Could Greece replace the Euro this weekend?

In two previous blogs this month I have argued why Greece should leave the Euro. There are predominantly three reasons for this:

• Despite being under administration by the EU, the ECB and the IMF for years, Greece today has 75% more debt and 25% lower GDP than it had in 2012. It was difficult to live with and manage the debt burden back then. I would argue it is almost impossible now.

• The Greeks do not want to continue being under administration by what was previously called the “troika” and they have elected a party who has formed a government and obtained a parliament majority, making it very clear that Greece should regain their right to decide their own future, the discontinuing of the existing bailout program and existing austerity measures and the re-employment of public sector workers, wages and social benefits as well as restricting privatisation programs.

• Creditors want to continue with the bailout program and the existing conditions set for such financial support and they want to monitor and control that they are in place - as well as to approve any policy and administrative changes Greece might want to implement. 

This doesn’t add up for me. Greece has too much of debt and cannot afford paying for it. Creditors want to protect their interest and they think Greece will manage if they do what creditors say. But as creditors are unsure the Greeks will do this, they want to be hands on controlling every detail of the Greek economy for years to come. The Greeks have voted to have nothing of it. Greece and its creditors are miles apart.

On February 22nd an agreement was reached that payments to Greece through the existing bailout program would continue should Greece provide a list of measures to be implemented that satisfied creditors. Substantial and frequent payments are up over the coming months and as Greece’ liquidity situation is difficult, everyone outside Greece thought that it was a matter of urgency to get the agreement back in February in place as soon as possible.

Despite numerous meetings in Athens and Brussels throughout the last six weeks, one has the feeling we are as far as we were on February 22nd.

Despite being new in office and with no experiences from holding public office, Greece’ new government is of course aware of the time restrain and the consequences of not meeting repayment dates on existing loans. They are equally aware of the problems paying wages to public sector workers and social security to those in need of such.

After a lot of uncertainty and speculations about whether or not a payment to IMF of € 450 million euros would be met, Greece did this yesterday.

Today they start a 4-days Easter weekend, just to face big social benefit expenses and repayment of T-bills on April 14th – the day they are back from their Easter break.
I am far from sure they have the funds for this – not for other bills maturing up until May 1st.

What has puzzled me all the time since February 22nd are the delays in complying with what was agreed on that day. It is obvious that to set out measures that will satisfy creditors is an breach with most of the program Syriza was elected on and which they have said they will implement. As such it is not easy to set out measures all parties would be happy with. It likely is impossible.

That was pretty clear also six weeks ago and I see all that has happened since then as an attempt to gain time – not to comply with the agreement – but to prepare Greece for what is unavoidable in my view – an exit from the Euro area and to replace the euro with a new Drachma.

When you devalue a currency – or change it – you should do it during a weekend. Banks are then closed and people restrained from moving funds and withdrawing cash. Banks will go bust because of their liquidity situation and they would have to be nationalized. Bank accounts will be changed from euros to drachma without account holders consent and they likely will have to implement other capital controls.

All of this is easier to do and with less of practical problems to the financial system, the central bank and public offices when it happens over a weekend. It leaves businesses and the public trapped but that is the price they pay.

The longer the weekend is, the more of practical changes can be implemented before businesses open up again. This is why the Easter weekend is “perfect” and to me it looks like it has been planned ever since Syriza came to power. It explains why their officials don’t stick to deadlines in terms of responding to creditors’ requests – or seem too worried about not securing help from their Euro area partners. What we might have thought of as a plan B, likely has been their plan A all the time.

Whether or not this was Syriza’s plan A or whether I am being too suspicious here – Monday will tell.