with a metropolis here and there.

Get busy living
 
UFOinsider:
Does anyone else find it mildly ironic that regions once home to the foundations of modern civilization are so hopelessly mismanaged. Greek culture, politics, and thought have been forsaken for a bunch of lazy spendthrifts. MENA countries are little more than warring tribes with a metropolis here and there.
Atleast Rome has remained like in the good old days.

Effectively a dictatorship, and wild orgies!

 

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Tempora aliquam et eveniet ut. Nisi sit totam aspernatur alias.

Get busy living
 

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