Greece News and the Drachma
Posted 11 May 2012 - 09:52 AM
The elections did not work out this week in Greece, so they are scrambling to make a new Government literally...
The chaos has causes both Greece and the EU to consider this next step as highly likely to be done, going back out of the EU and using their own monetary unit, the Drachma. ( Austerity measures are a problem )
It is important that the US keeps an eye on it, not just to regain investments US companies or govt loans etc, but because we are very much like Greece the way our own gov't has been behaving for a very long time... that entitlement thing, you will be taken care of , govt controls everything you do and what you own if you go under their care and are obligated at any level... this includes mind-wise conditioning and 'education' which just makes it all worse right? Ignorance is fostered as a method of control, not real common sense.
It should create more difficulties in creditors trying to exchange drachmas into euros , if at all..... which creates more bad news of course... dominoes falling, comes to my mind here ( my words)
By Douwe Miedema and Sarah White
LONDON (Reuters) - Banks are quietly readying themselves to start trading a new Greek currency. Some banks never erased the drachma from their systems after Greece adopted the euro more than a decade ago and would be ready at the flick of a switch if its debt problems forced it to bring back national banknotes and coins.
From the end of the Soviet Union - which spawned currencies such as the Estonian Kroon and the Kazakh Tenge - to the introduction of the euro, they have had plenty of practice in preparing their systems to cope with change.
Planning behind the scenes has been underway since Europe's debt crisis erupted in Greece in 2009, said U.S.-based Hartmut Grossman of ICS Risk Advisors who works with Wall Street banks.
"A lot of the firms, particularly in Europe and also here, have been looking at that for a long time," said Grossman, who added that the latest Greek political crisis had brought matters "to a little bit of a head".
"But there really has been contingency planning at all of the financial institutions for that to happen ... Greece leaving the euro zone is not a new idea," he said.
The EU says it wants Greece to stay in the common currency, and opinion polls show Greeks want to keep it. But they also voted last Sunday for parties opposed to a bailout with the EU and IMF, throwing Greece's future in the bloc back into doubt.
The elections threw into doubt the EU/IMF aid package that came at the price of harsh austerity measures, and was reached only after much haggling between banks and politicians over a 100 billion euro debt reduction.
While the deal averted financial market catastrophe by allowing Greece to continue repaying its reduced debts, any future problems could be yet more troublesome, even if Athens managed the process in a more or less orderly fashion.
A Greek departure from the euro would create legal and practical problems for the banks which would dwarf the relatively straightforward technical job of dealing in a new currency.
Greece would almost certainly impose foreign exchange controls if it were to drop out of the euro, bankers said, but dealing in any new currency would still be possible.
"Forex desks can get ready relatively quickly. It depends on exactly how the exit from the euro happens," said Lewis O'Donald, the London-based Chief Risk Officer at Japanese investment bank Nomura <9716.T>.
Currencies that are not freely tradable, such as the Chinese yuan, are widely mirrored in off-shore foreign exchange markets through the use of derivative instruments, such as non-deliverable forwards, or NDFs.
The problem may be bigger for euro zone banks which need cash for individuals or companies doing business in Greece. They face the problem of what exchange rate to use, depending on the laws Athens might draw up for trade it its currency.
If Greece forced an exchange rate of, say, one euro to one new drachma, this could impose huge losses on foreign banks because such a rate would not hold on the markets.
Controls on the movement of capital could be a nightmare for banks with loans in Greece, potentially making it illegal for companies to repay debt in euros.
Even if it were not illegal, companies might no longer be able to repay foreign creditors because their cash had been converted overnight into drachmas - a currency that would rapidly lose its value due to the dire state of the Greek economy. That would, in turn, make it tough for any lender to get its money back, whatever contract it might have.
"Our assumption is that an exit route somehow has capital controls in place, or an inability for a creditor to enforce (legal rulings) under English law into Greece," O'Donald said.
Banks have studied several options to protect themselves as best they can, including switching to U.S. law for new derivative transactions or loans. So far few have taken such steps due to doubts about how effective they would be, and also because they are afraid to add to market concerns.
"Banks are very, very reluctant to start shouting 'fire!'. They know what happens and what panic looks like," said one London-based lawyer advising financial firms.
Instead, most are simply checking the governing law of their contracts, hedging against defaults and running through every legal argument a Greek euro exit could throw up.
"There are still areas which will be grey in some respect and which will lead to conflicts of law that may have to be resolved in court," Nomura's O'Donald said.
Many banks have been simulating a rupture of the euro in "war games". But little is known about how an exit would work, and legal departments are poring over financial contracts, raising questions about the very nature of a currency.
"If transactions are denominated in the euro, what is the status of those transactions in the event that there is a change of the make-up of that currency?" said Miles Kennedy, a partner at accountancy firm PricewaterhouseCoopers.
With such questions unanswered, stuffing cash machines with enough drachma banknotes is almost an afterthought.
For Greece itself, it certainly won't pose a problem. The country's national bank has its own banknote printing press and mint and has continued to print euro banknotes ever since joining the single currency in 2001.
(Additional reporting by Jessica Mortimer in London and Lauren Tara LaCapra in New York; editing by David Stamp and Janet McBride)
Posted 16 May 2012 - 08:50 PM
By Ambrose Evans-Pritchard, International business editor Last Updated: 11:48PM BST 16/05/2012
Thu 17 May 2012 Updated 4 mins ago
The growing alarm comes as judge Panagiotis Pikrammenos was picked as Greece’s caretaker leader until the next vote on June 17. Polls show the Left-wing Syriza leader Alexis Tsipras emerging as clear victor. Picture: Bloomberg
A tsunami of capital flight from Greece threatens to overwhelm the authorities, forcing the country out of the euro before fresh elections in June.
Economists warned that the Greek financial system could crumble within weeks or days unless the European Central Bank steps up support.
President Karolos Papoulias told party leaders that banks had lost €700m in withdrawals on Monday alone as citizens rush to pre-empt capital controls and a much-feared return to the Drachma.
He cited central bank warnings that "great fear" might soon escalate to panic. The leaked details lend credence to claims that capital flight by both savers and firms have reached €4bn a week since the triumph of anti-bailout parties on May 6.
Steen Jakobsen from Danske Bank said outflows are becoming unstoppable, not helped by open talk in EU circles of `technical’ plans for Greek withdrawal.
"This has a self-fulfilling prophecy built into it and I don’t think we can get to June. The fuse is burning and the only two options now are a controlled explosion where Germany steps in to ensure an orderly exit, or an uncontrolled explosion," he said.
The growing alarm comes as judge Panagiotis Pikrammenos was picked as Greece’s caretaker leader until the next vote on June 17. Polls show the Left-wing Syriza leader Alexis Tsipras emerging as clear victor.
Mr Tsipras has vowed to tear up the EU-IMF bail-out `Memorandum’, exhorting German Chancellor Angela Merkel to "stop playing poker with the lives of people". The Greek impasse has rattled markets, with the FTSE 100 down 0.6pc to 5,405 yesterday. Spanish lender Bankia fell 11pc in Madrid. Gold tumbled $17 to a ten-month low of $1,540 on dollar strength.
The crisis is replicating the pattern of fixed-exchange ruptures through history. Britain was forced off the Gold Standard in 1931 after pay-cut protests in the navy triggered capital flight.
Greek banks have lost 30pc of their deposits since late 2009. The total fell to €171bn in March. "The surprise is that there is still so much left. I can’t believe it will stay much longer," said Simon Ward from Henderson Global Investors.
The ECB is holding the line with an estimated €100bn of Emergency Liquidity Assistance (ELA) for lenders, channeled through Greece’s central bank. Supplicants must pawn their loan book in exchange. "The risk is that banks will run out of collateral since these are low quality assets with haircuts of 50pc or more. The ECB could relax the rules but they would have to take an active decision to do so," said Mr Ward.
JP Morgan said Greek banks have already exhausted their collateral. A refusal by the ECB to ease rules would amount to expulsion, forcing Greece "to issue its own money."
The ECB said it had stopped routine operations with certain Greek banks with depleted capital buffers, but underscored that they are still able to access the ELA scheme.
There is already a political storm in Germany over "junk collateral", aswell as anger over the Bundesbank’s €645bn exposure to Club Med debtors through the ECB’s internal `Target2’ payments nexus. Mr Ward said it would be hard to justify to German taxpayers why the Bundesbank should lend more to "austerity-resistant Greeks" so that they can squirrel money abroad.
Julian Callow from Barclays Capital said the ECB risks grave contagion if it lets go of Greek banks. "We have reached the point where the ECB needs to come in with massive intervention and outright quantitative easing," he said.
Slow capital loss from Club Med is showing up in the ECB’s Target2 data. The central banks of Italy and Spain have built up liabilities of €279bn and €284bn, partly reflecting bank withdrawals. This is owed to Germany, Netherlands, Luxembourg, and Finland.
Italy’s banking lobby said foreign deposits at Italian banks were down 20pc in March. The good news is that the Libor-OIS spread -- the "stress gauge" for banks -- has not risen in this latest spasm of the crisis, suggesting that Club Med deposit flight remains modest for now. That could change fast if a Greek exit shatters the sanctity of monetary union.
Posted 16 May 2012 - 11:14 PM
I don't know what will happen in France now, but it will be viewed by the world as is Greece, currently.
Not that the US can really claim much good being done either and we will see those affects summarized in June or July too.
Ended up finding out the guy who is repairing the ceiling damage from the leaky roof is very much a patriot and he agreed its good to get ready for Fall and Winter here. I could see he fully understood how bad things have gotten and he didn't take my suggestion to stock up on all basics and medicines lightly, just nodded astutely, which is amazing. Most folks just scoff at you still.
I am not sure how I even got into that convo, except for saying this little apartment was just a long stop for me, temporary.
oh, I think I made a remark out loud as I had the news on this morning. lol. Oh well. I told him that the landlady can't handle it when I say I don't like the folks in charge these days too much. He laughed and says he gives her grief every time he sees her about it all. I looked at him, and said she won't bother to learn whats really going on but you understand it right? He nods and goes about his work. He understands history and such things, I did get that impression. He is keeping his own eye on it all. Definitely aware of things going on, at a pretty deep level.
His summary was about the 2nd amendment.
If it came down to it, it would be done. Plenty here would. I said I believe it, despite the land lady's thoughts.
I told him that at this age I sure wasn't comfortable with all this going on and yet I would keep going the best I could, even if the checks get stopped. Even if it meant I couldn't stay in the apartment any longer than it was paid up.
Maybe I can network a tad when he comes back. He may have some ideas I could make use of that way. He has to return about 3 more times to finish the spackling so its level again.
Posted 17 May 2012 - 10:30 PM
Yanno....one thing about not being wealthy? You never have so much in the bank to worry about...
MtRider [...reaching for the silver lining...and mebbe gonna buy more wheat! ]
I second this! I get more "interest" out of buying food than I do putting anything in the bank!
Posted 18 May 2012 - 08:39 AM
Well I saw our stocks take a good hit from the situation with Greece and will continue to observe things. I know the EU is getting fed up because Greece assumes it can now stay in the EU but not pay them back or something like that from all I have been reading so far. I don't think that will work???
I know the Nato Summit in Chicago is becoming a powder keg, so keeping an eye on how all that is 'handled'.
Heard the Bozo Clowns will protest there, would be bad for them to get zapped badly now wouldn't it? ( Bad visual goin on here, Clown parts all over the place)...
Seriously, I think what is planned as controls is overkill and I am very uncomfortable with this becoming the norm anywhere in our country.
Posted 18 May 2012 - 02:30 PM
Come to think of it, it sounds like our government. Wonder how bad a shape we would be in if they couldn't print money as they want as they do now.
Edited by ScrubbieLady, 18 May 2012 - 03:20 PM.
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