How could a country get out of the Euro


        It is not easy changing currencies. Some people now think that would be the least bad option for countries like Greece, facing ever worse choices on tax, spending and borrowing living with the Euro. Greece and the EU have very clearly stated they will not do this, so this is a very speculative musing in response to questions on how it could be done.

         The  easy part is dealing with bank account money.Tthe harder part is dealing with notes.  If Greece – for example – agreed with Euroland and the EU that it should leave the Euro they would all need to move very rapidly to contain the short term damage and to carry out an efficient change over.  They would need to promise putting in place all the legal and Treaty changes needed over a week-end of secret talks. Then they could announce that as from a stated time on the Sunday all Greek bank accounts denominated in Euros would be converted to new drachmas. It would be easiest to do it at one new drachma to one euro. It would be a relatively simple computer exercise.

               The Greek authorities would need to decide which Greek bank accounts were affected. Presumably every  Greek citizen or company with a euro account in Greece would be compulsory converted. Foreigners with euro accounts in Greece might  be excluded.  Greeks with euro accounts abroad would also need to be considered, with the Greek authorities probably wishing to convert those as well.

               On the Monday when the markets opened the  new drachma would presumably fall against the Euro – let’s say to 1.2 new drachmas per euro.  Tourists and  foreign traders with Greece would be 20% better off than locals, as they would still have euros to convert at the market rate.  Greece would have devalued, making her exports cheaper and her imports dearer. It should boost tourism and inward flows.

                     Handling the bank notes is more complex. Let us assume the Greek state would want to compulsory convert all Greek citizen and Greek company holdings of Euros into new drachmas at the 1 to 1 rate, but did not wish to convert foreigners holding banknotes in Greece, or to convert all Greek letter Euro notes held anywhere in the Euro zone.  They could say that all Greek citizens taking euro notes to banks or to the shops would have them acceopted as new drachma at the 1 to 1 rate. Any foreigner in Greece could exchange euros into new drachma at the market rate on showing  a passport. Banks and shops could be given a period of time to gradually convert the euro notes into drachma notes, but for the time being the euro notes could act as  drachma notes. Any foreigner wishing to spend money in Greece would be free to spend euros at the 1 to 1 rate, or eligible to get new drachma notes on conversion at market rates. For a period euro notes and new drachma notes would both be legal tender until enough new drahcma notes were in circulation to replace all euro notes. The banks and shops would convert the notes at as fast a rate as the notes became available.

                This seems to be the least bad way, given that speed and secrecy would not allow the printing of a complete supply of new drachma notes for the switch over date.


  1. Alan
    September 7, 2011

    Sounds like a lot of trouble to lessen the value of Greeks’ savings, pensions, and wages.

    How preferable it is to be in the UK, where our savings, pensions, and wages have all been reduced with no trouble at all. (That’s meant to be ironic.)

  2. Mike Stallard
    September 7, 2011

    One of the advantages of being old is that you have already been to a lot of countries where the currency has changed over.

    Australia, when I first went there in 1963 had pounds shillings and pence. Today, of course, the Dollar. Sierra Leone, which, believe me, was not even then of the world’s money markets (although the economy was still strong) changed over too. And we here changed over from LSD into modern decimals under that brilliant economist, Mr Wilson.

    So I am sure, for that reason, that your plan could easily work. Especially if the Drachma was held artificially equal to the euro for a couple of months before it began to lose its value.

    1. Robert
      September 7, 2011

      We changed to decimal currency under the equally brilliant economist Edward Heath on 15 Feb 1971. It was his negotiating expertise that enabled us to join the EU on the beneficial terms that we are still experiencing.

      1. Mike Stallard
        September 7, 2011


      2. lifelogic
        September 7, 2011

        Ted Heath brilliant indeed – yes lets have a prices and incomes policy (£10PW? was it) too so we can keep inflation down and print lots of money at the same time I am sure the Libdems would like the idea.

        I see a top LibDem calls for lower tax take from the rich and lower growth for all by retaining the 52%. A superficial, political, appearance of fairness is clearly far more important to the Liberals than peoples jobs.

  3. Fox in sox
    September 7, 2011

    I have some Greek friends who have moved their bank balances to other countries, mostly UK as they are working here. Some have moved their money to other eurozone countries. There is a large Greek diaspora who can shelter money. There may not be much to devalue shortly.

    If it were to be done tis better to be done quickly. There will be problems and injustices, but once the new drachma has settled much of this money may be repatriated.

  4. Ray
    September 7, 2011

    I can’t see that working, John. It may be a simple computer exercise but Greeks would be bound to assume the new drachma would soon be devalued and so would want to hold on to as many euros as possible. ATMs would be emptied immediately and there would probably be public disorder. Worse, the Greek government could find themselves in the same position as the Soviets towards the end where the government was using one currency and the street another.

    Of course if Germany were to leave the euro the effect would be reversed. Germans would assume the new mark would soon be revalued and would rush to acquire them.

  5. lifelogic
    September 7, 2011

    Listening to Cameron yesterday, being questioned on this predicable mess, I am impressed with his verbal skills in defending the indefensible (without having a single sensible argument to put forward). The usual 50% of our trade, do you want to keep telling them I told you so from the sidelines and similar absurd arguments. A polished performance, totally lacking any content, logic or a desire to serve the interests of the UK. Or act on any of his pre-election cast iron type promises.

    Then we have Ken Clark’s silly gimmick of allowing the filming of judges giving court judgements and we also learn that 75% of the convicted rioters have a criminal record and that a claimed 50% of crime is committed by people who have already been through the system and are doubtless encouraged and spurred on by it.

    The 50%, shoot yourself in the foot, Osbourne tax is still there as a “temporary” measure, clearly an entirely counter productive one. How long does it take for him to get his review done – surely a couple of hours should be enough?

    Then we have Cable and Huhne what a pointless absurd rabble.

    1. lifelogic
      September 7, 2011

      A typical response of the UK banks to someone who has a loan of £760,000 (secured on properties worth about £2M and generating considerably more than sufficient rents to cover the repayments). Repayments which they have been paying back regularly on time for 12+ years.

      May we borrow another £50K (or indeed anything) to invest in my other trading business or a to complete building work on another property – thus creating jobs and improve efficiency.

      No, basically we are not lending at all and really we want the £760K back too. So we thus want to be as awkward as possible to force you to refinance and repay this (too cheap) old loan. This is not what they actually say but this is the clear reality and they nearly all seem similar. Virtually no second charge lending is available either, at sensible rates, to further compound the problem.

      This is 3 years after the start of the banking fiasco how much longer will this go on?
      How will growth ever come about with the banks, expensive green energy systems, endless regulation and governments all clearly acting to prevent it?

    2. Robert
      September 7, 2011

      In fairness to Osbourne it is not his tax having been implemented by Labour from April 2010.

      It is still there due to the coalition and it is the cost for the continuation of this government. A real Tory chancellor would abandon this tax. Osbourne doesn’t because he like the Prime Minister is not a real Tory.

      1. uanime5
        September 7, 2011

        Perhaps he’s keeping it because he known that the majority of the electorate don’t pay the 50% tax rate and won’t tolerate a tax cut for the rich while their wages fall in real terms.

      2. lifelogic
        September 7, 2011

        Indeed but where is this report showing 52% is clear nonsense and clearly bad for all. Get it done this afternoon.

        Now I see that Lord Oakeshott (yet another Oxford PPE product I understand) seems to thing that the rich French are clambering to pay more tax. Clearly he has not met very many. All the French (and other) rich I know understand perfectly well that they will spend it, invest it, or give to to charity far more efficiently than governments (who would probably waste it on the Euro nonsense, green bling, or propaganda for votes or similar) and that all will benefit more if they do that directly.

        If he really knows any he could tell them than can pay more whenever they want to – if they are really too stupid to think of anything better to do with their money or they could ask me for a few good charity suggestions perhaps there are some good ones around still.

        1. lifelogic
          September 7, 2011

          Perhaps a compromise is needed 52% to remain for the state sector, Quangos and BBC staff and their pensions and 40% for wealth creators. Perfectly fair to redress browns pension mugging of the private sector and the pay/pension differentials.

          Also the state sector cannot move away or avoid it so easily.

          Lord Oakeshott also mentions Warren Buffet as wanting to pay more tax (who pays tax at about a reported 17% I understand). So perhaps he thinks 20% would be fairer. I doubt if he thinks 52% is.

          1. Javelin
            September 7, 2011

            You may well have a point here – for the PIIGS though – when their Governments run out of money and cant pay their creditors they can pay for all their staff and services using a new internal currency – that can then be converted at banks. That solves the problem of keeping the Euro. Bottom line if you take a job with a dodgy employer who can’t pay their bills then don’t complain if you lose out.

          2. APL
            September 8, 2011

            Lifelogic: “Lord Oakeshott also mentions Warren Buffet as wanting to pay more tax …”

            Another of these ‘I want to pay more tax’ (brigade-ed|) is that silly (lady-ed) who writes for the Guardian.

            Warren, Poly, it’s simple. Get out your cheque book and write a cheque to the IRS or the Inland Revenue respectively.

          3. Bazman
            September 8, 2011

            Less than 1% of the population earns 150k a year, £12500 per month, or £2884 per week. Plus expenses healthcare, car and other allowances for things like entertainment. What percentage of this 1% are what are laughably called ‘entrepreneurs’ is anyone’s guess. Many I suspect would be ‘managers’ milking their monopoly companies or banks. The Tories should abolish this tax as it will be good to watch the reaction of comparatively low paid VAT payers at the ballot box. Maybe they do not understand? They understand to well. This is the problem.

    3. Bryan
      September 7, 2011

      Surprisingly how little is mentioned that we import approaching 80% of our goods from EU countries and that therefore they need us more than we need them? Or that we could source much of this from outside of the EU at lower cost.

      The wrong leader was elected – we clearly believed him when he said that he always kept his promises!

      What happens to their backbones when they achieve Government office?

      1. David Hepburn
        September 7, 2011

        “What happens to their backbones when they achieve Government office?”

        Their spines atrophy…

      2. sjb
        September 7, 2011

        What is the authority for the 80% you cite, Bryan? The latest (June 2011) trade figures record EU imports at £16.8 billion and Non-EU imports at £16.7 billion.

        Source: uktradeinfo (stats provided by HMRC)

        1. Bryan
          September 8, 2011

          Trade figures for 2010 show a deficit with EU countries of c £46bn and a surplus with the rest of the World of c £13bn.
          For every £100 of goods exported to EU Countries we imported £130 of goods.
          You are correct I should have said approaching 70%. Apologies.

      3. Bazman
        September 8, 2011

        They turn into Vince Cable.

    4. lifelogic
      September 7, 2011

      At PM questions today, asked about a referendum, we learn that Cameron wants to be in Europe for the reasons (can you belief it) – of fighting for free trade and lower energy prices.

      Rather like saying: he wants us all on the beach, half under water, fighting the incoming tide rather than just all sitting in comfort, making our own decisions, trading with the world as we see fit and where no such pointless fight is needed. Just good self governing decisions on trade and energy production post Huhne.

      1. APL
        September 7, 2011

        Lifelogic: “… be in Europe for the reasons (can you belief it) – of fighting for free trade and lower energy prices.”

        The man is a disengenious idiot.

        Free trade can be accomplished under the auspsis of the World Trade orginisation.

        Lower energy prices?

        1. Sack the (word left out) Huhne.
        2. Stop bunging thousands of pounds of tax payers money to his father in law.

        Would be a good start.

        1. APL
          September 8, 2011

          JR: “1. Sack the (word left out) Huhne.”

          There can only be one word to describe the mental state of a man who, for no substantive reason and against all the evidence, insists on implementing policies that will destroy large swathes of what is left of industrial activity in this country. The consequence of which will be even greater poverty and unemployment than we currently suffer.

          Reply: i always delete offensive personal remarks about individuals, whether I agree or disagree with the individuals named.

          1. APL
            September 8, 2011

            JR: “i always delete offensive personal remarks about individuals, whether I agree or disagree with the individuals named.”

            Your blog, your rules.

            As one of the few representatives who seems to take his role seriously, you are entitled to know how some of us feel about the behavior of the rest of the political class.

            I thought twice about the use of (deleted word) but on reflection and after referring to the dictionary I believe my usage accurate and appropriate.


            reply: I do not want to have to spend a lot of time answering complaints or lawyer’s letters from offended people.

          2. lifelogic
            September 8, 2011

            What ever the word left out is Huhne and his policy must go it is just bonkers. Even if you do believe, contrary to logic and science that excess CO2 alone is going to burn us all alive. It is still very clear that his hugely expensive solutions simply will not work.

            He is now attached to the green God religion so much that he is unable to credibly change his line – he must go.

  6. Javelin
    September 7, 2011

    Yes. I also think that it would be necessary for Chief Information Officers in financial companies to put new currencies on their computer systems and test them.

    There is a review of Greek finances this weekend and one on Dec 11th. From an IT perspective it would be a disaster is any of the PIGS or Germany suddenly pulled out the Euro – but asking for that would be the tail wagging the dog.

    If RBS genuinely believe that Greece will default – and possibly exit the Euro – then they should put in place a programme to test new currencies on their systems. If Greece does exit there will be a strong case for other countries to exit – so these would need to be tested.

    If Greece defaults on Dec 11th this would coincide with banks having software freezes during December on the run up to their year end accounts. For that reasons CIOs need to put a programme in place ASAP to add currencies onto the system.

    An interesting point would be what would be the new 3 letter ISO currency code for the new currencies. I would suggest using the currency code used prior to the Euro – rather than invent a new one. So GRD would be used for the Greek Drachma. A problem might be that some computer systems may still contain old dormant accounts with this ISO code in. So banks would need to undertake an investigation to find out any impact of this change.

    Again if banks, like RBS, believe this is a probable event then they really need to sort out how they are going to do this on their computers.

    1. Javelin
      September 7, 2011

      Interesting … I’ve just checked on a couple of trading systems (eg Calypso) and the GRD currency comes bundled with the platforms – even though the system is a few years old. Currency information is there, such as the day count convention, but the currency pairs are not there. I suppose data providers such as Reuters and Bloomberg also need to put a lot of effort testing this.

  7. Iain Gill
    September 7, 2011

    dont euro notes have an indicator of which country issued them on them? or is it just the coins? i forget and my wallet is downstairs 🙂

    you could always just make the ones issued by greece into drachs

    does this mean jet skis on the greek islands will go back to the old drach hire rates 🙂

    1. Caterpillar
      September 7, 2011

      I think they have prefix letters by issuing country.

    2. Peter Campbell
      September 7, 2011

      The jet ski rental price is a very serious issue as it is just about the only foreign currency earning industry that the Greeks have. Certainly should be very high up on the governments agenda.

      1. Iain Gill
        September 7, 2011

        its certainly what the blokes in the pub here are most interested in…

        got to get a bit of popularism to this debate

    3. oldtimer
      September 7, 2011

      Yes, the notes do have a prefix letter which indicates country of origin. Someone posted the letters to avoid, namely the PIIGGS letters, but I cannot remember them. My immediate reaction was to check my own Euro notes (a mixture of OK and bad) and converted the lot back to sterling.

      Reply: I wrote about this before. Greek notes are Y.

    4. Gary
      September 7, 2011

      There you have it. If the notes are distinguishable by country, just exclude greek euros from the EU, and put them under greek control. Until the greeks can print drachmas.

      I find it astonishing that the notes are not fungible, fungibility is a cornerstone property of good currency.

      In this case I suppose they are just fungible enough to create confusion, but not fungible enough to prevent divisions. What a mess.

  8. IanVisits
    September 7, 2011

    A solution to the bank note problem would be for the EU to print a sizeable batch of “transition notes” that can used by any country needing to leave the Euro.

    No need for an emergency batch printing, you just do it slowly over time, and as “transition notes” have no country or currency names, just plain numbers – they can be dispatched to any country that needed them in a hurry.

    There is also minimal risk of financial wobbles to a specific country as there wouldn’t be any media stories leaked of a warehouse full of francs, drachmas, etc – as there wouldn’t be such a warehouse.

    1. javelin
      September 7, 2011

      Bank of Greece can issue notes, but it doesnt have the capacity to do it for all their currency. Greece “sources its notes from FIVE different printers”, so if it needed it could ask a number of printers to work on the problem. Greece also wanted a ONE Euro note to be printed – and even though it was voted for by the Parliament the ECB rejected the request, so it could now get this printed.

      I supposed an issue would be that the notes and coins would need to be the same size so they could fit into machines. So this would mean only the design of the note could vary from the Euro. Disadvantaging blind people.

      1. Tedgo
        September 7, 2011

        Coins would have to change size, otherwise the cheapest to obtain coin would spread across Europe for use in vending machines.

        Many years ago the old shilling was useful in German vending machines, I could get cheap milk every day.

  9. Martin Cole
    September 7, 2011

    I agree. As a courtesy to your voyaging readers it would also have been helpful to point out the the serial number prefix for Greek euro notes which will soon become worthless outside Greece, is Y.

    In early August on Orphans of Liberty I detailed most of the euro notes that would be best not to take back to Britain this summer, the link is herewith:

  10. Nick
    September 7, 2011

    Why would foreigners be excluded? Just covert. Likewise, convert all Greek debt, internally to new Drachmas. So people’s mortages in Euros are also converted.

    If you have the one-to-one with bank notes, people will just export, convert, and have the FX gain. Same with all the Greeks with deposits in German banks.

    The Greeks would need to rely on the cooperations of the losers in this operation, the Germans, to grass on Greek citizens overseas holdings of Euros, so as they can tax them.

    ie. Just like the UK, its so desperate to stop people protecting themselves from the effects of an errant state they are imposing laws just like (authoritarians-ed) so as they get their cut.

    1. APL
      September 7, 2011

      Nick: “Just like the UK .. ”

      Yes, don’t forget the hoops an ordinary fellow has to jump through to open a bank account, or even I have recently found out just do any sort of business with a new client.

      Meanwhile, big well known international banks have been arraigned on money laundering charges.

  11. Nick
    September 7, 2011

    As soon as the Greeks get spending (ignoring debt payments) = taxation, then they can default. They don’t need the international markets for debt.

    That’s the danger point.

  12. Matt
    September 7, 2011

    In the absence of euro bonds or state austerity and sell offs or growth in the Greek economy (and the economy is going the other way) seems the only way out.

    Then there’s the foreign banks – including UK – that hold Greek debt so presumably this will have to be written down. Will hit UK taxpayers more.

    1. norman
      September 7, 2011

      Maybe George Osborne will use some of the £400 million profit he told us we’d be making from our Irish loans to offset the Greek losses?

  13. frank salmon
    September 7, 2011

    I’m not sure your argument works. I have a feeling that the new drachma will devalue the 20% you suggest. As a result, Greek Euro debt would be 20% higher in Euro terms. Then Greece will have to go bankrupt because it won’t be able to service the higher debt. Or will the European lenders be willing to take a haircut of 20% and convert the loans to drachmas at 1:1? If so, what would happen if the drachma fell by 40%? or 50%? The eurozone will not be able to influence the size of the fall in the new drachma – unless of course they then set about buying drachmas like Britain bought pounds in the ERM debacle. The markets would probably win in the end, at huge cost to eurozone…
    Also, I’m not sure the transition would be orderly. The Greek government would have to behave like James Callaghan in 1967 (albeit over devaluation, not currency switch). They would have to lie, assure everyone they they were in the Euro to stay and then, without warning, switch overnight. It would certainly mean riots or worse.
    Given this I can’t see that Greece can leave the Euro. The markets would then target the other PIIGS countries believeing they were about to do the same. The domino effect could be catastrophic.

    Far better to have the non PIIGS countries leave. They would struggle with exports for a while and they would also lose out on their PIIGS euro debts, but wouldn’t it be cheaper and more orderly than the alternatives…. ?

    1. zorro
      September 7, 2011

      Yes…but Germany is playing the long game and will never give up its ready made export market that easily (no matter how much they huff and puff). At the last minute, when the other countries are literally begging for assistance…then Germany will come to the rescue…at a price. In other words, seizing opportunities in planned adversities.


  14. gyges
    September 7, 2011

    A solution to the bank note problem would be to declare that the ‘Y Euros’ are now Drachmas and are fungible with the new Drachma (a note to be printed when feasible) whilst other Euro notes can be converted with the Y-Euro/Drachma at market rates.

    I think that everyone suspects that there is a good chance of this happening (except for some unwitting Euroland travellers who might get lumbered with Y Euros).

    Reply: The problem with that solution is lots of non Greeks have Y Euro notes, and some Greeks have euro notes from other countries. They are all muddled up because it is a single currency.

    1. gyges
      September 7, 2011

      Tough. I was foolish enough to accept Y-Euros and no doubt I will get stung; however, the more sensible of us refused to accept them.

  15. English Pensioner
    September 7, 2011

    “Speed and Secrecy”
    These are the last things that one would expect from Greece.
    Officials in the know would do well out of the change, and would tell their friends. and taking time would be to their advantage.

  16. John B
    September 7, 2011

    “Greece and the EU have very clearly stated they will not do this…”

    History shows that when politicians and bureaucrats hotly deny they are going to do something, it is an indication of the inevitability of them doing exactly what they hotly deny they are going to do.

    As the denials get hotter, the doing gets closer.

    1. lifelogic
      September 7, 2011

      Indeed like Major, Lamont and the ERM fiasco the fact that they feel the need to deny it strongly shows it is rather likely to happen.

      1. zorro
        September 7, 2011

        Normally yes…but not in this case, look at German foreign policy in the round. This is a political project not an economic one.


  17. Iain Gill
    September 7, 2011

    i see national savings has just withdrawn index linked savings certificates (again)

    watch for the obvious significant further devaluation of the pound and subsequent rampant inflation

    1. Caterpillar
      September 7, 2011

      Last MPC meeting no members vote for a rate increase, a couple of days before the Sept meeting the National Savings certificates are re-withdrawn. I think you are reading the tea leaves very well, the ZIRP/QE committee has no intentionwhatsoever of fulfilling its remit, more currency devaluation and inflation on the way.

      1. sm
        September 8, 2011

        Lets just pray if they do more QE, they
        1) spend it on real infrastructure
        2) take the banks out of the initial loop.
        3) they allow interest rates to rise slowly
        4) and or they increase reserve requirements at private banks.

  18. Steve Cox
    September 7, 2011

    Surely, before any announcement could be made the Greeks would first have to impose extremely strict capital controls. Everyone will realise that any attempt to change currency is going to end up as a major devaluation one way or another, so if they get wind that a change is imminent they will be opening Euro bank accounts in Germany and Holland like crazy and transferring their Greek Euros into solid northern Euros. Failing that, they will simply get on a train or plane with a few suitcases full of cash and fly north to exchange them. Greek companies and public entities will also want to do the same thing, so controls will have to be universal. That in turn will cripple the economy (even further) for as long as the controls are in place. Although the mechanics of printing a new currency and deciding on an exchange rate are simple enough, stopping the herd from panicking and stampeding north will not be so easy, I suspect.

  19. Peter Campbell
    September 7, 2011

    In the end it doesn’t matter how it’s managed as it will be a total disaster for Greece only beaten by joining the ridiculous project in the first place. It would be much easier for us to leave the EU but it won’t happen as our leaders are not interested in the will of the people or the good of the country, just short term political gain and long term personal gain.

  20. botogol
    September 7, 2011

    I am not sure if there is any precedent to what the Greeks would need to do — changing currencies quickly by surprise, but the closest might be the argentinian sudden end to convertibility.
    They had two currencies – peso and USD – which were convertible, and the govt seized all USD accounts and converted them to pesos.
    In terms of cash– there were already peso notes, of course, but nowhere near enough and it was pretty chaotic.

    It’s hard not to see compulsory confisfication of euro deposits, and exchange into new drachma as simply governement theft. It may be possible only after a complete collapse has taken place, rather than in an attmept to avoid it.

  21. John B
    September 7, 2011

    Mr Redwood, your proposals do not take into account pricing of goods and services, I think.

    On Euro launch day all bank accounts were transferred into euro and there was dual pricing in shops and businesses made possible because there was a fixed exchange rate, for example, for the French Franc approximately 6.5FF = 1€.

    If French Francs were tendered, change was given in euro according to the fixed rate.

    This dual pricing remained until after all French Francs had left circulation,and of course all change or credit was given in euro.

    If on day 1 the New Drachma (ND) = 1€, then dual pricing would reflect that rate. However a floating ND would mean a variable exchange rate, so would that not mean dual pricing would have to be continually changed to reflect the prevailing rate?

    This would make it virtually impossible to display or publish current prices, and people with euro would not know on any particular day, unless they checked market rates, how much their euro were worth.

    Would it not therefore require that the New Drachma was set on launch at a devalued new rate – perhaps 1€ = 2ND -, fixed until euro notes and coins had been taken out of circulation?

    A limit would have to be set for this during which citizens would be able to exchange euro for ND and after which euro currency would cease to be legal tender, although for some period after could be exchanged for ND at the market rate.

    Reply:The 1 to 1 rate only applies before markets open, but continues to apply to all Greeks needing to change money thereafter. Everyone else converts at the market rate. Euro prices become drachma prices overnight.

  22. Duyfken
    September 7, 2011

    It’s an intriguing conundrum.

    I would suspect that most in the Eurozone, especially those in Greece itself are chary of possessing any significant numbers of Euro notes with a “Y” (Greek) denomination. Similarly, I would expect that financial instutions and merchants based in Greece might already be placing their funds abroad or into other currencies – anywhere except in the Eurozone.

    If that’s so, then it could be just a matter of the “Y” Euros being withdrawn, these being then quickly over-printed as New Drachmas, and then re-issued after it is decreed all deposits in Greek-based banks and the like are henceforth New Drachmas, devalued against the euro by diktat.

    I suppose you can tell I’m not a financial genius!

  23. Denis Cooper
    September 7, 2011

    “They would need to promise putting in place all the legal and Treaty changes needed over a week-end of secret talks.”

    To be perfectly clear about this, EU leaders have no lawful authority to make any changes at all to the EU treaties over that timescale, because any such action wouldn’t be covered by any of the revision procedures laid down in the EU treaties as approved by national parliaments.

    In fact while EU leaders have the lawful authority to agree to a treaty change among themselves, only in the case of the simplified revision procedure provided by Article 48(7) TEU can they avoid getting positive approval of the agreed change from all of the national parliaments before the change can come into legal force – and even in that case they must wait to see if any national parliament objects over the following six months, as well as get positive approval from the EU Parliament.

    Article 48 TEU, starting on page 41 here:

    When Prime Minister Cameron goes to a meeting of the European Council he carries with him the authority of the UK Parliament, the supreme legal authority for the UK, but that parliamentary authorisation is not unlimited – he is only authorised to act in accordance with, and within the constraints of, the EU treaties as approved by Parliament through its Acts.

    Otherwise we might just as well have Parliament pass a single short Act saying that Ministers of the Crown are completely free to act as they see fit within the context of the EU, and whatever they agree shall automatically be accepted as our law – in effect, putting the clock back several centuries by allowing them to exercise an unrestrained Royal Prerogative.

    This is the objection to the claim made by the French Minister for Europe, Pierre Lellouche, that on May 9th 2010 EU leaders had made “de facto” changes to the EU treaties.

    They had no lawful authority to make any such treaty changes by an agreement among themselves within an institution of the EU, an international organisation established by those treaties between its sovereign member states, and by purporting to do so they were usurping the powers of their national democratic institutions.

    Far better than waiting for the crisis to hit so that EU leaders must act not only hastily, but above all once again unlawfully, to arrange the exit of Greece from the euro – another revolution like that executed on May 9th 2010 to try to keep Greece in the euro – wouldn’t it better to change the EU treaties beforehand, by the agreed procedures, to provide a legal mechanism for a country to make an orderly withdrawal from the euro?

    And wouldn’t that have been one of the treaty changes which Cameron could have reasonably demanded in exchange for his assent to the major EU treaty change agreed on March 25th?

    Which major EU treaty change will in due course come up for parliamentary approval through an Act, when MPs should say “no”.

    Reply: Yes, you are right. We have seen, however, the flexibility shown to put bail outs in place when the Treaties did not provide for them. It would be good to have an agreed exit procedure, but to discuss one now in this climate would be explosive. I think they do have to act and then ratify afterwards, explainign to their Parliaments why they had to. This is all hypothetical, beause they still do not want to split it all up, but market pressures are becoming strong.

    1. APL
      September 8, 2011

      JR: ” .. but to discuss one now in this climate would be explosive.”

      Any excuse. The climate has been caused by the reckless behavior of the politicians of the countries concerned.

      JR: ” but market pressures are becoming strong.”

      Haw haw! Greece is bankrupt – its 1 year debt yeilds 98%.

      Ireland isn’t far behind, god knows what Spain, Portugal and Italy have under their skirts, but you can bet it ain’t nice.

      Politicians, well done, Europe* ruined.

      *note not the European Union, that is just the instrument of destruction.

  24. gyges
    September 7, 2011


    Can you comment on Douglas Carswell’s bill ?

    Reply: Maybe sometime – it’s not a priority as this is not going to happen.

    1. gyges
      September 7, 2011

      thanks. (I wonder what Carswell thinks of your reply?).

    2. Gary
      September 7, 2011

      Actually, it is a priority. The govt just does not support free markets, even though they say they do. Everytime they ignore stuff like this, they show their hand.

      1. Bob
        September 7, 2011

        I would care a jot if we started using multi currencies, but it would not solve the fundamental problem we have which is that our governments punish productivity and reward indolence. Until that problem is addressed everything else is just fluff.

        1. Bob
          September 7, 2011

          Correction to my comment.
          It should read “I wouldn’t care a jot…”

  25. javelin
    September 7, 2011

    Interesting comment on the transitional currency.

    I realised that if the Greek Government ran out of money to pay civil servants they may start to print Drachmas along side Euros. They could then pay public sector workers this money and it could be exchanged at a reduced rate with shops. An internal currency would be sufficient to keep the Euro Gravvy Train rolling for Greece. The Government would of course have to frighten their citizens to have them accept this monopoly money.

  26. forthurst
    September 7, 2011

    If Greece were to contemplate leaving the Eurozone converting all Euro balances into drachmas, Greek banks would be denuded of Euros and collapse as all their Euro balances would be transferred abroad. If Germany were to contemplate leaving the Eurozone and converting all balances into Deutchmarks, the other Eurozone banks would collapse as all the money was transferred into Germany bringing down the whole Eurozone. Of course the bankster criminal class would short their way to financial nirvina and be in a position to make an offer for all the assets of Europe in return for their holdings of fiat currency (ones and noughts on computer screens).

    It might be better not to convert bank balances out of Euros to prevent rapid movements of currency, but legislate that from a date all internal financial transactions must be settled in drachmas; Euros would no longer be legal tender in Greece. People would keep their Euro balances, but if they wished to spend their money in Greece, it would have to be in drawn in drachmas or exchanged into drachmas; correspondingly, therefore, all wages and pensions and all purchases of goods would have to be in drachmas. So Greeks with Euro balances would benefit from them as long as they lasted the same as foreigners from the Eurozone coming to their country. Of course, this would mean banks setting up parallel bank accounts in advance corresponding to the a/cs held in Euros. That would propably take a minimum of two years to plan and implement.

    1. Ray
      September 8, 2011

      Good point, forthurst. I hadn’t considered capital going into Germany if it looked like withdrawing, but of course it would.

      Without the background of a war, confiscating Greek’s euros and replacing them with new drachma would be theft and would be seen as such by the Greek people. Politically impossible. An overlap between the two currencies might work if it could be done but it would be an administrative nightmare and is probably not possible.

      I conclude that there’s no mechanism for leaving the eurozone because one isn’t needed, in practice it simply cannot be done.

  27. Electro-Kevin
    September 7, 2011

    I don’t know much about these intricacies but it all seems to be one heck of a mess.

    When are people who are pro EU going to get the message ?

    Everything it touches goes belly up. Including a lot of perfectly edible fish.

  28. Foreign Aid is Evil
    September 7, 2011

    A simpler plan would be to convert all bank accounts overnight and leave banknotes as they are, whoever owns them. New legal tender would be defined as the Drachma. If somebody wanted to convert them to Drachmas at a bank or at a shop to buy something, they would simply pay the market rate for conversion. This would stop game playing and reward people who have kept their money in local banks rather than abroad or under the bed. As for issuing new bank-notes, they could simply use Euro notes with a certain range of serial numbers ( that they’ll already have in stock) and circle this number with a pen as a short term measure while new ones are printed.

    All external creditors would be devalued by whatever the market decided plus whatever debt restructuring (default) was necessary. The government wouldn’t be able to borrow anymore internationally and its ability to print money would be limited by not wanting the exchange rate to fall too far, making essential imports too expensive and causing runaway inflation. They would have to live within their means, spending less in a given year than they could raise in taxes, which would be a novel experience for many Greeks. It would also be painful but there would be no point striking as there would be no international sugar daddy to appeal to and within a few months there would be no further fear of defaults, they would have a stable currency and private industry and tourism would start to grow again.

    1. uanime5
      September 7, 2011

      Given that nearly country surrounding Greece uses the Euro changing 100 Euros with one serial number for 100 Euros with a different serial number will be easy.

  29. Richard1
    September 7, 2011

    What’s your view on Christine Lagarde’s view that we need new bank recaps + the CEO of Deutsche Bank saying there are many banks which are now insolvent? Time for mandatory recaps underwritten by creditors (not governments), perhaps in the context of realistic mark-to-market excercises on Eurozone debts?

  30. uanime5
    September 7, 2011

    In Zimbabwe their currency is the US dollar but if they default the US dollar won’t suffer. Can a similar scheme be implemented in Greece so that the official currency is the Drachma and they have to buy Euros from the EU, rather than print them? This way Greece can still use Euros but will have a currency they can devalue to make their exports cheaper.

  31. botogol
    September 7, 2011

    if the greek govt is contemplating taking peoples euros from them, why not also seize any USD , or SFR they might hold? It’s not that different.

    I think javelin’s comment above may be closer – – the govt may just leave everyone’s euros as they are, but issue a new currency and start paying in that wherever they can (and by necessity defaulting on euo debts)

  32. Richard
    September 7, 2011

    Greece leaving the Euro seems to be a solution for them in that devaluation would help to stimulate trade and tourism in particular.
    However I worry that the inveitable devaluation of the Drachma against the Pound, Euro and Dollar etc, could be much more than 20% and would this create riots on the streets when Greek citizens realise their life savings are suddenly worth much less ?

    However the fundamental problem would still remain:-
    Greece spends far more than it earns and from what I have read it still isn’t reducing this gap by as much as it was promising when recent bail outs were agreed.
    Greece needs to reduce wage levels to public employees and increase revenues from taxation and reduce goverment spending until national income and expediture are in balance.

    In my youth my budget was tight, Greece was my first choice holiday destination, because you got so many Drachma for your Pound, your converted holiday money gave you a great standard of living, but now at virtually one Euro to the Pound a Greek holiday is just like paying London prices.
    My bet is on them remaining in the Euro and doing an Iceland

  33. Demetrius
    September 7, 2011

    Cowrie shells? Bronze axe heads? Cigarettes, as in my time?

  34. Mark
    September 7, 2011

    If I have navigated the ECB site correctly, it would appear that there is some €22.8bn of Greek issue notes and coin in circulation (the UK has about £60bn in notes and coin in issue, compared with M4 money supply that includes deposits at banks of £2,152bn). A bigger problem might be the $127bn worth of deposits from overseas in Greek banks (JEDH data as at 31 March, 2011), depending on the currencies in which it is held, because the banks may find that the assets they hold against these deposits are converted to devalued drachmas while the liabilities remain in the original currencies. The ECB appears to have issued $108bn worth of currency and deposits in total to Greece (again, JEDH data), with the majority being in newly minted electrons in accounts with the ECB.

    Incidentally, I note that despite correspondence I have had with inter alia the World Bank and the ONS, the World Bank continue to complain that the UK has not submitted data to JEDH since Q2 2010 – the only SDDS country not to be up to date.

  35. Mark J
    September 7, 2011

    According to an article in The Daily Mail today, David Cameron believes that we should be pushing for closer integration with Europe to become a “United States of Europe”.

    Has uber Pro-EU Tony Blair risen from the political dead?

    David Cameron is playing a VERY dangerous game that will result in the Conservatives becoming an unelectable force for many years to come. Like Labour before not to be trusted on promises made and ignoring the wishes of the vast majority of its supporters.
    Hard line anti EU Conservative suporters will go elsewhere i.e UKIP and those that are upset with the cuts will go to Labour (or even Lib Dems).

    David knows that if he called a referendum on Europe tomorrow that his fortunes would be reversed but for some reason he just won’t do it.

    At the present time it is becoming clear too many wrong decisions are being taken by the PM and it is time that someone else with true conservative values took over. Love him or hate him I believe Boris Johnson to be this person.

    1. Tedgo
      September 7, 2011

      Boris Johnson no thank you.

    2. Bob
      September 7, 2011

      I would vote for Boris, or any otherconservative Tory, but alas they are becoming an endangered species.

    3. sjb
      September 7, 2011

      If you look at the election results from the last two European (2004 & 2009) and General (2005 & 2010) Elections, a considerable number of Conservatives appear to vote UKIP in the European Election but a year later return to the fold in the General Election.

      Turning now to the referendum. David Cameron gave the reason in his evidence to the Liaison Committee yesterday: ” I don’t actually think that [in or out of the EU] is the question most people in Britain want answered -it is about what sort of Europe.” (answer to Q260)

    4. APL
      September 8, 2011

      Mark J: “David Cameron is playing a VERY dangerous game that will result in the Conservatives becoming an unelectable force for many years to come.”

      Anyone who for the last several years has been under the misapprehension that voting Tory was likely to return a Conservative government, must presumably been medicating himself with some hallucinogenic substance.

      He certainly has no grip on reality.

  36. Richard1
    September 7, 2011

    The key difficulty would be in which currency debts and contract obligations would be denominated. Govt bonds would be in the new drachma, and so presumably would bonds of ‘Greek’ companies (if they can be defined properly). What about contracts agreed in Euros with Greek counter-parties? Not impossible to sort out but there would be bound to be arbitrary winners and losers.

  37. TimC
    September 7, 2011

    Nobody has mentioned coins. There were Ottoman coins overstamped (counterpunched) with Greek letters after the independence war. In fact wars of independence must often have given rise to a period of transitional currency, I expect the Gadaffi-free overprinted dinar will soon be accepted in Travelex.
    Seriously though the good currency (euro!) would rapidly disappear from the street as people hoarded it leading to a period of paralysis until ne drachmae were available.
    Still it is a reasonable scenario.

  38. lojolondon
    September 7, 2011

    Just do it, Greeks, just do it. You will be so glad you did!!

    I think this article is exactly why Germany has billions pre-printed in Deutschmarks, just for such an eventuality.

  39. lojolondon
    September 7, 2011

    Boris is the man. FAR from perfect, but that is a big part of his charm, and at least you know where you stand with him.

  40. Tedgo
    September 7, 2011

    We all seem to be forgetting democracy, I cannot see how Greece can carry out any of these plans with out the approval of the Greek Parliament. There is no way it can happen secretly or quickly. The only way for Greece is to default on its debts and do an Iceland.

  41. Phil H
    September 7, 2011

    John – I just realised today that Cameron’s main priority is remaining PM, the UK’s wellbeing is at best 2nd on is his list. This is why he wont entertain the idea of leaving the EU as it would upset the Lib-Dem traitors and hence the Coalition.
    I have given up on politics, the UK & the Conservative party. I wont be contributing to your blog anymore. Even in the darkest days of 1981 I was still full of hope and optimism now the long slow decline has started and cant be reversed. Sad sad day!

  42. Shade
    September 7, 2011

    John – All fine knock-about stuff – but in the real world, it is just fanciful. This article in the Times explains why.

    Btw, what a surprise that the German court ruled that the bail outs were not illegal!!

    1. Denis Cooper
      September 8, 2011

      The full judgement is still only available in German, and my German is not good enough for a reliable translation, but reading the English language press release here:

      my understanding is that the court determined that the laws passed by the Bundestag, so far, are compatible with the German constitution, but ruled that complaints about alleged breaches of the EU treaties were inadmissible.

      “The Senate regards the constitutional complaints which have been lodged as admissible only to the extent that the citizens, invoking their right to elect the Bundestag, which is protected by Article 38 GG, challenge a loss of substance of their power to rule, as it is organised in a constitutional state, by a far-reaching, or even comprehensive, transfer of duties and authorities of the Bundestag.”

      “The Senate was permitted to leave undecided under what preconditions constitutional complaints lodged against a supplementation of primary Union law by measures outside the Treaty structure may rely on Article 38.1 sentence 1 GG.”

      “The Senate, which, with a view to the procedural setting of the proceedings, was barred from reviewing the impugned Acts against provisions of Union law … “

  43. BobE
    September 7, 2011

    Do Greek Civil servants still retire on 75% pay at 50 years of age. They used to.?
    When will our government realise that debt is spending future taxes. With no growth there will be no increase in taxes. Sombody please beat this simple fact into the half wits that pretend to lead us.
    Cameron is probably doing a TB lier and is looking at the president of europe as a job.

  44. Kenneth
    September 7, 2011

    This seems to be the least bad way, given that speed and secrecy would not allow the printing of a complete supply of new drachma notes for the switch over date.

    You are assuming that the Drachmas are not already printed.

    I think it is perfectly reasonable to assume that every Eurozone country has already printed plentiful stocks of its former currency including – and especially – Germany.

    I agree that it would need to be organized over a ‘secret’ weekend

    As far as notes are concerned I would see retailers, post offices, local councils as well as banks being appointed as rapid money changers. I would say 1 for 1 exchange for one week with massive publicity. Then let the currency find its value.

  45. A different Simon
    September 8, 2011

    J.R. , did you see that Cameron has finally come clean about Europe ?

    “”I want us to be influential in Europe about the things that matter to our national interest – promoting the single market, pushing forward for growth, making sure we get lower energy prices,” he told MPs.

    “Those are things we will be fighting for but I don’t see the case for an in out referendum on Europe.

    “We are in Europe, we have got to make it work for us.”

    1. lojolondon
      September 8, 2011

      He doesn’t see a case for the referendum, but he certainly did when he was in opposition.

      If he doesn’t see a case for a referendum then he does not support democracy, and I will not support him, come the next election!

  46. Denis Cooper
    September 8, 2011

    I note today:

    “Dutch Prime Minister Mark Rutte … claimed that if such countries failed to adhere to the Commissioner’s rules then a mechanism should be put in place through which they can be forced or choose to leave the eurozone. NRC reports that, according to Dutch Finance Minister Jan Kees de Jager, Germany and Finland’s first response to the plan was positive.”

    The creation of a mechanism for a country to make an orderly withdrawal from the euro should have been the first of the other EU treaty changes demanded by Cameron as the price for his assent to the radical EU treaty amendment wanted by some of the eurozone states and agreed on March 25th through European Council Decision 2011/199/EU.

  47. lindsay McDougall
    September 9, 2011

    What makes you think there is any choice in the matter? Did you see Angela Merkel’s election results? She was shellacked in her home state. If Germany says ‘non’ to a further bailout, out Greece goes.

Comments are closed.