http://www.reuters.com/article/2012/05/11/us-banks-drachma-idUSBRE84A0DC20120511
http://www.athensnews.gr/portal/8/55470
(Reuters) - Banks are quietly readying themselves to start trading a new Greek currency. Some banks never erased the drachma from their systems afterGreece 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.
SCENARIOS
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.
SHOUTING 'FIRE!'
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.
and the political front.....
http://www.athensnews.gr/portal/8/55470
8.55pm Where does that leave us? Right back where we started. No coalition government, no real meeting of minds and the hot potato that is the exploratory mandate back where it started, in the hands of President Papoulias. While there is still a theoretical chance of a coalition shaped solution in tomorrow's meeting of the political leaders under the President, anyone with an operating brain will realise that elections are the only way forward right now. Or backward, depending on how you look at things.
8.47pm Pasok chief Evangelos Venizelos has been quick to shoot back against Syriza leader Alexis Tsipras, saying that Syriza's meteoric rise in popularity must mean increased responsibility, not increased arrogance. He once again stated that he wanted a coalition government that would ensure Greece's stay in the euro, with Syriza's involvment a pre-requisite. Ultimately, before announcing that he hands the exploratory mandate back to President Papoulias at 1pm tomorrow, he said that he hoped that everyone would be more responsible by that time, celarly ever hopeful of a last ditch formation of a coalition government, that would not force the country into repeat elections.
8.35pm Syriza chief Alexis Tsipras has moved to shoot down any chance of his party participating in the coalition government inspired by Evangelos Venizelos and Fotis Kouvelis. He said that it was not Syriza turning down the a coalition government but the people who had voted against the memorandum on May 6. He further added that New Democracy and Pasok had failed to understand the message that the elections had presented them with. Syriza still looked the Greek voters squarely in the eye, Tsipras stressed, by not playing games behind the backs of the Greek people. He noted that he would not participate in the plan to have a pro-memorandum government with a leftists alibi. He concluded that no government of any kind had the right to support the memorandum after the Greek people had so eveidently turned their backs on it.
8.08pm The meeting between Tsipras and Venizelos is over and none of them have yet to comment. We await thr latest. It does not look good for the Venizelos/Kouvelis inspired coalition goverment.
8.00pm Prior to the Tsipras - Venizelos meeting Syriza MP Yannis Dragasakis revealed that “domestic forces were in contact with (European Commission President) Mr. Barroso and were readying him to make a statement as soon as he received Tsipras’ letter,"
He said that the "plan" was for the specific letter to cause Barroso to say that Greece "cannot remain in theEurozone." Speaking to an Athens private radio station, he added that “it would be a disaster” if June austerity measures are implemented, adding that “any additional measure that deteriorates recession has multiple disastrous results". He clarified that Syriza will not proceed to unilaterally write-off the debt, stressing that “we have no thought of a unilateral move, namely, to unilaterally say that we write-off the debt. What we advocate is a renegotiation, a different framework within which we will set our own targets.”
As regards the proposal made Fotis Kouvelis for an all-party government with the participation of Syriza, he said that “such a government will turn us into accomplices in a dead end policy. It will bring us on the same level with the forces that have undertaken commitments. We, too, will lose any negotiating power we might have.”
Pasok reacted through their spokesperson Fofi Gennimata, who called on Dragasakis to identify the “domestic forces” he talked about, stressing that “at this crucial moment, these are sordid things”.
Genimmata called on Syriza to clarify if the statements made by Dragasakis reflect the party’s position.
She said the specific speculation is misleading as far as the essence of Tsipras’ letter to Barroso, stressing that the letter made no reference to a termination of the loan agreement.
7.43pm Syriza head Alexis Tsipras and Pasok leader Evangelos Venizelos pose for pictures before starting their meeting. A rather uncomfortable looking duo.
6.06pm Greece, Portugal and Ireland must meet their obligations under bailout agreements reached with international lenders, the head of the International Monetary Fund has said.
"I keep repeating myself: it's implementation, implementation, implementation. There are no alternative options in these countries," Christine Lagarde said after a meeting in Turkey.
5.45pm Finance Minister Filippos Sachinidis has said he asked Prime Minister Lucas Papademos to decide whether the country will pay a remaining amount of 430 million euros of a bond maturing on May 15, which was not part of a major bond swap. "I have not taken a position on whether the bond should or should not be paid," Filippos Sachinidis told Reuters. "I have sent a letter to Prime Minister Lucas Papademos asking him to consult with political party leaders and make a decision," he added.
5.43pm Greece's budget deficit in the first four months of the year widened 23 percent to 9.09 billion euros from 7.37 billion euros a year earlier, hurt by lower than expected tax revenues in a contracting economy, the finance ministry has said. The data refers to the central government budget deficit, which excludes local authorities and social security spending. The data does not coincide with the general government budget gap, the benchmark for the EU's assessment of Greece's fiscal performance.
5.18pm Dutch Prime Minister Mark Rutte on Friday said the Netherlands still wants Greece to remain within the euro zone and hopes that a new Greek government will be formed which can adopt policies to meet the European Union's budget criteria. "Our policy is to keep Greece in the euro zone because we think it is better to have Greece in the euro zone than outside," Rutte told reporters.
"It is not the case that the euro zone falls apart without Greece," he added.
5.02pm Fitch ratings agency said on Friday that if Greece left the euro zone as a result of its political crisis or its economy failing to stabilise, it would impact the sovereign ratings of euro zone countries across the board.
It said it likely would put all euro area ratings on negative watch if Greece were to leave and that those countries currently on negative outlook would be at the most immediate risk of a downgrade. It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium.
4.54pm According to reports, European Parliament president Martin Schulz has cancelled his scheduled visit to Athens.
4.25pm Looking at what Venizelos has asked and said, are we looking at the end of Pasok?
4.20pm Outgoing Prime Minister Lucas Papademos,talking with President Karolos Papoulias
4.11pm Evangelos Venizelos, after receiving the resignations of all the members of Pasok's political council was quoted as saying: "I am not talking about a restructuring or a re-constitution of the party. I am talking about its re-birth".
4.05pm According to reports, Lucas Papademos has refused to continue as prime minister, if Greece goes to new elections.
4.03pm The country's lenders will need a positive report on its reform progress before releasing a planned second tranche of aid worth around 4 billion euros at the end of June, Germany's finance ministry said on Friday.
"For the payment of the scheduled second tranche a troika evaluation is of course required," ministry spokesman Martin Kotthaus told a news conference.
The troika comprises officials from the European Commission, the European Central Bank and the International Monetary Fund.
4.00pm The risk of contagion from Greece's economic crisis spreading to other euro zone countries has lessened, Austrian Finance Minister Maria Fekter said on Friday. "The measures we set are very, very painful for Greece and cost a lot of money in the euro zone but we had hardly any other possibilities," she told Austrian radio in an interview. "Now the contagion risk is not there to the same extent, so I assume the banking landscape in Europe would be prepared for this." If Greece was unable to pay its debts, that would hit the European Central Bank and the countries that have helped Greece out, she said, adding:
"I am fighting to give the Greeks time to get into better shape economically. You have to think in different time horizons for state problems."
She said there was no chance for other countries to eject Greece from the euro zone. "But if the Greeks decide themselves to exit then the community of nations has to take note of this, but then the aid is also stopped."
3.56pm A meeting is underway between President Karolos Papoulias and outgoing Prime Minister Lucas Papademos.
3.39pm Looking some more into what New Democracy chief Antonis Samaras has said on the continuing struggle to form a viable coalition government, he warned of the danger the prospect of a rudderless state presents, pointing to the continued difficulty in achieving cooperation amongst political parties. In a bid to rally forces in the so-called "centre-right" political spectrum, he referred directly to a dilemma in any forthcoming election of "a centre-right European arc against an anti-European left."
"We are on the path of realism. We spoke of specific modifications to elements of the memorandum. We proposed measures aimed at growth, in order to bring about development and relieve society."
Targeting the Syriza party, which came in second in the elections of May 6, he charged that it was insincere before and after the election, saying it claims to want continued eurozone participation for Greece, on the one hand, but in practice does exactly the opposite.
"If the situation forces an election against a powerful leftist anti-European front, then they will fall upon an even more powerful centre-right European front. This will be comprised of ordinary voters who either didn't vote (on May 6) or voted for smaller parties, and who today realise that the country must be governed," he said, before adding that "this (front) will be formed by the initiatives we are taking for unity for the entire centre-right (bloc)".
3.18pm European Parliament president Martin Schulz, a warm proponent of Greece's European prospect, arrives in Athens on Sunday for a two-day visit, during which he will meet only with President Karolos Papoulias and outgoing parliament head Filippos Petsalnikos, who are formally his institutional counterparts. Schulz will not hold talks with any of the political party leaders or other political figures, but he will meet with representatives of various social groups and agencies and with businessmen.
Schulz has stressed that he does not wish to involve himself in Greece's domestic political affairs. He has, however,repeatedly defended Greece's European prospect and the efforts to find a solution for the country at European level, and is also at the spearhead of the political discussion for a developmental policy in the Eurozone and Greece, and has championed the taking of bold measures by the European Central Bank (ECB) in the same direction.
3.14pm Europe should allow highly indebted countries more flexibility in bringing their finances back to sustainability instead of forcing them to save themselves to death, German economic adviser Peter Bofinger was quoted as saying on Friday. Bofinger, one of the five so-called "wise men" who formally advise the German government on the economy, also said that the European Central Bank's mandate should be broadened to include financial stability from the current single-minded focus on stable inflation. "We operate much too procyclically, the problem countries are saving themselves to death," Bofinger told Austrian newspaper Der Standard in an interview. "We have to stop that, even if deficits will be higher in the short-term." Bofinger advocated changes to the Greek aid programme, including for example reduction in youth unemployment in targets. He also warned of a chain reaction if bailout payments to Greece were stopped.
The ECB should also drop its unidimensional focus on price stability, Bofinger said, proposing that its mandate be changed to include also financial stability, as the current approach has not worked.
"The ECB has run through the world wearing blinders," Bofinger told the daily, adding that the ECB should guarantee that yields on government bonds do not rise above a certain level.
3.05pm Take a look at what the friday papers have made of yet another day of coalition talks in George Gilson's Press Watch
1.30pm Unless Syriza's changes its course, the the country faces fresh elections, the Democratic Left (Dimar) leader told his party's new parliamentary party (photo). Fotis Kouvelis said the Dimar's platform could be summed up as keeping Greece in the eurozone and overseeing the gradual disengagement from the memorandum, an idea that is gaining more support among voters.
He said he believed that Syriza was not interested in a coalition from the beginning, which was evident when Alexis Tsipras used the exploratory mandate to engage in a "two-day election campaign".
Insisting that any coalition must include Syriza, he reiterated his position that he will not enter a three-way government with New Democracy and Pasok. Dimar did not want elections, but it would be ready for battle if they were called.
"We have made it clear, the Democratic Left party will not take part in a (coalition) government of New Democracy and Pasok," said Kouvelis.
1.30pm Unless Syriza's changes its course, the the country faces fresh elections, the Democratic Left (Dimar) leader told his party's new parliamentary party. Fotis Kouvelis said the Dimar's platform could be summed up as keeping Greece in the eurozone and overseeing the gradual disengagement from the memorandum, an idea that is gaining more support among voters.
He said he believed that Syriza was not interested in a coalition from the beginning, which was evident when Alexis Tsipras used the exploratory mandate to engage in a "two-day election campaign".
Insisting that any coalition must include Syriza, he reiterated his position that he will not enter a three-way government with New Democracy and Pasok. Dimar did not want elections, but it would be ready for battle if they were called.
1pm Syriza's Alexis Tsipras has told a US network that a Greek exit from the eurozone would be "disastrous" and that he will "go as far as I can" to keep Greece in the currency bloc. Speaking to CNBC on Thursday, Tsipras also said that he is willing to negotiate with the troika to keep Greece in the eurozone. "I fully disagree with what is at the heart of the memorandum," Tsipras added, warning that "further austerity will make us a third-world country in the EU".
The CNBC article is worth visiting for those who want to hear Tsipras in his own words (in English).
12.30pm New Democracy leader Antonis Samaras has there are still hopes a government could be formed to avoid a repeat poll. Addressing the first meeting of his parliamentary party, he said he welcomed Fotis Kouvelis' proposal for a government of national unity. "We are fighting to form a government and there are still hopes this can done," he said, stressing that party he was trying to avert a new election but was not afraid of one.
Samaras envisages two possible government scenarios:
- A four-party coalition comprising New Democracy, Syriza, Pasok and the Democratic Left. This would all depend on Syriza, as the other parties have more or less said they could work in government together.
- If Syriza refuses to join the government, then Samaras says his party would tolerate (ie it would neither vote for it or vote against it) a three-way coalition between Syriza, Pasok and the Democratic Left.
After the meeting, Samaras told lawmakers from his party he was trying to avert a new election but was not afraid of one. Going by the opinion poll data published last night, New Democracy would take second place - with Syriza first - in any repeat elections, so there's no great apetite in ND (and even less money) for another contest.
11.10am Democratic Left leader Fotis Kouvelis earlier insisted that he would not join a coalition with Pasok and New Democracy unless anti-bailout parties were also included and the new government pulled out of the loan deal. Speaking to Skai TV, he said:
"Our proposal for an ecumenical [national unity] government seeks to ensure the participation of all those forces that can serve two aims: the gradual disengagement from the loan agreement and staying in the eurozone."
10.55am A long day ahead! Net TV is reporting that the meeting between Evangelos Venizelos and Alexis Tsipras will take place at 7pm.
10.45am Now a message from Germany, where Finance Minister Wolfgang Schaeuble has said that the eurozone could weather the storm of a Greek exit from the currency bloc. He told the Rheinische Post:
We have learned much in the past two years (of the debt crisis) and have built defence mechanisms. The contagion dangers for other countries of the euro zone have shrunk, the euro zone has become more resilient. Europe does not go under so quickly.
He criticised political forces in Greece who suggested to their voters that there was a realistic alternative to the austerity programme:
"(It is) dangerous to lead citizens into believing that there is another, simpler way whereby Greece could recover by avoiding hardship."
10.35am There are also reports that the Democratic Left, which has 19 MPs, is split down the middle. Reuters quotes an unnamed Pasok official as saying that the "party is split right down the middle". For that reason, the official said that "there is a very slim chance for a coalition if Kouvelis agrees". That would confirm what Christoforos Vernardakis (@chrisvernard), a pollster with the VPRC company, tweeted last night. He said that Democratic Left MPs were split 50-50 over wheter to participate in government, adding that there was "much resistance from members" to the idea.
10.20am The Democratic Left is sending out the message this morning that when they speak of an "ecumenical" (ie national unity) government, they envisage Syriza being part of that. Speaking on Net TV this morning, a leading member of DL, Theodoros Margaritis, said that Fotis Kouvelis told this to Evangelos Venizelos at their meeting last night. Margaritis also called on Syriza to clarify what it's position is now: is it the Syriza that said Greece's commitments under the memorandum were "null" earlier in the week or the Syriza that called for a re-examining of "the whole framework of existing strategy" in the letter to European Union leaders yesterday?
10.15am Another comment from the European centre. In an interview with Italian TV on Thursday, European Commission President Jose Manuel Barroso has said that Greece could be forced to leave the euro if it did not stick to its agreements with other members of the currency bloc.
"I have much respect for Greek democracy and of course the Greek parliament, but I also have to respect the other 16 parliaments that approved the programme," said Barroso, adding:
"So of course, the agreements have to be respected and if they are not respected it means that the conditions do not exist to continue with a country that does not respect the agreements."
Asked whether his comments meant that Greece could be forced out of the single currency, he said no member of any organisation could continue if it did not stick to the agreed rules.
"Look, if a member of a club, I don't want to talk about a particular country, but if a member of a club does not respect the rules, it's better that it leaves the club, and this is true for any organisation or institution or any project."
10.05am The meeting between Evangelos Venizelos (Pasok) and Antonis Samaras (ND) got underway some minutes ago.
No comment on the body language or the look on Samaras' face!
9.50am So what did Alexis Tsipras say in his letter to European leaders? The blogger (who tweets as Talws) behind the Histologion blog has gone to the commendable effort of translating the whole letter, which we are reproducing below (with some minor spelling changes). The Greek original is available on the Left Coalition (Synaspimos) website.
The letter was addressed to
- EU Commission President Jose Barroso
- European Council President Herman Van Rompuy
- European Parliament President Μartin Schultz
and
- European Central Bank President Mario Draghi and
- Eurogroup President Jean Claude Juncker
Athens, Thursday, 10 May 2012
Dear Mr President
I am sending you this letter after returning the exploratory mandate with which the President of the Hellenic Republic entrusted me, so that I could determine the possibility of the creation of a government that would enjoy the parliament’s confidence, according to our constitution. This letter is a continuation of the previous one I had sent you on February 21.
The vote of the Greek people on Sunday May 6, delegitimises politically the Memorandum of Understanding/Memorandum of Economic and Financial Policy which was signed by the previous government under Mr Papademos and the leaders of the two parties which had guaranteed the parliamentary majority of that government. Both these parties recorded a loss of about 3.5 million votes, receiving a combined 33.5 percent of the total vote.
We would ask you to note that, before this, the MoU/MEFP had been already delegitimised as regards to its economic efficiency.
But it isn’t just that the MoU/MEFP failed in achieving its own stated goals. It is also that it has failed to confront the structural imbalances of the Greek economy. Syriza has been pointing out all these past years the endogenous weaknesses of the economy. All governments, in close collaboration with the EU, ignored our proposals for concrete reforms.
Please note also, that because of the policies of the MoU/MEFP, Greece is the only European country ever in peacetime to be suffering in 2012, its fifth consecutive year of deep recession. Furthermore, the bond exchange programme (PSI) has failed to secure in a reliable way the long-term viability of the public debt, which is increasing as a percentage of Greek GDP. Austerity cannot in any way be a therapy during a recession. The immediate, socially just, reversal of the declining trend of our economy is therefore imperative.
We must urgently secure economic and social stability in our country. For this reason, we have a duty to undertake every possible political initiative in order to reverse austerity and recession. Because, beyond the lack of democratic legitimisation, a continued implementation of the program of internal devaluation leads the economy towards a catastrophe, without producing the prerequisites for recovery. Internal devaluation tends to lead to a humanitarian crisis.
We therefore have a duty to re-examine the whole framework of existing strategy, given that it not only threatens social cohesion and stability in Greece, but also is a source of instability for the EU itself and for the Eurozone.
The common future of European peoples is under the threat of these disastrous choices. It is our deep conviction that the problem of this crisis is European and that therefore it is at a European level that a solution must be found.
Alexis Tsipras
President, Syriza Parliamentary Party
Vice-chairman, Party of the European Left
9.30am Just a reminder that the first post-election opinion poll was published yesterday evening. Its findings will delight Syriza, which sees its support surge, but shock the other parties, all of which would end up with even less MPs if elections were held:
Syriza 27.7% (128 seats)
New Democracy - 20.3% (57 seats)
Pasok 12.6% (36 seats)
Independent Greeks 10.2% (29 seats)
Communist Party 7% (20 seats)
Golden Dawn 5.7% (16 seats)
Democratic Left 4.9% (14 seats)
9am Good morning. Damian Mac Con Uladh with you again today, on Day Five after the 2012 election.
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