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.

13 Steps For A Greek Exit From The Euro

Everyone by now should know it is in Greece's best interest to exit the Euro. In fact, it is so clear that it appears the only reason for these ongoing "bailouts" is to buy time putting in place the systems needed for the transition. So I present to you the 13 steps for a Greek exit from the Euro courtesy of a paper from Variant Perception "A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution" (it is worth a read in it's entirety, but it is long).

"1. Convene a special session of Parliament on a Saturday, passing a law governing all the particular details of exit: currency stamping, demonetization of old notes, capital controls, redenomination of debts, etc. These new provisions would all take effect over the weekend.

2. Create a new currency (ideally named after the pre-euro currency) that would become legal tender, and all money, deposits and debts within the borders of the country would be re-denominated into the new currency. This could be done, for example, at a 1:1 basis, eg 1 euro = 1 new drachma. All debts or deposits held by locals outside of the borders would not be subject to the law.

3. Make the national central bank solely charged, as before the introduction of the euro, with all monetary policy, payments systems, reserve management, etc. In order to promote its credibility and lead towards lower interest rates and lower inflation, it should be prohibited from directly monetizing fiscal liabilities, but this is not essential to exiting the euro. 

4. Impose capital controls immediately over the weekend. Electronic transfers of old euros in the country would be prevented from being transferred to euro accounts outside the country. Capital controls would prevent old euros that are not stamped as new drachmas, pesetas, escudos or liras from leaving the country and being deposited elsewhere. 

5. Declare a public bank holiday of a day or two to allow banks to stamp all their notes, prevent withdrawals of euros from banks and allow banks to make any necessary changes to their electronic payment systems 

6. Institute an immediate massive operation to stamp with ink or affix physical stamps to existing euro notes. Currency offices specifically tasked with this job would need to be set up around the exiting country. 

7. Print new notes as quickly as possible in order to exchange them for old notes. Once enough new notes have been printed and exchanged, the old stamped notes would cease to be legal tender and would be de-monetized. 

8. Allow the new currency to trade freely on foreign exchange markets and would float. This would contribute to the devaluation and regaining of lost competitiveness. This might lead towards a large devaluation, but the devaluation itself would be helpful to provide a strong stimulus to the economy by making it competitive. 

9. Expedited bankruptcy proceedings should be instituted and greater resources should be given to bankruptcy courts to deal with a spike in bankruptcies that would inevitably follow any currency exit.

10. Begin negotiations to re-structure and re-schedule sovereign debt subject to collective bargaining with the IMF and the Paris Club. 

11. Notify the ECB and global central banks so they could put in place liquidity safety nets. In order to counteract the inevitable stresses in the financial system and interbank lending markets, central banks should coordinate to provide unlimited foreign exchange swap lines to each other and expand existing discount lending facilities. 

12. Begin post-facto negotiations with the ECB in order to determine how assets and liabilities should be resolved. The best solution is likely simply default and a reduction of existing liabilities in whole or in part. 

13. Institute labor market reforms in order to make them more flexible and de-link wages from inflation and tie them to productivity. Inflation will be an inevitable consequence of devaluation. In order to avoid sustained higher rates of inflation, the country should accompany the devaluation with long term, structural reforms." 

However, there is one very important thing officials must continually do before implementing this 13 step program. Deny, Deny and Deny some more.

That very important step is still not being ignored by Eurozone chief Jean-Claude Juncker, as Reuters reports today:

"We've got a 17-member euro zone. Greece's exit is not a working hypothesis for us," Juncker told the European Parliament's economic committee.

Suuuure. And I agree with Variant Perception below

"Any euro exits would likely happen quickly and in rapid succession and would be done in a “surprise” announcement over a weekend while capital controls and bank holidays are imposed."

"Almost all emerging market devaluations were “surprise” devaluations, and there is no reason to believe that any exit from the euro would not be a surprise as well."

"In devaluations, the announcements are typically made over the course of a weekend, particularly when capital controls can be imposed. If necessary, Monday and Tuesday could be declared bank holidays as well. This was the case, most notably, with Argentina in 2002 where the announcement was made Sunday and then two days of bank holidays were declared." 

Those with their money in Greek banks aren't being stupid.

Another nice paper on the subject of a Greek exit if you have the time is "More Pain, No Gain for Greece" from the Center for Economic and Policy Research.