Greece - the drachma - devalue

[Chicken Runner61]

The United Kingdom entered the ERM in October 1990, but was forced to exit the programme within two years after the pound sterling came under major pressure from currency
The European Exchange Rate Mechanism was a system introduced by the European Community in March 1979, as part of the European Monetary System (EMS), to reduce exchange rate variability and achieve monetary stability in Europe. Looking back to this, would point to the difficulties that could happen with the Euro

France wanted greater ties with Germany because they knew it would become a super power and they did not want Germany going alone and thats still the case today.

In 1990 Germany did not want monetary union, they were doing much better than france and it was france that was pushing for a single currency. The Uk under Thatcher was NOT saying it would not move wholly to a single currency but more that it would retain sovereignty as it did not want to lose political power. The problem with the Euro is the weaker states, you have to understand why the EU was created and what its aims were before you can start to blame the whole idea of the EC on the failing of the Euro.

After the war most countries In Europe were broke, the US becoming ever more powerful politically, financially and militarily were dictating to everyone. They forced the UK and France out of Suez this fuelled the calls for a stronger united Europe that could compete in the New world order both Politically and trade wise. It sort of worked stabilising Europe by uniting France & germany and growing into a trading block and the creation of a single currency was always on the horizon firstly as you rightly say via the EMS.

Dont forget it was the tories that took us into Europe without going to the country and agreed to the Single European Act without going to the country and joining the ERM without asking the country its a bit rich for them to say they said this would happen.

The UK didn't join the Euro that was good but UK banks went and lent money to Greece via European banks and directly to Spanish and others and that is why we should be concerned.

You might end up with a smaller more tied EU after this with France and Germany tied even more it depends how the break up goes.

 

[Bevendean Hillbilly]

Immediately before the end of the last war and realising that the reich would fall the leaders of German industry and the SS and the Wehrmacht met to decide how Germany could be positioned in the new world order under American and Soviet rule.

What they decided was a new Reich under German economic rule rather than Military might...this new empire would be the way in which the higher aims of the National Socialist movement would be realised over a much longer timeline.

Scroll forward to now. Germany on the cusp of achieving a federalist union with them at its core,the southern European Countries relegated to the status of beaches for the Volk.

As Goring noted:" what Germany has failed to achieve under arms will be achieved on our hands and knees begging for mercy"

 

[Chicken Runner61]

Immediately before the end of the last war and realising that the reich would fall the leaders of German industry and the SS and the Wehrmacht met to decide how Germany could be positioned in the new world order under American and Soviet rule.

What they decided was a new Reich under German economic rule rather than Military might...this new empire would be the way in which the higher aims of the National Socialist movement would be realised over a much longer timeline.

Scroll forward to now. Germany on the cusp of achieving a federalist union with them at its core,the southern European Countries relegated to the status of beaches for the Volk.

As Goring noted:" what Germany has failed to achieve under arms will be achieved on our hands and knees begging for mercy"

Professor Martin Feldstein ...

The primary political motive for increased European integration was, and may still be, to enhance Europe's role in world affairs. In 1956, just after the United States forced France and the United Kingdom to withdraw their forces from the Suez Canal, German Chancellor Konrad Adenauer told a French politician that individual European states would never be leading global powers, but "there remains to them only one way of playing a decisive role in the world; that is to unite to make Europe. . . . Europe will be your revenge." One year later, the Treaty of Rome launched the Common Market.

 

[larus]

what you're missing is all the greek debt is already written off or written down - the banks already got dicked. most has been rolled over into low 30 year bonds and much brought up by the ECB, with conditions attached. while in the Euro its a millstone around their neck, if they get out, default once and for all then they can start rebuilding. its matter of short term pain for long term improvment or a long term moribund nation.

Except (and this is a BIG except), the ECB have not accepted any losses on their holdings of Greek bonds. They are still marked to face value. Hmm, the ECB is insolvent in reality. The whole project is designed for the political elite only. There is no economic reason for a single currency (the benefits espoused are based on a free trade zone). Yet even these are flouted by, for example, the French who refuse to stick to the rules which they want others to adopt.

 

[larus]

How is anything I have written pro German?

If the Greeks leave the Euro we are F****D for about 10 years

Exactly. This is going to be very messy when it happens. And don't forget that Spain is not far behind Greece, and once the illusions of permanency of the Euro is shown to be a myth and the markets see that countries can leave the Euro, what's to then stop more intense speculation on the other PIIS countries. Hey, can I market the new acronym?

 

[Chicken Runner61]

Exactly. This is going to be very messy when it happens. And don't forget that Spain is not far behind Greece, and once the illusions of permanency of the Euro is shown to be a myth and the markets see that countries can leave the Euro, what's to then stop more intense speculation on the other PIIS countries. Hey, can I market the new acronym?

Yes, its not just the problem of Greek debt inside Greece, many Greek businesses and even individuals borrowed money outside of Greece and the Greek government has no authority over that to convert it to the new Drachma. If the Greeks do adopt a new Drachma they won't be able to control how far it will fall from the Euro so all those businesses may not be able to repay that debt and that again may spread further contagion within Greece causing more and more businesses to fail within Greece.

So going back to my point with Beorthelm about the transition from Euro to Drachma it would probably have to take place overnight to avoid millions of Euros held in Greece flowing out and in to other countries ready to move it back multiplied by the rate the Euro is against the N Drachma. How does that work in economic theory let alone the real world?

Picture it here - You have a £50k mortgage and £20k or more in savings and cash you can cobble together, the £ is about to devalue so you move the 10k to France where you have a small flat convert it to Euros, Dollars, assets of some kind and then when the £ is devalued you convert it back to the new £ and pay off the £50k you owed How do you stop that?

 

[larus]

Yes, its not just the problem of Greek debt inside Greece, many Greek businesses and even individuals borrowed money outside of Greece and the Greek government has no authority over that to convert it to the new Drachma. If the Greeks do adopt a new Drachma they won't be able to control how far it will fall from the Euro so all those businesses may not be able to repay that debt and that again may spread further contagion within Greece causing more and more businesses to fail within Greece.

So going back to my point with Beorthelm about the transition from Euro to Drachma it would probably have to take place overnight to avoid millions of Euros held in Greece flowing out and in to other countries ready to move it back multiplied by the rate the Euro is against the N Drachma. How does that work in economic theory let alone the real world?

Picture it here - You have a £50k mortgage and £20k or more in savings and cash you can cobble together, the £ is about to devalue so you move the 10k to France where you have a small flat convert it to Euros, Dollars, assets of some kind and then when the £ is devalued you convert it back to the new £ and pay off the £50k you owed How do you stop that?

This has already been happening (from Greece, and to a lesser extent from Spain). There have been huge capital flows from Greek banks to other countries within the Euro (mainly France/Germany) due to the perceived safety. One thing a lot of posters on the thread haven't realised is that the transition will happen over a weekend with banks being shut. One Friday, the Greeks will go home and be told that they are reverting back to the Drachma over the weekend. There may be an extended weekend to give the 'authorities' time to do as much as possible. On the next trading/banking day, say the Tue/Wed, the deposits in the banks will be converted at a 1:1 ratio from Euro -> Drachma, which, once it starts trading, will immediately devalue by circa 50%.

This is why there is capital flow from these countries which fear expulsion/devaluation, as any money moved and retained will be immune from the devaluation. However, the problem with this is that it accelerates the exit of Greece from the Euro, as it is in effect a bank-run. A lot of people assume that banks have enough 'money' to repay all depositors, but this is a fallacy (as I'm sure you realise). Banking is based on trust/promises. If everyone wants their money out of a bank, the bank goes bust (as per Northern Rock).

 

[Steve.S]

At the moment we have nothing but doom and gloom to look forward to. Yes if the greeks go and some countries follow,
it will hit everyone and cause a lot of problems. however if we continue down this road of bailing them out, then I feel that we and other countries will never move forward. I think lets take all the pain now for the next few years, rather then waiting. It will happen eventually and when it does it will be like a pack of cards. Most of Europe is suffering now. I have no faith in any governments to sort this mess out, every week all I hear is doom and more doom. Northern rock was not allowed to fold and Nor would Greece. But lets let them have the Drachma back and at least have some control. because from where I am standing its other countries telling them what they should be doing.