The European Central Bank should tell us when and how it will support Greek banks

It is unacceptable for one of the leading Central banks of the world to fail to tell people on what basis it will support Greek banks and get them open for business again.
It is the job of the ECB to supply Euros to Greek banks when people want to withdraw their money. It is their duty to allow external settlement of accounts from Greece to the rest of the zone and beyond. Greek business with money needs to pay foreign suppliers. If Greek banks are solvent as the ECB has always said they are, they must supply the cash. If a bank in the zone becomes insolvent, then the ECB must trigger its recapitalisation. Playing politics with the livelihoods of Greeks and undermining Greek businesses by failing to allow transactions is doing damage to the Eurozone as a whole as well as to Greece itself.


  1. Mike Stallard
    July 6, 2015

    That hideous strength!
    If I were a German, who had been signed up to the ECB when I had a perfectly good D Mark, and who had been told that the Euro would be just as safe as my preferred currency, I should be hopping mad by now.
    We have the Somme, the Germans have two occasions in the 20th century when they lost everything they owned to inflation. Folk memories…

  2. lifelogic
    July 6, 2015

    Right again, it is totally unacceptable for the ECB to restrict liquidity to solvent banks.

    1. Leslie Singleton
      July 6, 2015

      Dear Lifelogic–But they are clearly not solvent because their loans to Greek businesses have gone down the tubes and they manifestly cannot pay their debts as and when they fall due. I fail to see how it could be more obvious that Greece does not belong in the Euro. And to John, I suggest please stop regarding the ECB as any kind of real Central Bank.

      1. Gary
        July 7, 2015

        Correct, and the biggest shock to those who think we should have no part in the EU is that our banks are entwined in this systemic banking counter-party soup. We are actually in the EU whether we are nominally in or out.

      2. waramess
        July 7, 2015

        It matters not whether there are solvent banks or not. The ECB is providing the liquidity and they have been quite robust about the health of the Greek Banks and, so long as they believe the banks are healthy, they are playing games by witholding liquidity.

    2. Jerry
      July 6, 2015

      @LL; “it is totally unacceptable for the ECB to restrict liquidity to solvent banks.”

      Total sarcasm LL, I like it – “solvent banks”…!

      1. Edward2
        July 6, 2015

        There are solvent banks in Greece.
        It is the State that has all the debt.

        1. Jerry
          July 6, 2015

          @Edward2; Depends on were the true debts lie…

  3. Anonymous
    July 6, 2015

    To enforce penury on the Greeks (despite much being their fault) is unfair and uncivilised.

    Both Germany and Britain were bankrupt, seemingly beyond repair at one point. The Americans bailed them out.

    It should be remembered that Greece would have been far richer now had it not been for German occupation in WW2.

    If the EU is to punish the Greeks for rejecting the Euro then shame on it.

    1. fedupsoutherner
      July 6, 2015

      I feel for the people of Greece. Those who have worked hard and asked for none of this. How must it feel not to be able to feed your family and get your own money out of the banks? I blame the financial institutions for dragging their feet and not coming to a sensible conclusion ages ago and the Greek government for not being honest in the first place. All in all a very sorry state for the ordinary person in the street. As usual it is the little man that suffers whilst the wealthy move and get out of it all.

  4. Richard1
    July 6, 2015

    I certainly agree with that. It is interesting the extent to which the supposedly independent ECB is taking orders from the eurozone political leaders. Our govt needs to make this point and so should the US govt. the ECB’s policy of cutting off Greek banks is greatly exacerbating the economic impact – which has global ramifications – for EU-political reasons.

  5. Sandra Cox
    July 6, 2015

    I posted this on your late-night Sunday diary, but as you have issued two further posts this morning, this (slightly modified comment) might be more relevant here:

    John, talking of debt, has the €38 billion “loan” that Juncker was “requesting” earlier this year from UK taxpayers been handed over by Osborne?

    Apparently, the €38 billion was for the EU slush fund to relaunch the European economy.

    John, are you able to find out exactly how this further tranche of UK taxpayer debt has been or will be applied to assist others in the EU community?

    Thank you.

    1. lojolondon
      July 6, 2015

      This is a key question – we keep being told how our leaders are protecting us and saying no to the increasingly unhinged demands of the EU, then we find that they clandestinely often pay up – unreported by the Biased BBC and MSM –

  6. Richard1
    July 6, 2015

    the BBC (Today Programme 08.04 BST) has just announced as a fact that Greece’s banks are not solvent. Is this correct and if so how does the BBC know

    Reply The ECB is their Regulator and I have not heard or read any ECB statement that they are not solvent.The ECB clearly thought they were solvent a week ago as it was still lending them more money.

    1. acorn
      July 6, 2015

      The last 24 hours have proved that there is nobody at the BBC that has the first idea of how the Eurosystem operates. Its front of camera people were basically talking nonsense all Sunday evening.

      The ECB is not the “lender of last resort”, that function is performed by the individual Nation Central Banks (NCBs). Read the statutes of the ESCB which is the rules for the ECB and all the other (non-Euro) National Central Banks in the EU, including the BoE. The ECB does not issue Euro to Commercial Banks, that function is also performed by the NCB of the member state where the Commercial Bank(s) are located.

      The NCBs abide by the ESCB rules to try and regulate a monetary policy of the EU, that ends up not fitting any member state, except the German’s export madness. But the ECB is obliged under the Treaties to support NCBs liquidity operations and can be sued at the ECJ, for causing damage to a member states banking system, including, collapsing payments systems.

      Greece has all the banking machinery it needs to operate a transition currency or a parallel internal commerce currency, (the Swiss have been doing something similar for years).

      I do hope the Greeks go back to the Drachma; and, I hope the rest of club-med follow them.

      1. Denis Cooper
        July 7, 2015

        The NCB’s operate under the authorisation of the ECB, they are in effect like national branches of the ECB.

        1. acorn
          July 7, 2015

          Other way around Denis. All the share capital of the ECB is owned by all 28 NCBs. The ECB “operates” under Treaty law, but is nothing like a proper Central Bank. It is the monopoly “issuer” of the Euro currency in name only.

          All the functions of a monetary authority that the BoE or the FED carry out, including open market operations and overnight lending, are performed by the National Central Banks. QE; OMT; SMP etc, are all carried out by NCBs to an ECB guideline policy.

          The ECB would be dead in the water without the member state Central Banks. If the ECB disappeared overnight, the 28 NCBs and there respective Government Treasury, would be very happy.

          They would all go back to spending “reserves” instead of having to sell Bonds to spivs for Euro. Stick IMF austerity up (wherever ed); fiscally stimulate there economies to about 10% of EU GDP (more in Greece); encourage the private sector to start investing in new capacity in areas that show signs of some welcome inflation.

          Perhaps then, they just might get the Eurozone economy to lift off the ground. Mr Osborne please note!

          1. acorn
            July 7, 2015

            (wherever ed) !!!??? Sorry JR, I am not up to date on the diktats from the Whips Office. You are obviously not allowed to mention that name. Still, who gives a f***, just keep taking the pay and expenses and vote in the lobby you are told to. It’s 2015, and the Westminster living is easy!!!

            Reply I often delete names of individuals where I cannot prove the allegations or descriptions. The whips do not tell me to do this.

          2. Denis Cooper
            July 7, 2015


            In the current instance, the Greek central bank cannot increase funding to the Greek commercial banks, or have more euro banknotes printed, without permission from the ECB, and that permission is not forthcoming.

          3. Denis Cooper
            July 7, 2015



            “Article 8

            General principle

            The ESCB shall be governed by the decision-making bodies of the ECB.”

  7. Jerry
    July 6, 2015

    I thought they had already told us, no more bailout money without acceptance of the most recent EZ political (bailout) deal, thus it is for the political EZ to tell us and the ECB what they will do next!

    Anyway, so what, we have been told for months that the “Markets” have already factored in a Grexit, so where’s the panic here in the UK?…

    1. Hope
      July 6, 2015

      Osborne is out of the traps scaremongering in the HoC, this might effect the EU referendum in the UK. So purdah begins very early. Give the EU contribution from the UK to Greece instead.

      No condemnation from the Tory Govt. for the comments made by Shultz who clearly wants to depose the elected Govt.of Greece for an imposed EU imposter. Compare and contrast with the Crimea and reaction from Cameron.

  8. DaveM
    July 6, 2015

    Sorry, I don’t have time to comment today. I’m off to see the bank manager to tell him that I’ve spent the unsecured £700,000 he lent me and that I won’t be paying him back. And that he’ll have to lend me another £1,000,000 because otherwise I’ll starve to death.

    This wasn’t my idea if I’m honest – in fact I didn’t even consider this course of action until some Greek bloke suggested it. A Scottish woman called Nicola overheard the conversation and said it was a brilliant idea though.

    1. fedupsoutherner
      July 6, 2015

      Love it!! Just what Queen Nick would think and say!

    2. yulwaymartyn
      July 6, 2015

      even more so as the new bank manager is thoroughly charming and says “call em Vladimir”.

    3. petermartin2001
      July 6, 2015


      You’re making the mistake of equating the macro with the micro.

      If the rules that apply to us all as individuals applied to countries, there wouldn’t today be any such country as Germany. It’s population, in 1945, would have been expelled and its assets sold off to pay for the damage it had wrought in the previous 6 years.

      Instead it’s debts were partially forgiven and our markets were opened to the sale of German products. Germany was given a helping hand when it is arguable that it deserved that.

      1. Edward2
        July 7, 2015

        I think in macro terms nations are more like companies that have got into difficulties.
        There are various methods of dealing with failing companies..
        Receivership, administration, liquidation, refunding by new investors, etc.
        Sometimes the directors are banned from holding office again.
        Sometimes the debts are written off and they start again as “……. Company (2015) Limited.
        This is rather like your 1945 Germany example but might also apply to Iceland Cyprus recently and several South American and African nations in the past.

    4. Robert Christopher
      July 6, 2015

      ” I’m off to see the bank manager to tell him that I’ve spent the unsecured £700,000 he lent me …

      After he lent you the money, did he then run your business into the ground, pay off all your customers’ loans with with what was left, as a PR exercise, and allowed all the homeless in the area to use your premises as housing, before handing it back to you?

      And are you still waiting for a visit from Housing, that will result in your factory closing down because it is illegal to have unsupervised visitors in a factory?

      1. DaveM
        July 7, 2015

        I don’t know – I retired when I was 28 using the loan to finance my holidays.

  9. Ian wragg
    July 6, 2015

    I see a Cyprus moment. A haircut for bank accounts to make the banks solvent and then the ECB will ship some Euros over whilst the Drachma is printed.

  10. agricola
    July 6, 2015

    The ball has been put very firmly in the hands of those supposedly running the EU and ECB by the Greek vote. Will the EU accept the democratic vote of the Greek people. Will they continue to support a member with a common currency while trying to get their economy back into shape with a less austere solution over a more acceptable time scale, or will they throw a “Tissy Fit” and throw them out. Will economic reality and democracy take precedence over the political ambitions of those who run the EU.

    For sure the EU are as culpable for their blind ambition as are the Greeks for cooking the books in the first place. The EU, being the senior partner in this marriage should accept most of the responsibility for it’s failure.

    Rest assured there are many in Southern Europe, the people if not governments, who are looking on to see the outcome which will govern their subsequent actions. It would be nice to think that there could be a totally rethought EU after this demonstration of democracy, but knowing the players I do not hold much hope.

    I hope your leader has taken full note of what he is in the process of trying to sell us and begins to think more intelligently about our future relationship with the EU. If he fails to read the entrails on this one I doubt his ability to make a logical decision about anything.

    1. oldtimer
      July 6, 2015

      I have just posted a link, in the previous blog, to a Spiegel article which is very critical of Angela Merkel:

      This is relevant to the points you make about Cameron`s (extremely opaque) negotiating position.

    2. Hope
      July 6, 2015

      I think vindictive EU behaviour will follow and people in the UK must stand up not to allow the UK Govt. to be part of it.

      Read all the lies and threats they made, it is like hearing the fanatics here spread fear not to be in the Euro. These looney tunes would still have us in the Euro!

  11. Alan
    July 6, 2015

    No, it is not the job of the ECB to supply euros to Greece or to recapitalise its banks in all circumstances. The Greeks have just voted not to accept the agreement that would have allowed the ECB to continue to supply euros to Greece. We have to accept the Greeks’ decision.

    I rather expect that the ECB will shrink away from abruptly halting the supply of cash, so a trickle of supply will probably continue, just enough to provide the minimum needed, until the politicians can decide what to do next. I think it’s right that it should be a politicians’ decision, not a bankers’. But the referendum has removed most of their choices.

    1. petermartin2001
      July 6, 2015


      You clearly don’t understand the obligations of a Central bank to the commercial banks. Over the years several US States and cities have been technically bankrupt and have required assistance from the US Federal government.

      Yet, never has the US Fed (their central bank) refused to support banks located in these States and cities merely because of a dispute between governments of various levels in the USA. If you know differently, please enlighten me.

      The obligation of a central bank isn’t total. If the commercial bank is financially unsound then any decision to support it has to come from government. But that cannot be the case in Greece. It is statistically extremely unlikely that all the Greek banks were financially viable in the week before the Greek government called their referendum and all were financially nonviable the day after!

      1. Alan
        July 6, 2015

        I think it is you who does not understand the obligations of central banks. I think a central bank will not normally lend to a commercial bank if the commercial bank is insolvent.

        This has nothing to do with a federal government providing money to states or cities. The EU is not a federal state. It’s a union of sovereign nations, each of which can take its own decisions, and that is what is happening.

        1. petermartin2001
          July 7, 2015

          Yes, the “EU is not a federal state”! It does have national borders. We know that.

          However the creation of a common currency does mean those national borders aren’t quite what they were. The rules of banking still apply, and by agreement, those borders have been made, or should have been made, transparent for banking purposes.

          There is also a national border between Scotland and England. But, Scotland and England are still using the same currency. Can we ever foresee that Scottish and English customers would be treated differently, even if there were tensions and disagreements between separate governments? It simply would not be ethical to deprive Scottish people of their savings because of governmental disputes.

          The decision to deprive Greek customers of the euros that are rightfully theirs has been labelled as terrorism by the former Greek finance minister. We may not use that word ourselves, but we surely must see his point!

  12. Bert Young
    July 6, 2015

    What the ECB decides is entirely down to Germany . The ECB pot has limitations both in capital quantity and in policy guidance ; these limitations direct whether they will continue to keep the Greek banks alive or not . As things stand Merkel will want to be an angel and try to bring things back into the fold ; first she has to get the German government to say “yes”.

  13. Peter van Leeuwen
    July 6, 2015

    Interestingly (or maybe not even) the UK has no seat on the ECB governing board. It is and will remain “the outsider”, a backseat driver, who’s opinion may not be sought. Let’s have a little patience for the opinion from the front seat driver and keep calm.

    1. Edward2
      July 6, 2015

      Germany I presume you mean when you say “front seat driver”
      What you have said equally applies to the rest of the Eurozone nations.
      Germany is the biggest creditor to Greece.
      What they want to happen will happen.
      The rest of you are just by-standers.

      1. Peter van Leeuwen
        July 6, 2015

        @Edward2: No I meant Mario Draghi, representing the ECB board.

      2. margaret brandreth-j
        July 6, 2015

        Yes Edward you hit the nail on the head there. It is the perception that not all EU nations have parity and some are the leaders where others follow. Who wags the tail?

      3. Hope
        July 6, 2015

        PVL, we do not even want to be in the death trap of the EU car!

        As for the nonsensical comment, the UK is a driver in the IMF. The British public deserves to know what position Cameron is taking. Personally I would rather the Greeks have our taxes in the form of the extorntionate EU club fee in lieu of the EU.

        I suspect the two posh toffs will use this moment to scare the British public that we must stay in this disaster called the EU. It is clear from the comments of Shultz, it is a dictatorship that wishes to override elected national govt.’s.

      4. Jerry
        July 6, 2015

        @Edwartd2; No, PvL make it quite clear that he meant members of the EZ, so not just Germany and as such if Germany wanted something a majority of the other members did not then Germany would be voted down – pleaser file your comments about Germany under “X” in future…

        1. Edward2
          July 7, 2015

          Nonsense from you again Jerry.
          Germany are at the heart of all the current decisions being made about Greece.
          Merkel is at the front in all the news on TV
          I am not surprised nor do I find this situation wrong.

          Germany is the powerhouse Eurozone nation and they are owed the most money and will be expected to pay in by far the most of any further funding of Greece, so its only fair.

    2. Richard1
      July 6, 2015

      The UK govt is perfectly entitled to an opinion on an economic crisis anywhere in the world which has ramifications for the UK and other countries, as this one does. I am very glad the UK has no seat on the ECB governing board, since the price of one would unlimited liability for UK taxpayers to bail out bust eurozone states like Greece.

    3. petermartin2001
      July 6, 2015

      The front seat drivers have driven Greece into a quagmire from which they cannot extract themselves. Finally the IMF itself has come to recognise that. The drivers are clearly incapable of learning from their mistakes. They want to press on even further into the quicksands!

      They are clearly incompetent and their driving licences should be immediately revoked!

    4. oldtimer
      July 6, 2015

      Re patience, in five years matters gave gone from bad to worse.

      The official UK position, as I understand it, is that the EZ should proceed to full political and monetary union so that awkward moments to full blown crises can be dealt with more effectively than they are today. That is the logical outcome for the EZ.

      The markets, meantime, have concluded that the EZ, as it stands, is flawed and are voting with their wallets, marking down the euro and the EZ stock markets.

    5. ian wragg
      July 6, 2015

      The EZ can eject Greece from the Euro but it would need unanimous decision by the other 27 nations to eject them from the EU.
      I see the Polish opposition have said they will not join the Euro if elected as it has now become a currency transfer system which is not what they agreed to.

      1. Denis Cooper
        July 7, 2015

        Poland is under a legal obligation to get on and join the euro, as the EU Commission reminded its government a few years ago. No ifs, no buts, no second thoughts in the light of changed circumstances, this is a solemn treaty commitment which the Polish people willingly accepted in their 2003 referendum on whether to join the EU, knowingly or not, and there is no going back on that unless the Poles wish to be foresworn.

        1. petermartin2001
          July 7, 2015


          The Poles seem to be doing OK with their Zloty. It would make no sense at all to force them to adopt the euro. But an appeal to the good sense of the EU-powers-that-be won’t be enough as we all know.

          So, how long can they drag their feet on the question? I think probably long enough!

          1. Denis Cooper
            July 7, 2015

            That depends on whether the Polish government has any respect for treaty law. It is quick enough to criticise the UK government for any proposal which it thinks would breach the EU treaties; well then, it should either move to fulfil its treaty obligation to take Poland into the euro, or it should propose a treaty change to relieve it of that obligation.

    6. bluedog
      July 6, 2015

      Mr PvL, Germany is crippled. The German intimidation of Greece has completely back-fired and the Germans have no option but to accede to Greek demands. Failure to do so will result in economic acts of vandalism from Athens, where they fully understand how to exploit the weaknesses of the EMU. Of course, the weakest link in the EMU is the ECB.

    7. Kenneth
      July 6, 2015

      Peter, I’m afraid one of the backstreet drivers is The Netherlands. The UK never got in the car.

    8. DaveM
      July 6, 2015

      Nice analogy, PvL.

      The UK isn’t a backseat driver – it’s in a totally separate vehicle making its way steadily up a challenging hill.

      The ECB’s vehicle, however, is hurtling towards a cliff because the driver’s got blinkers on and the passengers are all fighting in the back. Luckily it looks like it might run out of fuel before it gets to the edge though. Just hope it doesn’t run into the UK’s vehicle and do it too much damage.

    9. Roy Grianger
      July 6, 2015

      We ARE keeping calm, I doubt many in UK could care less how this plays out, thankfully we are just spectators – I imagine the Dutch government is a little exercised by the prospect of funding Greece’s generous pension system for the foreseeable future though – it will reach 25% of Greek GDP by 2050 – still I expect you’re happy enough to work longer to fund that ?

    10. lojolondon
      July 6, 2015

      The only ‘say’ we have is the £15Billion we gift to the EU every year. If our leaders had the balls to withhold payment then we would get some action, but the EU just laughs at us because we are the second-biggest sponsor of the party, and they refuse to play our songs.

    11. Jagman84
      July 6, 2015

      “The Outsider”? Rather that than strapped in, as the car heads for the cliff edge! Their infatuation with “The Project” is what will ultimately destroy it. Sadly, tens of millions of lives will be ruined in the aftermath.

  14. Ralph Musgrave
    July 6, 2015

    JR says “If a bank in the zone becomes insolvent, then the ECB must trigger its recapitalisation.”

    If that was done in a similar manner to the British state recapitalising sundry UK banks five or so years ago (i.e. by giving existing bank shareholders a haircut and grabbing a share of relevant banks), then Greeks would complain about the wicked German dominated ECB grabbing Greek national assets.

    And there’s no other way of doing it because the ECB is the only source of Euros.

    The moral is: whatever you do (apart from giving them limitless supplies of free money) Greeks will complain.

    1. petermartin2001
      July 6, 2015


      I’m surprised at you. I know you know enough economics to understand that Greece needs to be supported by limited fiscal transfers, in the eurozone, just as Mississippi in the USA is supported by limited fiscal transfers there.

      There’s no point loading up either Greece or Mississippi with unpayable debts. The EU powers-that-be, though, appear to not understand what their US counterparts clearly do.

    2. Jerry
      July 6, 2015

      @Ralph Musgrave; No need for Greeks to suffer another very close shave of the scalp, the hair cut if any is needed should be forced upon those who sold all the debt to Greece, its businesses and citizens in the first place, that any test of due-diligence would have shown as high risk – these lenders have behaved no better than shady pay-day loans companies in effect.

      1. Denis Cooper
        July 7, 2015

        The private investors have already had their very close haircut, they lost about €100 billion in the 2012 “debt restructuring” aka “default”.

  15. Atlas
    July 6, 2015

    Indeed John, what will the Franco-German empire do now when the Greeks have had the timerity to say No to the punitive demands of the Eurozone?

    I remember when the French and the Germans played fast and loose with the Euro when it suited them…

  16. margaret brandreth-j
    July 6, 2015

    To me the Greek vote appears to be YES means No and No means YES. This shambles is interpretive and deliberately analysed to be so . I hope our referendum clearly states what the population is exactly voting for.
    There are several articles which say that the Greek banks are due to run out of cash this week and some say they are not solvent. If the ECB says that the Greek banks are solvent then they should come up with the evidence.
    Reuters publish a couple of interesting articles or rather the headlines of what could be interesting , but my computer will not allow me to get into these.

  17. ChrisS
    July 6, 2015

    We are now watching the beginning of a realisation that the dream of the Euro and its need for “Ever Closer Union” is not a dream at all but a nightmare.

    Now that they are seeing just how much of their money has already been lost in lending to Greece and, according to the IMF, will be required to keep Greece within the Euro, the taxpayers in Germany, France, Netherlands, Finland and Austria are not going to go along with the huge fiscal transfers that will inevitably be required to keep the Euro show on the road.

    Fiscal transfers are not going to just be required for Greece but for Portugal and possibly larger countries as well. Then just over the horizon they have the much bigger problem of the moribund French and Italian economies as well.

    In the medium term and long term, without continual and gradual devaluations these countries cannot compete with the German economic powerhouse.

    I believe this is the beginning of the end for the Euro.

    The successors of King Canute bases in Berlin, Paris and Brussels who currently call the shots in the Eurozone have a hard lesson to learn :

    You Can’t Buck The Markets.

    It’s not a new lesson, it’s just as true today as it was back in the 1980’s.

  18. Colin Hart
    July 6, 2015

    Better to go to Hell in your own handcart rather than one hauled by a Mercedes with the occasional shove from behind from a Renault.

  19. Alte Fritz
    July 6, 2015

    The people who run the EU and Eurozone who claim a monopoly of wisdom must surely have made plans against numerous potential contingencies,including the one arising from the no vote. So, even if the solution is not easy, surely there is one.

    Now, one or more or all the parts of the foregoing appear to be wrong save for the bit about Euro arrogance.

  20. bluedog
    July 6, 2015

    Good post, Dr JR.

    The Greeks have out-thought and out-manoeuvred the EU, the EMU and the ECB. Somehow the performance of the ECB in refusing to supply liquidity to the Bank of Greece seems completely out of character for Mario Draghi at the ECB. It follows that Draghi may be under orders not to act as a Central Banker should, and the list of suspects in this regard is extremely short. One effect of the Greek No vote is that the turmoil in global markets now threatens Angela Merkel’s position as German Chancellor, as well as that of her finance minister. It was they who have been behind the treatment of Greece, backed by German public opinion. You have previously written that Germany seems remarkably afraid of using its power. At this juncture one would to say that Germany seems paralysed.

    In an act of extraordinary brilliance, the Greeks have positioned themselves so that they can, in effect, turn global financial turmoil on and off at will. The casualties promise to be numerous, starting with the German Chancellor.

    Apart from the likelihood of Merkel’s scalp, your correspondent foresees a period of financial phoney war. The ripples of the Greek vote will take some time to wreak their havoc, but in the extreme volatility in the FX markets we can already see the genesis of extraordinary loses. Someone, somewhere, has just seen their entire equity torched. But we won’t know who for a while.

  21. Kenneth
    July 6, 2015

    Might be worth buying a few De La Rue shares

    NB This is not a recommendation, just a comment.

  22. gary
    July 6, 2015

    Before we gloat too much, there are no good outcomes for any of us here.

    In this interconnected world of debt, with $700TRILLION in derivatives bets alone , almost all on rates, not too mention cross ending by banks, the systemic risk to all of us is massive. And how much of that risk is right here in the City ? I’ll bet not one person on the planet actually knows. We saw evidence of that in 2008 where they all froze like deer in the headlights because nobody knew the counterparty solvency.

    Sometimes on such asymmetric risk , only a butterfly flapping its wings can set off the destruction of the whole system.

    Greece defaults and exits, that gives a signal to other PIGS to do the same. The ECB prints and bails out Greece, the rest of the PIGS come begging and the currency (and rates) respond. The dominoes are teetering.

    Beware of the gloat !

  23. Martynn G
    July 6, 2015

    What a truly dreadful situation for Greece but they were right to stand up to the EU and I hope that they can eventually emerge from chaos back into a free country in their own right. If such a thing be possible within the EU.
    What angered me over the past weeks was the behaviour of the EU leadership, who made things far worse by their bullying, threatening behaviour and attempts yet again to topple an elected government because it failed to do what they were told. Clearly, to them the survival of their badly flawed currency, the Euro, is far more important to them than the welfare of the people who use it. And in this respect Greece is not alone….

    July 6, 2015

    I hear Mr Osborne and Mr Cameron have had an “Emergency meeting” with the BoE to ensure the UK’s financial security is not undermined by the events of Greece ( remember in this context Greece is part of the EU and has the Euro ). I mention the obvious because something has been lost in translation.

    You see the BoE a little while ago warned that the UK Referendum should take place “as soon as possible” because failure to do so would “create uncertainty in the market.” The BoE as made it clear it supports the UKs continued membership of the EU.

    Therefore, I find it paradoxical that the BoE, Mr Osborne and Mr Cameron should have an emergency meeting to PROTECT the UK from the behaviour/financial uncertainties/ financial contagion from in effect the EU itself.Why should the UK need protection from an institution which they think is the best thing since sliced bread?

    Mr Cameron and Mr Osborne have the excuse they are politicians and the public expects such double-talk and double-think. The BoE has no excuse however. It should not be asked for advice.

    The ECB cannot tell us yet “how it will support Greek banks” because like the Bank of England it is trying to hold and work with two antithetical ideas and procedures within its financial cerebral cortex.

    If the BoE or the ECB were your spouse it would kiss you on one cheek and slap you on the other cheek simultaneously. And then justify the actions separately and blame you for having one wet cheek and one sore cheek.

      July 7, 2015

      In Insurance terms it is called underwriting.

  25. English Pensioner
    July 6, 2015

    The ECB and the whole EU setup will do everything they can to prevent Greece leaving the Euro, or worse, the EU. The fate of the Greek people is totally irrelevant as far as the EU is concerned, the EU project takes precedence over everything. The actions of the ECB will not therefore be determined by normal banking practice but by political considerations.

  26. Javelin
    July 6, 2015

    The more I think about this the more I realise that what’s on the table isn’t the issue.

    The real issue is that the EU is a geo-economic union and not a geo-political one.

    The Euro has created the familiar problem we have in the UK of the distribution of income from the wealthy to the poor areas. From London to Cornwall. From the Home Counties to the Inner Cities.

    If you don’t distribute this wealth then, lets say Cornwall, will split off from the UK with its own currency and sell holidays at a high value to themselves and produce at low value to us. So the people of Cornwall, or Greece, will find it cheaper to holiday in their own country. Take note poor areas have lovely holiday homes so that really isn’t much of an issue.

    So the solution here is more historic than it is strategic. Germany and the Northern powerhouses must accept they need to fund the southern states or the southern states will pull out of the Eurozone and have their own FX rates. The momentum and excitement of Euro consolidation has slowed to a point where the pull of having lower FX rates are starting to outweigh the pull of the common currency. If the Euro zone doesn’t grasp its chance of consolidation now and let Greece leave then Italy, Spain and Portugal will be next in line as their economies slowly drift way from the North.

    1. Javelin
      July 6, 2015

      Let’s jut put it this way. The Athens/ Berlin squabble is like a divorcing couple squabbling over the debts in a divorce when the real issue is that one of the partners earns vastly more than the other and won’t create a joint bank account.

      1. petermartin2001
        July 6, 2015

        We have to be careful of microeconomic analogies, but this one is correct. For any currency union to work, and matrimonial union too, there has to be fiscal union.

        I can’t imagine any marriage working too well if the husband insisted his wife sleep in the shed because she couldn’t afford her share of the upkeep of the house.

  27. Denis Cooper
    July 6, 2015

    There are good reasons why “money” is linked in with “food, water, energy or fuel” in the definition of “emergency” in our Civil Contingencies Act 2004:

    “(e) disruption of a supply of money, food, water, energy or fuel”.

    But while Greece remains in the eurozone its money supply is controlled by the ECB, just as surely as the Japanese seized control of the water supply for Singapore.

  28. LondonBob
    July 6, 2015

    Has to be a writedown of debt and this should ideally be done by mutual agreement of both parties so the question is how? Just tie in debt writedowns to each reform as it is implemented incentivising the process for the awkward squad in Syriza, building trust with creditors as well as providing transparency for the people of both Greece and Europe. The refusal to accept any writedowns is ludicrous and the EU deserves a lot of criticism for the mess Greece is in.

  29. Iain Gill
    July 6, 2015

    Great blog John…


  30. formula57
    July 7, 2015

    It seems the ECB has taken some limited heed of the point you make as Bloomberg reports it has come up with some extra, new rules governing provision of Emergency Liquidity Assistance. (All 52 pages @ )

    Bloomberg’s commentary @ includes: –

    “An older public version of the ECB’s rules stated that ELA recipients should be solvent and that the funding shouldn’t “interfere with the objectives and tasks of the Eurosystem.” The new document goes further.

    The ECB said ELA shouldn’t represent “a threat to the singleness of monetary policy,” or “a threat to the implementation of monetary policy, for example by making the steering of short-term rates more difficult.”

    ELA also shouldn’t be “a threat to the financial independence of the national central bank, for instance if ELA was not provided against sufficient collateral to safeguard such independence,” it said.

    The ECB reiterated a key limit on its freedom of action, namely the provision in European treaties that prevents it from funding governments. ELA should not give rise to “an obvious concern about a possible breach of the monetary financing prohibition,” it said.”

    So that is nice: new rules to further push Greece into a corner as European solidarity is better defined by extra codification.

  31. petermartin2001
    July 7, 2015

    In a genuinely single currency zone like the UK, with the pound , there is one central bank, the BoE. The clearing banks, or commercial banks then have reserve accounts at the BoE. So it is a two tier system. The BoE supports the clearing banks, with loans, whenever they have any difficulties subject their being financially viable. If the BoE doesn’t believe the banks are viable then support becomes a political matter.

    In the EZ there is an extra layer. It is a three tier system. Each country’s commercial banks have reserve accounts at their National Central Bank. The National Central Banks have reserve accounts at the ECB. The ECB does not support commercial banks directly. The NCBs can only create euros as directed by the ECB. In effect they ‘borrow’ euros from them.

    In the EZ Bank depositors can costlessly shift Euro deposits from one bank to another anywhere. Any depositor of an Irish bank can move their money to a German bank. This requires that the central bank of Ireland has to obtain reserves that get credited to the central bank of Germany. If deposits tend to flow from the poorer nations, their central banks go ever more deeply into debt to the ECB to obtain reserves that accumulate in the account of the Bundesbank.

    As recent events in Greece show it makes no sense at all for anyone to hold any amount of money in the peripheral banks. There is a difference between Greek and German euros. We can all see that now. The sensible thing is to shift euros to a German bank. So logically nearly all the euros should end up being German euros anyway!

    This strikes me as yet another fundamental flaw in the architecture of the eurozone. The ECB has to guarantee those liabilities to hold the system together but what if Ireland, or whoever, defaults? They’ve got rid of their National debt at a stroke and can then start afresh with a new currency. The ECB ends up with the bill, which means the rest of the eurozone. Ultimately if everyone else defaults it is Germany, or the last one left in the system, who has to pick up the bill.

    So I would say Greece has a much better hand than is generally realised. The powers-that-be in the EZ should be terrified of losing members one by one.

  32. Lindsay McDougall
    July 8, 2015

    The German people and the Bundesbank were promised by their politicians that the Euro would be a hard currency. The Greek electorate cannot overturn that.

    It’s now abundantly clear that a Grexit is necessary to keep the Euro a hard currency. And if it isn’t to be a hard currency, it has no raison d’etre.

    1. petermartin2001
      July 9, 2015

      What is your idea of a “hard currency”?

      The euro is just a printed piece of paper , or a binary digit in a computer program.

      So what makes it hard? Is the US$ hard? Inflation in the USA is very low, but still the Americans seem to know how to keep unemployment from becoming the problem it is in euroland. So, can a currency be too “hard”?

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