Monday, July 6, 2015

When will Germany realize it can't kick Greece out of the Euro?

It's funny how German has been acting all godfather-like, saying effectively, pity if your country got kicked out of the Euro. At some point the Germans will have to realize that this is in fact a totally empty threat that would require the Greeks to voluntarily leave.

Anything crazy the EU might want to do can't work since it would require unanimous consent, which Greece would obviously reject.

The main shit-hits-the-fan moment will come if the Greek government decides to take control of the Greek Central Bank. The Greek Central Bank (like all European central banks) is supposed to be "independent", and effectively be under the control of the European Central Bank.

However, as much as the ECB would like, Hungary has already shown that it can take control of their central bank when the president of Hungary sacked the board of the Hungarian Central Bank and replaced everyone with his own supporters. The ECB had a conniption and has spent the last 3 years sending strongly worded letters it Hungary, which has basically told the ECB to fuck off. Nothing has happened, and the economy of Hungary has done pretty well, and the move by the president to force all Swiss-franc mortgages to be re-denominated in local currency is fucking genius in hindsight.

The nuclear option for the Greek government at this point would be to replace the board of the Greek Central Bank and start printing Euros. The Greek government actually has a pretty strong case that the Greek government debt isn't really that much more unsustainable than any other of the highly indebted European countries, under even relatively unoptimistic growth assumptions, and that the ECB cutting off Greece is a violation of the duties of the ECB.

Germany is about to learn the hard way that once the veneer of civilization is removed, debt collection only works at the point of a gun. At the end of the day, people pay their taxes and debts they know that at some point, if you keep ignoring all the warnings, someone with a gun will come and take your stuff. If people realize that the worst they'll get is a strongly worded letter, it doesn't take a genius to figure out what will happen.

1 comment:

tita said...

Apparently, Greece can only actually print 10 euro notes. And they don't have enough paper and ink to print vast quantities.

The printer code ("N") is a giveaway indicating the note is from Greece, allowing the ECB to declare them invalid.

This is depressing, but fascinating process to watch.