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WILL GREECE upset the EURO cart? Perhaps Greece SHOULD GET OUT of the EURO!

The sovereign nation of Greece threw the Eurozone in crisis mode (Have they ever been out of it?) with Prime Minister Papandreou’s call for a national referendum on the bailout recently worked out.  Here is the take of the leading German magazine of opinion, Der Spiegel:

Greece has stunned Europe by calling a referendum on the bailout plan agreed to by EU leaders last week. The move throws efforts to rescue the euro into doubt and heralds weeks of market turbulence ahead of the vote. A Finnish minister said Greece will in effect be voting on whether to remain in the euro.

But the referendum depended on the government’s survival of a no confidence vote:

Socialist lawmakers in Greece revolted Tuesday over their prime minister’s surprise decision to hold a referendum on a European debt deal, threatening the very survival of his embattled government.

Although the update is that the Greek government expects to win the vote:

A Socialist official says Greece’s beleaguered government is not collapsing in the face of a party revolt and will press ahead with plans for a referendum on the latest debt relief deal.

Here’s a fascinating analysis in the UK Telegraph on the Greek dilemna:

If handled badly, the disorderly insolvency of the world’s third largest debtor with €1.9 trillion in public debt and nearer €3.5 trillion in total debt would be a much greater event than the fall of Credit Anstalt in 1931. (Let me add that Italy is not fundamentally insolvent. It is only in these straits because it does not have a lender of last resort, a sovereign central bank, or a sovereign currency. The euro structure itself has turned a solvent state into an insolvent state. It is reverse alchemy.)

Perhaps the Greeks are TRYING to get thrown out of the Euro?  Why so? The hint is in the previous quote – sovereign currency – which Greece would have if it went back to the drachma.  Here’s my analysis – I am not a economist (although I have spent a few nights in a Holiday Inn Express!)

It seems that if Greece leaves the euro, it would have to return to its ancient currency, the drachma.  The value of the new drachma would fall rapidly against the euro, but the Greeks could print as much of it as they want (We could send over experts in debasing the currency from the Federal Reserve!) and use the money to buy back the sovereign debt.  The other alternative would be to refinance the debt at favorable rates in drachma-denominated securities.  Either way, the debt would be paid off – in drachmas of course – drachmas that may well lose value.  There would be a risk of runaway inflation.  BUT, the Greek standard of living and wages would fall as a comparison and European and other businesses would bring factories and investment to Greece – the market would see to that.  The eurozone could do little about it without tearing asunder the free trade principles of the European Union. Does the EU dare throw out Greece altogether?

The referendum would likely be a referendum on the euro – maybe even EU membership.

And as my old friend Gideon Rachman at the FT writes this morning: the Greek vote is “a hammer blow aimed at the most sensitive spot of the whole European construction – its lacks of popular support and legitimacy.”

Ambrose Evans-Pritchard is right – the EU has little legitimacy.  It’s an empire – a superstate built by elites who did not get any sort of consent of the governed.  Free trade is one thing – supergovernment is another!  The US should stand with Greece as it attempts to reassert its financial sovereignty but not one cent in foreign aid!

 

About Elwood Sanders

Elwood "Sandy" Sanders is a Hanover attorney who is an Appellate Procedure Consultant for Lantagne Legal Printing and has written ten scholarly legal articles. Sandy was also Virginia's first Appellate Defender and also helped bring curling in VA! (None of these titles imply any endorsement of Sanders’ views)

2 Responses to “WILL GREECE upset the EURO cart? Perhaps Greece SHOULD GET OUT of the EURO!”

  1. Anonymous says:

    We've seen what happens when you try to debase your currency to pay off your debts (Weimar Republic?) Similarly, while a weaker Greek foreign currency would jump start exports, it would virtually destroy the Greek consumer and citizen, with rapidly rising prices of inflation. The Euro is the tether to Greek's stability. The country should have collapsed a long time ago, and has been artificially propped up. Perhaps it would be more ethical to let it falter, but it would not by any means be any good for the Greeks.

  2. Anonymous says:

    Yes, there were a few errors in the paragraph.
    * Greek currency, Greek "foreign" currency makes no sense
    * Greece's stability, not Greek's stability

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Tom White Says:

Nothing is more conservative than a republican wanting to get their majority back. And nothing is more liberal than a republican WITH a majority.

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