Everyone Is Ready For Greek Exit From Euro, What's The Hold Up?

I'm so tired of hearing about Greece I seriously considered not even making this post. But it is amazing how European officials continue to delay and deny the inevitable Greek exit from the Euro. Despite the denials of the inevitable, plans continue to be put in place for this eventuality. I discussed this briefly in my post in January "The List of Companies & Governments Preparing for Euro Breakup Grows". This list is only growing....

This list now officially includes De La Rue. Here is the description of De La Rue via their website.

"the world’s largest integrated commercial security printer and papermaker, De La Rue is a trusted partner of governments, central banks, issuing authorities and commercial organisations around the world.

The Group is involved in the design and production of over 150 national currencies and a wide range of security documents including passports, driving licences, authentication labels and tax stamps. In addition, the Group manufactures sophisticated, high speed, cash sorting equipment."

  As reported May 18th by Reuters:

"De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday."

The Wall Street Journal also touched on it "From a Greek Drama to a Greek Drachma?"  (May 18th)

"...it emerged Friday that De La Rue, the U.K.-based banknote printer, has discreetly started to prepare for the revival of the drachma (or an alternative currency).

An industry participant, who confirmed a report in Friday’s Times of London, stresses that the development is driven by De La Rue itself for its own commercial reasons, as opposed to it being the result of a direct request from the Bank of Greece or any other government agency.

[The Bank of Greece has repeatedly declined to respond to questions as to whether it is preparing a contingency on banknotes and Friday again declined to respond.]"

Also, as reported today by Reuters "Insight: European firms plan for Greek unrest and euro exit" some specific companies making preparations also include

• Drugmakers GlaxoSmithKline and Roche
• Europe's No 2 electrical retailer Dixons
• Diageo the world's biggest spirits group
• BMW
• Mobile phone giant Vodafone

Per Reuters:

"British electrical retailer Dixons (DXNS.L: Quote) has spent the last few weeks stockpiling security shutters to protect its nearly 100 stores across Greece in case of riot."

 "As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to a complete meltdown of the financial system.

Those preparations include sweeping cash out of Greece every night, cutting debts, weeding out badly paying customers and readying for a switch to a new Greek drachma if the country is forced to abandon the euro"

"The London-based Association of Corporate Treasurers says businesses should take precautions such as demanding cash on delivery and writing sales contracts in another currency such as pounds or dollars."

Add to this list Lloyd's of London. As reported by the The Guardian:

"The Lloyd's of London insurance market has reduced its exposure "as much as possible" to the crisis-hit euro zone in preparation for a collapse of the bloc's single currency, its chief executive told the Sunday Telegraph newspaper."

""I don't think that if Greece exited the euro it would lead to the collapse of the euro zone but what we need to do is prepare for that eventuality," he said."

"On Wednesday, Reuters reported that each euro zone country was preparing a contingency plan for the eventuality of Greece leaving the single currency."

And add HSBC as The Independent reports:

"HSBC has set out contingency plans for all its 15 Greek branches to cope with a return of the drachma.  

Iain Mackay, HSBC finance director, said it had made "preparations at multiple levels" to cope with the currency's re-emergence from an 11-year hibernation should Greece leave the euro. The bank has already reduced its exposure to Greece but has also trained staff at its branch network to be ready should the worst happen. This includes work to manage IT systems, branch funding, how to deal with customers and how to update ATM systems to dispense drachmas."

So why is everyone making all these plans when the president of the Eurogroup, Jean-Claude Juncker, said that talk of a Greek exit was "nonsense, propaganda" and that their "working assumption is that Greece will stay as a member of the euro area."? Oh, I don't know......Maybe because this is the same Jean-Claude Juncker who said that "When it becomes serious, you have to lie" as can also be seen in the video below. Very bad audio but you can clearly hear it at the 20sec mark.

Everyone has had plenty of time to prepare for a Greek exit from the Euro. It is time to implement the 13 Steps For A Greek Exit From The Euro. The more denials, the more can kicking, the more money wasted delaying the inevitable.

The List of Companies & Governments Preparing for Euro Breakup Grows

The list of companies and governments putting plans and systems in place to handle a breakup of the Euro continues to grow. Last week The Telegraph reported the UK "Treasury plans for Euro failure":

"The Treasury is working on contingency plans for the disintegration of the single currency that include capital controls.

The preparations are being made only for a worst-case scenario and would run alongside similar limited capital controls across Europe, imposed to reduce the economic fall-out of a break-up and to ease the transition to new currencies. 

Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. Capital flight from weak euro nations to the UK would drive up sterling, dealing a devastating blow to the Government’s plans to rebalance the economy towards exports."

The bold was added by me.....Clearly that should say "perceived" safe havens. To think currencies from indebted counties like the UK, Japan and the US are true "safe havens" is wishful thinking.

"Britain’s response to a euro meltdown would reflect measures taken by Argentina when it dropped the dollar peg in 2002 and by Czechoslovakia after the country broke in two in 1993, according to sources. Faced with a massive capital inflow, the Czech Republic temporarily imposed taxes on foreign inflows to banks and capped the amount of overseas credit domestic banks could use.

In addition to the risk of an appreciating currency, dealing with potential UK corporate exposures to the euro poses a considerable challenge for the Treasury.

Britain’s top four banks have about £170bn of exposure to the troubled periphery of Greece, Ireland, Italy, Portugal and Spain through loans to companies, households, rival banks and holdings of sovereign debt. For Barclays and Royal Bank of Scotland, the loans equate to more than their entire equity capital buffer."

Here is a nice chart from economist Steve Keen's debtwatch blog on the distribution of debt in the UK

You can expect that UK Government debt line (orange) to continue to explode as it absorbs (via bailouts) the coming defaults in the UK Finance sector (black line). Want to think about the possible magnitude we are talking about? And we thought the US finance sector was bloated........

What was that about running to the safe haven of the UK? If you think running to your slaughter is a good idea then be my guest. The UK will eventually have no choice but to print, print, print.

So despite ongoing denials to any possibility of a Euro breakup. A wide range of companies  and governments are putting plans and systems in place for that very possibility. Not a bad idea considering that the "possibility" will eventually be reality despite all the denials. The only question is which countries will be left in the Euro, if any, and how long will it take to play out?

Currency Analysis, Euro Breakup: Current Value of the Euro and Future Value of the Deutsche Mark

An interesting report came out from Normura Global Reseach looking at what Euro area currencies might look like if the Euro was no more.

There are nice write-ups about the report by the Financial Times and Forbes (so I will not get into that here). However, the question I continue to have is why is the Euro continuing to be valued so high? If every national currency (except for Germany, barely) would trade lower......then why is the combined currency still trading where it is?

And if this analysis is remotely accurate then people better start inventing new reasons why Germany should not leave the Euro for the Deutsche Mark. So far the only reason people come up with is that a stronger currency (a new Deutsche Mark) would hurt their export based economy. However, as shown in the chart, that revaluation higher would barely amount to anything. While there might be an initial flight to the 'assumed' safety of the new Deutsche Mark, people should not forget that Germany would also have to recapitalize its banks to absorb the losses that they would incur from a Euro breakup and PIIGS defaults -- Quickly weakening their currency.