A Greek exit is not rocket science

Last Wednesday (July 1, 2015), the ABC radio presenter, Phillip Adams, in a wide ranging interview about the upcoming referendum in Greece and the prospects for the nation, asked the then Greek Finance Minister: “My jokes about printing drachmas in the cellars, remain jokes?” The then Finance Minister replied: “Of course they do … we don’t have a capacity … because … Maybe you don’t know that. But when Greece entered the euro in the year 2000 … one of the things we had to do was to get rid of all our printing presses … in order to impress on the world that this is not a temporary phenomenon … that we mean this to be forever … we smashed the printing presses, so we have no printing presses”. The interchange occurred at the 49:46 minute mark in the – following program. In my research for my Eurozone book, which was published in May this year, I studied in some detail how the euro was introduced, how it is disseminated, how the notes are printed and the coins minted and how nations in other contexts had introduced their own currencies. When I heard that interview I wondered why the then Greek Finance Minister would want to mislead the Australian listeners, even though interviews like this are no longer geographically restricted and that he was clearly intent on convincing the world, a few days before the referendum, that Syriza was committed to the euro and exit was not an option. Earlier in the week, I had railed against the lies and misinformation coming out of the EU leadership. The boot was on the other foot in this case. But it also raises questions of how an exit might occur in the event that Syriza actually stand up for its electoral mandate (anti-austerity) and refuse to agree to any further austerity. I doubt they will do that but hope springs eternal.

This map locates the Bank of Greece, Banknote Printing Works (IETA) at 341 Messogeion Avenue, 15231 Halandri (Athens).


The Bank of Greece has an information page where it describes the location, functions and capacities of – The National Mint – aka The Banknote Printing Works of the Bank of Greece.

We learn about its history (constructed in 1941) and by 1947, it was production the “1,000 drachma banknote (Series IV) and of cheques and other securities for the Bank and the Greek government”.

In 1971, the Bank of Greece became the legal tender producer in Greece (after the function was previously the responsibility of the Ministry of Finance).

The Bank of Greece tells us that far from smashing the printing presses, the “National Mint was organised in line with Western European standards and was equipped with state-of-the-art machinery for the manufacturing of coin dies and the striking of legal tender coins, commemorative and collectors’ coins, medals, etc.”

It retains those capacities to this day.

The European Central Bank tells us – The production and issue of banknotes in the EU member states – that “Thirteen EU Member States have their own banknote printing works”, with “eight countries” including Greece, locating this facility within the central bank.

When Greece entered the Eurozone, the National Mint’s functions changed marginally. It now produces euro banknotes and euro coins, among other things.

The Bank of Greece say that:

The tasks of the Banknote Printing Works Department are:

– To print the Euro banknotes after ECB’s approval.

– To strike Eurocoins on behalf of the Greek State and third parties, as well as commemorative coin series and medals.

– Το perform printing works on behalf of the Bank, the Greek State or third parties which mainly concern security documents, such as Securities, Bonds, Treasury Bills Surety Bonds,Lottery Tickets, Passports, Identification Cards, Residence Permissions etc.

IETA has “highly qualified and experienced personnel”, “state of the art equipment” and access to “materials of top quality and features that guarantee the high quality of final products”.

So despite what Australians were told on our national radio the other evening, it certainly looks like the ‘printing presses’ are fully functional and were not “smashed” in “the year 2000” or, for that matter, in 2002 when Greece, in fact, entered the Eurozone.

Back in 2011, there was a story in the Wall Street Journal (December 8, 2011) – Banks Prep for Life After Euro – which bears on our story today.

The WSJ said that:

Some central banks in Europe have started weighing contingency plans to prepare for the possibility that countries leave the euro zone or the currency union breaks apart entirely.

It correctly noted in relation to the printing of euro banknotes, that the ECB “outsources the work to central banks of euro-zone countries”, which then either print their own (as in Greece) or “outsource to private companies”.

What was that? Other printing presses? It seems that even if the Bank of Greece was to “smash” its banknote printing presses, there are private printers lined up ready to go.

On May 18, 2012, the Wall Street Journal was at it again – A Product Greece Still Makes: Money – telling us that “Greece can actually print its own money”.

But the IETA works (National Mint) also print secure documents, which raises the other possibility. While the printing presses are working up sufficient drachma, the interim solution could be to print “money-line vouchers”, a task that IETA easily has the capacity to perform.

So the logistics of actually creating the physical tokens would appear to be trite and well within the capacity of the Greek government should they be forced to exit the Eurozone.

There has also been a lot of talk about the Greeks lacking the capacity to manage a currency swap. But it is only 15 odd years ago that the European nations (and their central banks) did exactly that. The transition to the euro was relatively smooth and the experience embodied from that transition would surely not be lost to the Bank of Greece.

They have already moved from drachma to euro – they know all the practical issues, albeit in a non-hostile environment where other Member States were doing the same thing. But the principles remain the same.

The euro nations thus have practical experience with the sort of legislation that would be required for redenomination having performed the same feat less than 15 years ago.

They already understand the processes that are required and the issues that might arise. They understand that people might get stuck in car parks and vending machines would need to be recalibrated, among the myriad of conversions that would be required.

By exercising the sovereignty embodied in its own constitution, the exiting European nation would reintroduce its own currency and immediately require all tax and other public contractual obligations within the nation to be denominated in that currency.

The strategic operations that would accompany this reissuance do not really concern us. Clearly, a covert operation involving a weekend, the announcement of a bank holiday and the imposition of capital controls for a period would be involved.

The announcement would then come into effect on the first business day of the new week.

The new currency would be empowered because the citizens and corporate entities would have to use it to extinguish their ongoing tax obligations.

The private sector would have to acquire that currency, notwithstanding any decisions or preferences it might have for another currency in which it might store wealth.

Even if there is a second ‘trading’ currency in use, the local currency will always be in demand as long as the national government can enforce its tax laws.

One of the major shortcomings of the several ‘dual currency proposals’ recently put forward as a way to resolve the Eurozone crisis is that they still insist that state taxes and charges be paid for in euros, thus giving rise to continued demand for that currency at the expense of the local currency.

So one reform the Government would have to pursue would be to increase the tax compliance structure to broaden the demand for the new currency.

The actual practicalities of creating the new currency (minting coins and printing bank notes) would involve minimal changes because as we noted above, the national central banks are already responsible for this function.

With sufficient forward planning, the new currency tokens could be issued on the first day of the new system.

There are various interim measures that can be used that would allow the new currency tokens to be produced in sufficient quantities. Secure vouchers, stamped Greek euro-notes, or just the unique Greek identifier on the notes, would all serve as interim measures.

When the Czech and Slovak governments decided to abandon their short-lived monetary union in early 1993, cross-border currency movements were prohibited while new Slovak banknotes were issued.

The old Czech banknotes were ‘stamped’ and were in use in Slovakia until August 1993.

The more significant issue is to decide at what parity the new currency will be introduced, relative to the euro and other currencies.

The net benefits of exiting the Eurozone would be increased if the losses embodied in the process of redenomination and subsequent (expected) depreciation were also minimised.

The preferred option is to fully float, but some analysts have argued in favour of pegging the new currency to the euro, which would involve participating in a new version of the Exchange Rate Mechanism (ERM II).

Accordingly, the national central bank would be expected to intervene in the foreign exchange market if the new currency was in danger of breaching the agreed upper or lower bands within which the currency was allowed to fluctuate.

The fixed exchange rate system in Europe over many decades failed miserably and created a bias towards recession in external deficit nations and a refusal of the surplus countries (particularly Germany) to engage in symmetrical foreign exchange operations when the currencies breached the allowable values.

Under these arrangements, the central bank would lose discretion over monetary policy and the interest rate would be dictated by the ECB policy rate.

Further, history tells us that the currency would become hostage to financial market speculators and this volatility would be beyond the capacity of the central bank to control given it would soon run out of foreign reserves.

In theory, the ECB could provide an infinite swap arrangement to allow the national central bank to maintain the fixed exchange rate, but that would be resisted by the Bundesbank among others because it would mean an expansion of euro currency stocks and increase the fear of inflation.

This likelihood was exactly the reason the Bundesbank refused to operate in a symmetric manner during the Snake and the first iteration of the ERM in the 1980s to help weaker currencies avoid devaluation.

While the new currency would eventually depreciate (perhaps not in the short-run as it would be in short supply – the proposal is not the same as breaking a currency peg arrangement, for example), the scaremongering that suggests it would be bottomless, leading to hyperinflation, is unfounded.

We can be guided, in part, by what happened to the Argentinean peso in the years after the Argentinean government floated it during the 2001-02 crisis. Greece, for example, would endure some short-term drop in the new drachma once it was traded on foreign exchange markets.

It is true that the nations such as Greece do not have the large quantities of natural resources that Argentina enjoyed, but it is equally untrue to say they have no desirable assets that are exchange rate sensitive.

Of importance is that Argentina created new export capacity given the competitive boost it received from the depreciation. For example, Greece would likely experience a tourism boom, notwithstanding the fact that the crisis has run down its capacity somewhat.

The positive change in the direction of the current account would also put a floor into the downward spiral of the new currency as it did in Argentina’s case.

Further, in the same way that Argentina had to bear a major inflation impulse as its currency depreciated, which eroded real living standards, the reversal in standards was just as swift as the currency started to appreciate on the back of renewed growth. Greece would experience the same dynamic as Germans flooded into the sunny Greek islands to escape the Berlin winter and enjoy the dramatically cheaper vacations.

A similar dynamic occurred more recently when Iceland entered crisis and saw its currency drop. The Kroner is now higher against the Euro than at any time since the crisis began and the gain in competitiveness the nation has enjoyed as been to its advantage.

What should the initial parity be?

The initial conversion rate is moot with the currency floating. The foreign exchange markets will sort out the levels quickly enough. Floating will give the domestic policy instruments (fiscal and monetary) maximum scope to pursue domestic aims including restoring growth and creating jobs.

However, some commentators have identified the possibility of the so-called ’rounding up’ problem where converted prices are pushed up to the next finite currency unit does suggest some thought needs to be given to the parity.

The most obvious starting point for the new currency to avoid these practical issues would be for the Greek government to adopt a one for one parity against the euro and let the currency float.

What about reintroducing the Greek payments system?

An essential but relatively straightforward part of the exit strategy would involve the re-establishment of the sovereign national central bank.

First, the existing national central banks retained most of their prior functions and structure when they entered the so-called Eurosystem.

Second, there are already well-defined structures in place between the Eurosystem and the European System of Central Banks (ESCB), which is composed of the ECB and the central banks of all 28 EU Member States. This structure allows nations outside the Eurozone to conduct independent monetary policy (that is, set their own interest rates) but still allows for close cooperation through the General Council of the Eurosystem.
The first priority for the central bank would be to introduce a viable payments system to facilitate the new currency.

A payments system (from the RBA:

… refers to arrangements which allow consumers, businesses and other organisations to transfer funds usually held in an account at a financial institution to one another. It includes the payment instruments – cash, cheques and electronic funds transfers which customers use to make payments – and the usually unseen arrangements that ensure that funds move from accounts at one financial institution to another.

A legal framework defining operating procedures and standards backs this system up. There are two types of systems: wholesale (for large transactions) and retail (for consumer related transactions).

Introducing a robust wholesale payments system would not be a major issue. The central banks already had functional systems in place when they entered the Eurozone. Further, in terms of the Eurozone’s TARGET2 system, non-euro nations such as Denmark already voluntarily link their national central banks to this system.

There are also alternative systems operating in Europe, which process euro denominated transactions (for example, the system run by the European Banking Association). The retail system would be even easier given the widespread use of the so-called Single European Payments Area (SEPA), which is a system for simplifying bank transfers in the euros. Even non-EU nations (Iceland, Liechtenstein, Norway, and Switzerland) are members, as are Monaco and San Marino.

Second, the new central bank would have to redefine its relationship with the ECB. It would now set its own policy interest rate and be responsible for so-called official transactions, which include foreign exchange market interventions. Much of this expertise remains in the national central banks, given the structure of the Eurosystem.

So in practical terms, I see no real issues in introducing its own currency that are beyond the capacity of the Greek government and the Bank of Greece.

But, there remain issues that need to be addressed:

1. How to handle the euro denominated public and private debt that is outstanding.

2. How to handle bank deposits denominated in euros within the exiting nation.

3. How to manage the possibility of currency depreciation and to minimise the resulting inflation risk and protect real living standards.

5. How to reduce speculative capital flows (for example, using capital controls).

6. How to deal with any changes to the legal framework governing cross-border trade if the nation also is expelled from the EU, among other issues.

I dealt with each one of those issues in detail in my Eurozone book and provided a best-practice template for managing the issues and exiting as smoothly as possible – given that the early days would be somewhat chaotic.


A lot more people are speculating on a Greek exit. That has been going on for some years now as the inevitability of exit or long-term Depression became more obvious.

On June 1, 2012, the Wall Street Journal article – Bloomberg Tests Post-Euro Greek Drachma Code – related how for a short time one Friday currency traders “were shocked to see a brand new currency appearing on their Bloomberg screens: a post-euro drachma.”

It would be naive to believe that the Greeks haven’t been developing a contingency plan. The EUObserver article (July 8, 2015) – Final deadline for Greece, as EU prepares for Grexit – tells us that the European Commission has developed “plans for how to deal with a Greek exit from the eurozone”.

They are “in detail”.

The point is that the ‘logistics’ are not much of a challenge.

And the benefits of immediate growth that Greek could enjoy are on offer. They should never have joined the Eurozone. They should have exited in 2010, given they made the mistake to join. They should have refused the bailout in 2012. They should exit today.

All the talk that they won’t be European anymore is waffle. Maps don’t change with an exit. And Greeks could hardly claim to share a culture with Northern Europeans anyway as a result of entering the euro.

The reports coming out of Germany at present indicate that “Griechen bashing” is reaching fever pitch.

It was reported in the Neue Osnabruecker Zeitung yesterday (July 7, 2015) – Oxi zu griechischem Essen? – that:

Restaurantbesitzer Marinos Ioannidis musste am Sonntag einmal tief durchatmen. Der Grund? Eine E-Mail von fünf Gästen. Sie möchten in Zukunft nicht mehr in seinem griechischem Restaurant speisen.

Which means a local Greek restaurant had received five E-mails from people saying that they no longer wanted to dine in his Greek restaurant.

But on a brighter note, the story in today’s NOZ – Trotz „Nein”: Deutsche Urlauber sagen „Ja” zu Griechenland – tells us that despite the NO vote, German tourists are still keen on taking holidays in Greece.

The German Travel Association (Deutsche ReiseVerbands) says that Greece is a very popular German holiday destination with strong booking growth continuing.

With an exit and a lower drachma, the islands would be buzzing with more German euros!

On a positive note, even though I hate soccer, the Greek team won 2-0 against Ukraine in the European Championships on Monday, and yesterday, the German Under-19 team was defeated in its first game by Spain 3-0.

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It is a long book (501 pages) and the full price for the hard-back edition is not cheap. The eBook version is very affordable.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

This Post Has 27 Comments

  1. “Introducing a robust wholesale payments system would not be a major issue.”

    Shouldn’t be an issue at all. Clearing is already in place since Greece runs TARGET2-Greece and can clear within its own banking area very easily (I’m assuming here the Italians, French and Germans that run the computers don’t take their ball home completely).

    SWIFT might have a bit of fun given that the payment references are still in Euro, but that can be fixed with a bank surcharge arrangement – crediting the number on the payment and then applying an adjustment as a fee/refund from the correspondent bank that does the Greece/rest of eurozone exchange once TARGET2-ECB refuses TARGET2-Greece transfers.

    There’s way too much money to be made facilitating this sort of issue for the problems to hang around for very long. But to allow that to happen the government has to make a certain and definite move to a new currency. Private operators are not going to commit capital to enabling systems until the uncertainty of which way Greece is going is removed.

    But the idea that ATMs won’t work, or the internal Greek banking system will stop working is nonsense. The whole Eurozone is structured so that it can come apart easily. Almost like some central bank somewhere in Europe didn’t really want to commit to the relationship whole-heartedly…

  2. Bill, You are clearing rubbing your hands with glee at the prospect that Greece will indeed exit the eurozone and introduce the sort of expansionary policies that you propose as a result of the abilities afforded by having their own sovereign fiat currency. That Greece will become some sort of MMT nirvana, I’m afraid I doubt. My view is that the problem with Greece is and has always been that there are far too many of the old artstocratic and banking dynasties with their noses in the goverment trough, as is the case (though less so) throughout Europe. Not to mention the Greek military.

    Bearing in mind that the Greek populace are sitting on billions of euros under their mattresses (or lying on them I suppose), there would likely be a dual-currency system as happened in Zimbabwe until the Z$ was abolished recently. Traders will accept any currency, like the Swiss do – euros, pounds, roubles, whatever so long as it isn’t drachma. I can’t see the Greeks rushing to the bank to exchange their hoards of euros for drachmas like they did when it was the other way about. And wealthy Greeks, who are legion, already have their money in bricks and mortar in Mayfair.

    Well lets wait and see. It’s hard to envisage any alternative to Grexit as we sit here today.

  3. The eurozone crisis mirrors the Irish crisis of the late 1700s /early 1800s.
    The albeit private bank of Ireland was no longer permitted to issue banknotes.
    This stopped the local capitalistic concentration centered in Dublin (no more nice Georgian buildings etc etc ).
    A country is forced to export its physical wealth in exchange for tokens.
    The waste inherent in this practice is enormous.
    This waste increases the illusion of scarcity.
    Many millions of peasants are written off.
    In Ireland these people were forced to move into marginal and high altitude areas (potato furrows can still be easily seen by local hill walkers at absurd altitudes)

    Henry Dunning McCloud covers this period in a chapter in his in his theory and practice of banking.
    The mechanics are dealt with from a typical hard money perspective but there can be no doubt this lead to the epic failure of the British experiment in Ireland for most and its wild success for the few.
    Ps . I have seen a Francis Cuppolla recent piece where she laments that the Eurozone was not more like the British success story…………
    This is typical LSE style bollox.
    The eurozone is a British creation.
    It replicates the 19th disaster to a tee.

  4. “Traders will accept any currency, like the Swiss do – euros, pounds, roubles, whatever so long as it isn’t drachma.”

    So what.

    Remember what the state currency is there to do – engage unused resources. And it does this by imposing a liability (a tax) that cannot be settled other than by obtaining the state currency. People then have to get hold of that currency to settle the debt.

    That is the starter motor engaged in an economy. Anybody discounting the state scrip immediately presents somebody else with an opportunity to get a tax cut and a burden off their shoulders. So there is an easy way for traders to get rid of the scrip they don’t want to hold to the benefit of somebody else.

    Additionally trade in Euros, dollars, or whatever within Greece causes more tax liabilities in the state currency to build up – increasing demand for the state currency further. Eventually people start cutting out the risk of the middleman and the new currency takes hold.

    The challenge is to make the tax liabilities stick – and that may involve using the military to create high profile confiscations for failure to pay taxes – so that you have policy space to get the economy moving.

    In pretty much every country in the world the state currency is a parallel currency with lots of other ways of paying for purchases. What needs to happen is not a new phenomenon.

  5. Bankers above all others know their history
    There can be no doubt the core policy of the people behind the Eurozone is to create mass famine and misery and thus destroy all of European civilization just as Irish civilization was destroyed between 1580 and 1850~.

    There can now question that this is the stated policy for whatever reason.
    In my opinion it is to create a shining light on the hill ( The Shanghai club) which people will run towards.
    Most people will not realize that the same people behind the destruction of civilization in Europe are behind their new saviour……..which will lead to even further disaster.
    Greece is being set up to run into the arms of the BRICs , recoiling from the old new world order of the IMf and co.

  6. Dear Bill

    Your colleague Heiner Flassbeck suggested that Greece should also impose import tariffs. That doesn’t strike me as a bad idea. It would reduce demand for foreign goods and prevent the exchange rate from falling too much. Of course, these tariffs don’t have to be across the board. They could be selective. For instance, the highest tariffs could be on cars, an expensive consumer durable.

    Regards. James

  7. Great article. Thank you.
    Seems pretty clear that Herr Schauble and his friends have long wanted the Greeks out which is why the negotiations have got nowhere, so there is high probability that come the weekend, unless the Americans twist the arms of all involved, the Greeks will be out of the Euro. No doubt the Germans having got their way on this matter will come up with a generous humanitarian package for their victims.
    However, post the weekend the crisis will be increasing seen for what it really is; not a Greek crisis but a crisis in the Eurozone. The belief on the part of Herr Schauble et al that they have foreseen and can manage all the consequences seems to be more than optimistic given previous forecasts of the Troika which have been about as accurate as the horoscopes found in the popular press.

  8. James Schipper,

    Do you have a link for Heiner Flassbeck advocating import tariffs? I actually advocated that on my own blog a couple of days ago, and thought I was the first person on planet Earth to think of the idea. Grrrrr.

    At any rate, I’m surprised the idea has received so little attention.

    There are two arguments AGAINST that idea. One is that Greeks are not the most honest nation in Europe, so many of them would take to the second oldest profession, i.e. smuggling. Second, Greece with its hundreds of islands has a very long border to police.

  9. It’s anybodies guess how this will unfold. This is far more a test of Greece and other european nations will to exercise their own sovereignty than the technical ability of the leadership in economics.
    It’s also a major education for the populace who use a monetary system in their daily lives without giving much thought about what makes it tick. To be fair they shouldn’t have to; people have a right to expect that they can trust the elected leadership not to betray their best interest.
    Hopefully the rest of the world is watching closely, reading between the lines and taking notes.

  10. “Heiner Flassbeck advocating import tariffs?”

    OK, I am not James Schipper, but here is a link nevertheless (its about france)


    >>Man könnte zum Beispiel deutsche Produkte mit Zöllen zu belegen, die dem seit Beginn der Währungsunion aufgebauten Wettbewerbsvorsprung Deutschlands (gemessen an der Differenz der Lohnstückkostenzunahme von 1999 bis 2014) genau entsprechen. Dann wären deutsche Produkte im Jahr 2015 in Frankreich um 15 bis 20 Prozent teurer und es würde sich bald zeigen, dass auf dieser Basis ein ausgeglichener Handel mit Deutschland wieder möglich ist.<<

  11. I’m rather confused, Yves Smith on nakedcapitalism has been stating for weeks that a Grexit world be catastrophic

    “As terrible as austerity is, a Grexit will be vastly worse, and not for six months or even a year. Aw we and others have stressed, Greece could well become a failed state, with human and social costs that would put any effort to assign mere economic damage to shame.”


    though she’s a critic of the euro, she claims that exiting it would be worse. So, there is no alternative?

  12. @Ralph
    The idea is not to restrict free trade , the fact is we do not have free trade in Europe.
    We have a dastardly corporate concentration of energy masscarading as fee trade.

    Come to Kerry why don’t you ?
    There was a very honest smuggling culture present there after the Cecil era of England wiped out true balanced free trade.
    Ballycarbery castle owned by the McCarthy clan is a good start.
    Under corporate conditions it is in fact patriotic to smuggle goods

    Sadly we can see the advanced stage of corporate energy control in Kerry today.
    Almost all of the new cars on the road in this part of Ireland are typically rental cars driven in a very dangerous manner by orbital tourists.
    The rise in Irish energy consumption this year is almost entirely a result of export and mainly tourist activity done by non residents.
    The waste of energy involved in this practice is titanic.

  13. Dear Bill,

    The question is not whether there are people in Greece who could undertake the conversion to a new currency, but whether the are enough such people who are willing to cooperate with a SYRIZA-led government. Time is of the essence, because if the “chaotic” early days persist for any length of time, the government could easily lose the ability to govern.

  14. “Do you have a link for Heiner Flassbeck advocating import tariffs?”

    Import tariffs are a bad idea IMV. What you need to do is refuse to clear invoices for anything not on the approved list.

    aka rationing.

    So don’t tax it, ban it.

  15. @Ralph Musgrave – Having been to the islands and seen how long it takes to transit between them over water I can’t imagine much more than illegal drugs and pharmaceutucals would be worth trafficking over the long border.

    I personally think the Neo-liberal owned media is the biggest enemy. It’s very easy to sway international opinion of the Greek drama. So far social media seems to be winning. I hope so. Varoufakis resugnation still has me reeling I kind of hope he comes back to print the drachma and save the day?

  16. The Vampire Squids running the Eurozone have to make an example of Greece. There’s too much “rent” (interest) to lose having governments threatening to default on their bonds.

  17. The main reason nobody is talking about tariffs is because Greece is in a free trade area. Tariffs only apply in the context of an exit from both the Eurozone and the European Union. Greece can choose to act illegally like many other countries in the EU. However, the option to act illegally is not practical until Greece defaults on its debt.

    Keynes on tariffs as a great depression policy…


    Keynes’s argument in favour of tariffs is that a government has no control of the international situation in an international crisis but it does have control of its domestic market. Although he calls his proposal a revenue tariff (presumably for political reasons) there is no mention of government revenue. His arguments in the article are centred around stimulating domestic demand in order to increase employment. Keynes takes the opposite view to that expressed by Alfred Marshall to the tariff commission 15 years earlier and in Marshall’s writings prior to that. As a student of Marshall, Keynes was very familiar with the classical arguments against tariffs. Economic liberalism argues against tariffs using the theory of comparative advantage, an equilibrium theory rejected by Keynesians.

  18. “But the idea that ATMs won’t work, or the internal Greek banking system will stop working is nonsense”

    not sure i can let you get away with this without an explanaition.

    what clear from bill blog , is dealing with the physical currency is easier than the electronic currency.

    from my reckoning the greeks would have to update the banking system software, and the question is would something that large take days or weeks.

    as for the float, i would agree with bill, let it float from the outset, but have a transaction size limit to help smooth out spikes in the clearing system as a consequence of any capital drain, and the central bank covers any capital drain , rather than trying to control capital movements, which just slows down the adjustment process.

    what say you

  19. Salvo,

    You suggest that Euro is defective and that Grexit could be even worse, and ask if there’s an alternative. The answer is “yes”: emigraton from Greece. In fact if Greece reverted to the Drachma and devalued, that would cut living standards in Greece (as devaluation always does). That would encourage emigraton.

    Emigration has been part of the solution for Greek unemployment for a century in that there is a large Greek diaspora in the US and elsewhere. Wynne Godley a few decades ago actually thought the UK was the same sort of basket case that Greece is, the argued that large scale emigration from the UK might be needed.

    Hacky The Hufrex,

    I realise the EU is a free trade area, thus tariffs would go against the whole purpose of the EU. But desperate times call for desperate measures. That is, it might make sense for the EU to allow specific countries to impose tariffs as a last resort. And if that doesn’t work within five years or so, then it would be time for the country to exit the EZ.

  20. Dear Bill – Thanks so much for helping Europeans to understand the situation. – I heard you in an interview on INET – and could not stop smiling for a week. Simply great. I have looked at about 20 articles on Greece and EU per day for the last couple of months, and I personally have not learnt (Read: listened to) anything that does not agree with your analysis here. Of course also on this: “And the benefits of immediate growth that Greek could enjoy are on offer. They should never have joined the Eurozone. They should have exited in 2010, given they made the mistake to join. They should have refused the bailout in 2012. They should exit today.”

    Still I am worried for hidden things to fall out of the closet if it comes to a grexit. Why else should the Greeks be so worried about a grexit themselves – I mean Tsipras should know more about this than foreigners. Perpaps we will see how worried we have reasons to be in his response the coming days. If he is tough. No reasons for being afraid. If he is not… Good reason for being worried.

    As was already mentioned in another comment Yves on Naked Capitalism has been rather agressive and hard on a possible grexit. In one of the comments to Yves an it-man (with experience in establishing a currency system), that it would be easy to set the Drachmer system up in Greece, they could simply exchange ‘euro’ with ‘drachmer’ in the system – basically.

  21. Yves Smith lays too close to the NY banks.
    She must project radicalism so as to maintain moral credit amongst her groupies but when things get hot she opens the mission impossible box.
    She is blandly predictable.

    The facts on the ground has been presented to us in stark detail.
    The function of economies is not to satisfy demand.
    The production distribution and consumption loop of the Greek economy and others has been completly destroyed so as to maintain the monopoly of credit.
    The social creditors have won the intellectual argument but alas not the propaganda war at which capitalist liberals are the most effective in espousing.

  22. Lars, if one believes Ambrose Evans-Pritchard of the Telegraph, and he personally know many of the protagonists, his present view is that Tsipras is trapped and depressed, which says to me that Varoufakis may have been the architect of the Greek strategy all along and now that he is no longer around for Tsipras to lean on, as it were, he is somewhat lost.

    We do not yet know what the new Marxist, anti-Euro FinMin is going to advise or do. But it appears as though he and Tsipras are going to try to force a debt restructuring. The US seems to have entered the fray in the background, in part in the form of Lagarde, who has now come out in favor of Greek debt restructuring, contending that the Greek debt is unsustainable. And it isn’t as though there aren’t historical precedents for this sort of thing. Take the London negotiations in 1953 where the West German debt was cut in half.

    As for whether the ATMs will work. I believe that for the most part this is a triviality, as there are such persons previously designated as bank tellers. And hiring a bank of them will lower unemployment in a good cause. Bank tellers can do everything an ATM can do and better, except be available 24 hours a day. But in the end, this is unnecessary.

  23. @Ralph
    Again the eurozone is not a free trade area.
    As can be seen quite clearly the ECB forces its vassal states to export real wealth as they manically search for the company tokens.
    This forced capitalist expansion using the mechanism of contrived scarcity is the oldest trick in the bankers book – see history of Ireland for a quite clear and extreme example of this.

  24. As I understand it the common market was introduced by the Treaty of Rome and consolidated within the Maastricht treaty into the single market under the three pillars of the European Union.


    A free trade area denies a local authority the legal power to control its domestic market. The EZ removal of monetary sovereignty is in addition to the EU removal of trade sovereignty.

  25. At nakedcapitalism they seem to be quite more pessimistic about the operational issues involved with the grexit, especially with regard to the payment systems. In these two articles they go into some detail about the work required to support a new currency:


    They also discuss the requirement of a currency ISO code for the new drachma. This is quite interesting with respect to the “Bloomberg Tests Post-Euro Greek Drachma Code”.
    Can they handle transactions with a temporary code until the official ISO is there?

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