Greece to Leave the Euro Zone

[ingemann]

Sorry, but can someone explain…if there is default, does that mean a literal "Grexit", both from the Eurozone and the EU itself the next day?  Or will some kind of legal fiction be created for an interim period, to smooth things over?  For example, with strict capital controls, could the Euros in Greek banks still be considered "Euros" in some fake legal sense, while TPTB figure out what to do, even though it's understood by all that that "Greek Euros" are treated differently from "real Euros"?

Or are we really going to see Greece formally leave the Eurozone (and the EU?) as early as this week? 

Here's what we know according to a economist I asked about this.

The way Greece will leave the Euro are that ECB will stop transfer Euro to Greece. Now the Greek government will need to either use it own saving of Euro (which it doesn't have), borrow from the banks (whose surplus of Euro have been emptied), sell something (not very likely) or loan money from foreign sources (which won't loan money to Greece). This mean that the Greek government need to print IOU to its domestic creditors (pensionist public servant etc.). These IOU will be the new currency, and by printing them Greece have de facto left the Euro zone.

Everything else is speculations.

But I guess that Euro in Greek banks will become the new currency, the rest of EU can in theory throw Greece out, but I doubt they will do it, Greece are not going to leave EU voluntary. But we may see Greek membership in EU being frozen. Meaning that they lose their voting right in the council of ministers, border control to Greece being reestablished and free movement to the rest of EU being frozen too. At until a deal for Greece future membership in EU have been reached.

[ingemann]

Sorry, but can someone explain…if there is default, does that mean a literal "Grexit", both from the Eurozone and the EU itself the next day?  Or will some kind of legal fiction be created for an interim period, to smooth things over?  For example, with strict capital controls, could the Euros in Greek banks still be considered "Euros" in some fake legal sense, while TPTB figure out what to do, even though it's understood by all that that "Greek Euros" are treated differently from "real Euros"?

Or are we really going to see Greece formally leave the Eurozone (and the EU?) as early as this week? 

Here's what we know according to a economist I asked about this.

The way Greece will leave the Euro are that ECB will stop transfer Euro to Greece. Now the Greek government will need to either use it own saving of Euro (which it doesn't have), borrow from the banks (whose surplus of Euro have been emptied), sell something (not very likely) or loan money from foreign sources (which won't loan money to Greece). This mean that the Greek government need to print IOU to its domestic creditors (pensionist public servant etc.). These IOU will be the new currency, and by printing them Greece have de facto left the Euro zone.

Everything else is speculations.

But I guess that Euro in Greek banks will become the new currency, the rest of EU can in theory throw Greece out, but I doubt they will do it, Greece are not going to leave EU voluntary. But we may see Greek membership in EU being frozen. Meaning that they lose their voting right in the council of ministers, border control to Greece being reestablished and free movement to the rest of EU being frozen too. At until a deal for Greece future membership in EU have been reached.

There will be a lot of pain for a little while. The obvious thing to do if they leave the euro is to have a bit of a loose money policy to jumpstart the economy. Paying domestic creditors is easy, just create some more currency. Obviously inflation will be high, but inflation tends to be correlated with economic growth.

Yes Argentina have shown the great success in declaring bankrupcy and letting their currency flow free. Greece will be neck deep (if they're lucky) in sh**t for a decade, I will be surprised if they reach the GDP they have right now in ten years.

[ingemann]

Why does leaving the Eurozone have any connection with Greece in the EU? There are plenty of other EU nations not on the Euro.

Because, if I understand things correctly, the only legal mechanism for a Eurozone member to leave the Eurozone is to leave the EU altogether.

There is no mechanism to leave the EU as a whole either, so it's a correct but rather moot point.

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http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-European-union-and-comments/title-6-final-provisions/137-article-50.html

[ingemann]

Why does leaving the Eurozone have any connection with Greece in the EU? There are plenty of other EU nations not on the Euro.

One word: migration. Greeks will be fleeing in droves. I am not sure Danes will be happy.

Why should we care? If they come to Denmark they have to work first to get access to any benefits and if they don't work we can send them home again, and if they have worked for the periode which they need to receive benefits, our benefits are not more generous than having a job, so I suspect they will keep working, if they have entered the Danish labour market.

[ingemann]

Why does leaving the Eurozone have any connection with Greece in the EU? There are plenty of other EU nations not on the Euro.

One word: migration. Greeks will be fleeing in droves. I am not sure Danes will be happy.

Why should we care? If they come to Denmark they have to work first to get access to any benefits and if they don't work we can send them home again, and if they have worked for the periode which they need to receive benefits, our benefits are not more generous than having a job, so I suspect they will keep working, if they have entered the Danish labour market.

I was not even thinking about the idiotic idea that anybody would migrate "to get benefits". The myth is not even worth considering. Migrants tend to work a lot more than the natives.

Of course they do, of course our statistic say something different, but clearly your anecdotal evidence from another country with another labour system are more correct.

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There are poor countries and there are poor countries. Greece is at worst a middle income country, it have high literacy and a large number of skilled workers. Plus not all low income country are equal, you rarely hear any Danes having a negative opinion of Tamil or Vietnamese immigrants and refugees.

[ingemann]

Anyway, I will enjoy observing Danish attitudes towards Greek migrants from afar. Fortunately, I am neither Greek nor in Denmark.

This makes me sad, I thought you would argue against my statistics, I had even found them and made everything ready:(.

Also on a more serious note I doubt we will get many Greek immigrants, they usual go to Germany, because of a large historical guest worker community there. We get Romanians, Poles and Balts instead.

[ingemann]

Also on a more serious note I doubt we will get many Greek immigrants, they usual go to Germany, because of a large historical guest worker community there. We get Romanians, Poles and Balts instead.

There will be enough for everyone. If things go wrong, I could easily see a quarter or a third of the Greeks leaving.

While I could imagine a situation where so many Greek leave Greece, I don't find it very realistic. It's more likely we will see a slow outflow. But again Greece population are relative small and while the European economies with growth are the most likely immigration targets, they will still be thinned out to where they immigrate to. But again I don't see why it's a problem for us, I can see why it's a problem for Greece if their youth leave, but not for us.

[ingemann]

Well if there is another round of mass emigration from Greece, they are more than welcome to come to Chicago We have tons of space, an already strong Greek ethnic community, and Greektown needs a revival. Plus, you're in Chicago! Everyone wins!


No, but seriously, is Greece an aging society like Italy is? Brain drain would only make the problems worse.

Yes Europe are split with the north west having close to replacement rate, the south much below, east Europe falling between (Germany and France being the exceptions to this rule).

This is also a major reason to why Greece need to set up the pension age. Of course that's their least problem now.

[ingemann]

The Greek government keeps saying that the "no" victory doesn't mean leaving the Eurozone.

'
Which is obvious a negotiation tactic to keep the EU talking. Their electoral mandate was to stop austerity, a nearly impossible task given their Eurozone membership. SYRIZA's decision to coalition with ANEL over the pro-EU/austerity left made it clear what direction they were taking.

Regardless of the question asked, the referendum will been seen as "Should Greece keep the Euro?"

The problem is; talking about what? Greek banks will no longer get money from ECB, also when the Greeks no longer pay their debt, there's no reason to discuss new loans from the rest of EZ. Greece can keep using the Euro, but it will be more like Kosovo and Montenegro use it.

[ingemann]

Tsipras said he would resign if 'yes' wins, right?  (and Syriza possibly/probably re-elected with a plurality)

Yes which is why I somewhat hope for a no (beside a being tired of the eternal negotiation with Greece), so that Syriza can clean up the mess they have made, and they can't in the future say that if the Greek people had just followed them, the extra mess Greece will be in, wouldn't have happen.

[ingemann]

The Greek parliament has just voted to approve the bailout package, as well as the following reforms:

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And next week, they will be voting on another round of reforms. 

1 and 3 are wonderful news, while 2 have little practical effect in the short term, but have large symbolic effect. While I'm curious what the new rules will be.