Greece's exit from the eurozone

IMF Forecast

The International Monetary Fund (IMF) acknowledged that its forecast for the Greek economy was too optimistic: in 2010, he described the first rescue program in Greece as a holding operation that gave the eurozone time to build a firewall to protect other vulnerable members, but in 2012 the level Greece's unemployment rate was about 25 percent, compared with the IMF forecast of about 15 percent. ^{[11] The} IMF acknowledged that it underestimated the damage that austerity programs could cause to the Greek economy, ^[12] adding that in terms of Greek debt, the IMF should have considered debt restructuring earlier ^{[13] [14]} This phenomenon has already become known as "Grexit." ^[fifteen]

Financial Dynamics

In mid-May 2012, the financial crisis in Greece and the impossibility of forming a new government after the election ^[16] led to strong speculation that Greece would soon leave the eurozone. ^{[17] [18] [19] [20]}

Economists who support this approach to resolving the Greek debt crisis argue that default is inevitable for Greece in the long run, and that a delay in arranging an orderly default (by giving Greece more money for a few more years) will simply hurt EU lenders and neighboring European countries even more. ^[21] A tight fiscal economy or exit from the eurozone is an alternative to the adoption of differentiated government bond yields in the eurozone. If Greece stays in euros, while accepting higher bond yields, reflecting its high government deficit, then high interest rates will lower demand, increase savings and slow down the economy. The result will be improved trading performance and less dependence on foreign capital. The implementation of Grexit would have to occur “within a few days or even hours after a decision has been made” ^{[22] [23]} due to the high volatility that would lead to this. It was supposed to be dedicated to one of the public holidays in Greece. ^[24]

The Dynamics of International Law

One American economist [who?] Argued that the legal basis on which the troika, consisting of the EU Commission, the European Central Bank and the IMF, pursues the tight macroeconomic adjustment plans imposed on Greece, shaky, arguing that they violate Greek sovereignty and intervene in the internal affairs of an independent national EU member state: “we see apparent violations of Greek sovereignty today, when EU politicians double-check all national data and carefully” control "the work of the Greek government, which sets a dangerous precedent." ^[25]

“Plan Z” is the name of the 2012 plan that will allow Greece to exit the eurozone in the event of a Greek bank collapse. ^[26] It was developed in absolute secrecy by small groups of about two dozen officials from the EU Commission (Brussels), the European Central Bank (Frankfurt) and the IMF (Washington). ^[27] These officials were led by Jörg Asmussen (ECB), Thomas Wieser (Euro Working Group), Paul Thomsen (IMF) and Marco Buti (European Commission). ^[28] To prevent premature disclosure, not a single document was created, there was no exchange of emails, and none of the Greek officials was informed. ^[29] The plan was based on the introduction by the Americans of new dinars in Iraq in 2003 and would require the restoration of the Greek economy and the ab initio banking system, including the isolation of Greek banks by disconnecting them from the TARGET2 system, closing ATMs and introducing capital and currency controls. ^[thirty]

The prospect of Greece coming out of the euro and dealing with depreciated drams has prompted many people to start withdrawing their euros from the country's banks. ^[31] For nine months, until March 2012, deposits in Greek banks had already fallen by 13% to 160 million euros. ^[32]

The victory of lawmakers opposing financial aid in the June 17, 2012 elections is likely to lead to even greater banking governance, said Dimitris Mardas, an assistant professor of economics at The University of Thessaloniki. The Greek authorities, Mardas predicted, would respond by introducing control over the movement of money until panic subsided. ^[33]

Contrary to this plan, a political initiative, the so-called Menoume Europi was founded in 2012 by students at Oxford University ^[34] and spread among Greek students at other European universities. The first demonstration took place in Athens, on Syntagma Square, in June 2012 between the two main elections, which led to political instability in the country and financial instability.

Grexit, suggesting that this coincided with the adoption of the new currency, will require preparation, for example, with the possibility of stamping banknotes or printing a stock of new banknotes. However, the leak of information about such drugs can lead to negative dynamic effects, for example, bankruptcy. Conversely, leaving the eurozone, but maintaining the euro as a de facto currency, will help to avoid practical problems and free the country from the burden of its duties in the eurozone. [Citation needed]

In the case of the introduction of a new currency, all banks will be closed for several days to allow the old (Euro) banknotes to be stamped to indicate that they are now drachmas and / or newly printed currency, which will be distributed in bank branches for distribution to the public when banks will reopen. The British money printing company, De La Rue, was rumored to be preparing to print new dram notes based on old forms on May 18, 2012, which De La Rue declined to comment on. ^[35] Typically, it takes about six months between placing an order for a new currency and delivering banknotes. ^[36]

Wolfson Economics Prize

In July 2012, the Wolfson Economic Prize, a prize for “the best plan to leave the European Monetary Union,” was awarded to the Capital Economics team, led by Roger Bootle, for their work entitled “Leaving the Euro: A Practical Approach”. ^[37] According to a winning offer, a member wishing to withdraw must enter a new currency and default on most of their debts. As stated in the proposal, the net effect will be positive for growth and prosperity. He also called for saving the euro for small transactions and for a short period after leaving the eurozone, along with a strict inflation targeting regime and tough fiscal rules controlled by “independent experts”.

The Roger Bootle / Capital Economics plan also suggested that “key officials” should meet “in secret” one month before the public announcement of their withdrawal, and eurozone partners and international organizations should be informed “three days before.” Judges at the Wolfson Economics Prize concluded that the winning plan was the “most reliable solution” to the issue of a member’s withdrawal from the eurozone.

On May 29, 2012, the National Bank of Greece (not to be confused with the central bank, Bank of Greece) warned that "withdrawing from the euro will lead to a significant decrease in the standard of living of Greek citizens." According to the statement, per capita income will decrease by 55%, the new national currency will depreciate by 65% ​​against the euro, and the economic downturn will deepen to 22%. In addition, unemployment will rise from the current 22% to 34% of the workforce, and inflation, which was then 2%, will skyrocket to 30%. ^[38]

According to the Greek Research Foundation for Economic and Industrial Research (IOBE), the new drachma will lose half or more of its value against the euro. ^[39] This will increase inflation and reduce the purchasing power of the average Greek. At the same time, economic growth in the country will fall, which will lead to the fact that more and more people will be left without work, where every fifth person is already unemployed. Import prices soar to heaven, making them inaccessible to many. ^[40]

The analyst, Vangelis Agapitos, calculated that inflation under the new drachma would quickly reach 40-50% in order to catch up with the fall in the value of the new currency. ^[41] According to Agapitos, in order to stop the fall in the cost of drachma, interest rates should be increased to 30-40 percent ^[42] . People then will not be able to repay their loans and mortgages, and the country's banks must be nationalized to prevent them from going bankrupt, he predicted ^[43] .

The head of the IOBE research department, Aggelos Tsakanikas, foresaw an increase in crime due to the “Grexit” when people struggled to pay bills. "We will not see tanks on the streets and violence, we will not see people starving in the streets, but crime could well increase." ^[44]

The center-right party, New Democracy, accused the left, SYRIZA , of supporting the exit from the euro. However, the SYRIZA leader, Alexis Tsipras , said that Greece should not leave the eurozone and return to drachma, because "... we will have poor people who have drachmas and rich people who buy everything for the euro." ^[45] A survey conducted in the past showed that most Greeks would prefer to keep the euro. ^[46]

Of all the political parties that won seats in the May 2012 parliamentary elections, the Communist Party of Greece expressed support for withdrawing from both the euro and the European Union. ^[47] However, its Secretary General, Dimitris Kutsumbas , thought: “Exiting the EU and the euro will be dangerous, a dead end if it is not combined with a specific plan, program for the economy and society, with a new organization of society, that is, a socialist society with socialization concentrated means of production, unilateral cancellation of debt, by the working class and people's power. ” ^[48]

The Golden Dawn political party is also a Euro-skeptic, speaking out against Greece’s participation in the European Union and the eurozone. ^{[49] [50]} On August 21, 2015, 25 deputies from SYRIZA separated from the party and formed the Popular Unity party, which fully supports the withdrawal from the eurozone. ^[51] In the parliamentary elections in Greece, in September 2015, the party received 2.8% of the vote, not getting a single seat. Both the Greek government and the EU advocate that Greece remain within the Eurozone, and consider this possible. However, some commentators believe that a solution is likely. In February 2015, the former Head of the US Federal Reserve, Alan Greenspan , stated that for Greece, leaving the eurozone is “just a matter of time” ^[52] , and the former Chancellor of the Exchequer of Great Britain, Kenneth Harry Clark , said that it was simply inevitable . ^[53]

A leaked document showed that during informal discussions with one of the European leaders, British Prime Minister David Cameron suggested that Greece would be better off if it leaves the eurozone. British officials declined to comment on the leaked document. ^[54]

Richard Ku, chief economist at Nomura Research Institute, has blamed the IMF and the EU for basing their negotiating position on unrealistic assumptions. As Ku noted, the IMF ’s argument was that if the austerity program were implemented as expected, then no further debt cancellation would be required in 2012 ^[55] . The argument of the EU was that Greece faced a difficult situation in 2015, as it delayed the implementation of structural reforms. Ku said the argument was extremely unrealistic because structural reforms did not work in the short term, adding that the United States did not benefit from structural reforms of Reagonomics in the Reagan era ^[56] . After publishing documents that recognized that the South European country needed to ease its debt burden and a moratorium on debt repayment for 30 years, ^{[57] the} IMF was just “slowly starting to understand” the Greek economy, Ku said ^[58]

In January 2015, speculation about Greece’s exit from the Eurozone resumed when, on December 31, 2014, Michael Fuchs, Deputy Leader of the Center-Right Faction of the CDU / CSU in the German Bundestag , quoted: “The time we had to save Greece was over. Blackmail is no more. Greece has no systemic relationship to the Euro . ”The next article in the Spiegel weekly, citing sources from the Ministry of Finance Wolfgang Schäuble , further spurred these speculations. Both German and international media have interpreted this as the tacit warning of the Merkel government of Greek voters against voting for SYRIZA in the upcoming legislative elections on January 25, 2015. ^[59]

Germany’s best-selling tabloid, the right-wing populist Bild, was even more angry when he compared Greece to an unjust soccer player: “What happens to a soccer player who breaks the rules and commits a foul? - He leaves the field as a punishment. No question. ” ^[60]

The intervention of the German government in the Greek elections in January 2015 was harshly criticized by leaders of European Parliament groups, including the Socialists and Democrats (S & D), the liberal organization ALDE, and the Green / European Free Alliance group, when S&D President Gianni Pittella said: “The German right-wing forces are trying to act like a Sheriff in Greece, which is not only unacceptable, but above all wrong.”

Economists at the German Commerzbank believe that preventing exit from Greece is still desirable for Germany, since leaving Greece would have destroyed billions of euros in European taxpayer money, and “from a political point of view, it would be much easier to renegotiate a compromise with Greece, albeit a bad one. and thus preserve the fiction that Greece, at some point, will pay off its loans. " ^[61]

The FTSE “believes that Grexit is extremely unlikely after the election ...” ^[62]

On February 9, British Prime Minister David Cameron held a meeting to discuss any possible consequences in the event of an exit. ^[63] According to a Bloomberg report, George Osborne said at a meeting of G-20 finance ministers in Istanbul: “Greece's exit from the euro will be very difficult for the global economy and potentially very harmful for the European economy” ^[64] .

In February 2015, the Russian government announced that it would offer assistance to Greece, but only in rubles ^[65] .

Catimerini said that after negotiations with the Eurogroup on February 16, Commerzbank increased the risk of Greece leaving the Eurozone to 50%. ^[66] The expression used by Time for these negotiations is: "The dance of Greece and the eurozone on a cliff." ^[67]

Following an emergency meeting of Eurozone finance ministers (February 20, 2015), European leaders agreed to extend Greece’s financial assistance for another four months. ^[68]

By the end of June 2015, negotiations on the agreement were disrupted, and Prime Minister Alexis Tsipras scheduled a referendum on July 5 for revised proposals from the IMF and the EU, against which he stated that his government would campaign against it. The referendum was defeated by a margin of 61% to 39%. Eurozone finance ministers refused to extend assistance.

When asked if the referendum would be a dilemma of Euro-drachma, the Minister of Finance of Greece, Janis Varoufakis, said that the European Treaties provide for withdrawal from the EU , but do not contain any provisions for withdrawing from the Eurozone. A referendum as a choice for withdrawing from the Eurozone would violate the treaties EU and EU law. ^[69]

Impact on the European economy

Claudia Panseri, Head of Equity Strategy at Société Générale , suggested at the end of May 2012 that Eurozone stocks could fall by as much as 50 percent if Greece made an erratic exit from the Eurozone. ^[70] The yield of bonds in other European Countries may increase from 1% to 2%, which will negatively affect their ability to service their own sovereign debts. ^[71]

Impact on the global economy

According to Deutsche Bank , Europe in 2010 accounted for 25 percent of world trade. ^[72] Economic depression in the European economy will throb around the world and slow global growth. ^[73] However, Greece represents only a small fraction - less than 2 percent - of the European Gross Domestic Product GDP .

A working paper published by the European Central Bank concluded: ^[74]

that negotiations on withdrawal from the EU will not be legally impossible even before ratification of the Lisbon Treaty , and that unilateral withdrawal will undoubtedly be legally controversial; that, although this is permissible, the withdrawal clause recently entered into force, at first glance, is inconsistent with the justification of the European merger project and in other respects is problematic, mainly from a legal point of view; that a Member State’s withdrawal from the Economic and Monetary Union of the European Union without a parallel exit from the EU would be legally unthinkable; and that, although it might be possible to do this indirectly, expelling a member state from the EU or the Economic and Monetary Union of the European Union would be legally almost impossible.

In the absence of any decision of the Court of Justice of the European Union , the question of whether a country can unilaterally leave the Eurozone without leaving the EU remains unclear. A professor of law, Williams Stamps Farish, at the University of Texas Law School, suggested that under certain conditions this could be done by a member state ^[75] .

Proponents of the proposal argue that exit from the eurozone and the return of drachma could dramatically increase exports, revitalize tourism and have a beneficial effect on the country's economy as a whole, preventing expensive imports ^{[approx. 1]} . Opponents argue that these measures will only complicate the situation of the Greek people, lead to social unrest, destabilization, damage the reputation of the eurozone and start a chain reaction of withdrawal from the eurozone of other countries.

On January 27, 2015, two days after the early parliamentary elections, Alexis Tsipras, leader of the victorious Coalition of Radical Left , formed a new government. He appointed Janis Varoufakis Minister of Finance ^{[approx. 2]} . Since the technical default of July 1, 2015, the likelihood of “grexit” is widely discussed in the near future.

These events were preceded by a long political crisis in the form of a series of parliamentary elections in May and June 2012.

Chronicle of Technical Default 07/07/2015

• January 25, 2015. Extraordinary parliamentary elections were held in Greece, where the Radical Left Coalition (SYRIZA) won 36.34% of the vote ^[76] .
• January 27, 2015. In Greece, a new government was formed, headed by Prime Minister Alexis Tsipras ^{[77] [78]} .
• January 30, 2015. At the negotiations that began after the change of power in Greece, it was announced that Greece was counting on writing off and restructuring part of the debt. The new Minister of Finance of Greece, Janis Varoufakis, said that Athens does not intend to cooperate with the mission of the "troika" of European creditors (the EU , the European Central Bank and the International Monetary Fund (IMF) ). The harsh statements of the new Greek government led to an explosive increase in the yield on ten-year bonds, which in a few days jumped from 8.5 to 11% per annum ^[79] .
• March 30, 2015. Greek Prime Minister Alexis Tsipras in the Greek parliament said that Athens expects to start negotiations on the restructuring of public debt by June, seeking lenders to write off most of the debt, which exceeded 324 billion euros, or 180% of the country's GDP. At the same time, the politician emphasized that “frank and tough negotiations” will go to the end. These statements led to a depreciation of the euro against the US dollar ^[80] .
• June 5, 2015. Greece refused to transfer the next payment to the IMF . Greek authorities asked the fund to combine the four June tranches, which they want to transfer on June 30. According to the payment schedule, Athens was supposed to transfer about 300 million euros to the IMF on June 5. In addition, payments are due on June 12 (approximately 340 million euros), June 16 (approximately 560 million euros) and June 19 (approximately 336 million). In June 2015, Greece is due to repay 1.23 billion SDRs (special drawing rights) ^[81] .
• June 11, 2015. The International Monetary Fund (IMF) suspended negotiations with Greece, because the parties failed to make progress in discussing the debt problem of Athens. On this day, the S&P rating agency also downgraded Greece's credit rating from CCC + to CCC with a negative outlook. Agency analysts assess the high probability of a country's default during the year ^[82] .
• June 26, 2015. Greek Prime Minister Alexis Tsipras and his delegation rejected a proposal for a five-month extension of the current aid agreement. Representatives of the delegation said that the text proposed by him was less favorable than the earlier published memorandum. In addition, the funds that could be allocated to Athens were insufficient to cover all the needs of the country. Alexis Tsipras criticized the country's creditors, saying that “European principles were not based on blackmail and ultimatums” ^[83] .
• June 27, 2015. Greek Prime Minister Alexis Tsipras, after another unsuccessful series of negotiations with representatives of the Troika and EU countries, announced the holding of a national referendum on July 5, 2015, on the adoption of financial assistance conditions ^[84] .
• June 28, 2015. The Greek government suspended the work of credit institutions - banks and exchanges - in Greece until July 6 and introduced capital controls to stop the outflow of money abroad. In the country's ATMs , one person can withdraw no more than 60 euros per day ^[85] .
• June 29, 2015. Financial markets outside Greece reacted to the events by an unprecedented collapse - all significant exchanges without exception closed in the red ^[84] .
• July 1, 2015. Greece defaulted by not transferring a tranche of 1.54 billion euros to the International Monetary Fund (IMF) as part of debt repayment ^[86] .

Grexit Chronicle After Default 07/07/2015

• July 5, 2015. A referendum on financial policy was held , as a result of which 61.3% of the voters answered “όχι” ( Greek no ) to the proposal of the “creditor troika” ( EU + ECB + IMF ) of austerity. ^[87]

• Greek economy
• Greece debt crisis
• Nationwide strike and protests in Greece (2010-2012)
• Legislative Election in Greece (January 2015)
• UK exit from the European Union

Comments

Footnotes

• “The Greek crisis: Two paradoxes,” The Economist , Jul 7th 2015
• In Defense of Greece: Exposing Six Myths Joseph Lee, Lewis Bassett, Michael Walker