At least this is a widespread opinion.
So then, why?
I read this article Greek withdrawal from the eurozone - Wikipedia but I don’t follow why simply changing the notes layout would cause all other repercussions.
Could some folk with the gift of explaining things to adolescents lend a hand (averagely clever ones they may be)?
One of the problems Greece faces (and they face many) is that, by being on the Euro, they don’t have control over their currency. Two of the big ways governments can affect the economy is that they can control the money supply (which is basically how much money is in circulation), and fiscal policy (which is deciding how money is raised and spent).
However, the European Union is what’s called a monetary union, with the Euro as a common currency. That means no one country can control the supply of Euros. Monetary supply is decided on an international level by the European Central Bank. So, what’s this mean for Greece, and why might it be bad for them?
For instance, one of Greece’s problems is that it owes a lot of money in debt that it can’t pay. One of the things a government can do then, normally, (and it’s usually a bad idea if it’s done excessively), is to increase the money supply. This causes inflation and makes the country’s currency less valuable, which makes it easier to pay off debt. There are a lot of other ways a central bank can use the money supply to their advantage; that being just one of them.
But, since Greece is on the Euro, and can’t control its own monetary policy ,it can’t do any of that. So, some people hope that if Greece gets out of the Euro and back with a currency they can control, they can use monetary policy to help fix their financial problems.
Great answer from Captain Amazing.
One thing to point out: the very act of leaving the euro would TOTALLY SUCK. It would totally suck big time. But if this happens and the Greeks manage to survive the horrible transition without electing a crypto-fascist government, then after the transition, they will be better off than they are now. But that’s a helluva lot of pain to suffer for the hope of a better future. As bad as things are in the country now, leaving the euro would mean things getting even worse before they got better.
This may be so for future debt, but the current debt was incurred in Euro and needs to be repaid in Euro. Correct?
Well, here is a nice BBC video that explains it in terms of the kebab. 
If you want a really in-depth set of videos explaining it though, I recommend this series from KhanAcademy…part 3 of this actually answers your question directly and not in terms of food.
Basically, Greece would be in control of their currency, something that, as Captain Amazing said, they aren’t currently. Using that and inflation (assuming they didn’t get run away hyper-inflation) they could modify their debt (somewhat)…a hundred billion Euro debt in whatever the new currency is could then be inflated down by ‘printing’ more currency (there are all sorts of issues and complications, and bad aspects of this btw). In addition, after they leave the Euro and go onto their new currency, and after that currency is allowed to be valued by the market, it would pretty much sink like a stone…and that could be a good thing for Greek exports in the medium term.
There are all sorts of problems and issues if Greece does this, and I think that a lot of people are glossing over them, but there are a few upsides for the Greeks if they go that route. My personal uninformed opinion based on what I’ve read and listened to is it would be a disaster, but I’m no expert. Since it seems Greece is leaning this way I guess we shall find out.
The Greeks are probably the biggest tax dodgers in the western world. It is a national past time for them. So much so that a few years ago, when they were negotiating bail-out terms with the EU, the EU told them the ONE thing they could not do to guarantee the loans was to promise to increase tax revenue. Because it totally doesn’t work in Greece.
There are tax dodgers/evaders in every country but it is pervasive and astonishing in Greece.
Till the Greek populace get’s their collective heads out of their ass and realize that taxes, as much as everyone hates them, are necessary and everyone needs to chip in they are well and truly fucked.
It probably will lead to a fascist government unless they get their tax situation sorted and there is no reason to think they will ever manage that.
We had a recent thread related to this:
Anti-Austerity Party Wins in Greece: Will Greece Leave the Euro?
What isn’t clear to me, and please fight my ignorance, is how customers (governments) in the EU can default on loans. That is an important part of the contract, and the ability of the borrower to default is necessary to keep the loan makers honest.
It’s very clear large French and German banks loaned too much money to a painfully obvious mismanaged Greek government. They did this because they knew the EU monetary system would bail out Greece rather than allow a default or the Greeks to leave the EU. So all the hand waving about this particular circumstance aside, once the Greek issue is resolved, what stops this from happening again?
So, will Greece be the next Zimbabwe?
If they try to print enough money to pay their Euro-denominated debt, the Drachma will be devalued to the point of million-Drachma notes being as common as $20 bills in the US.
At some point, isn’t money something of value above the price of ink and paper?
That is correct, yes. They can obviously default on the current debt after they exit the Euro, but even Syriza are saying default is not an option.
A Euro exit also means that their existing debt is now denominated in what is effectively a foreign currency, and is subject to exchange rate risk.
So if they initially stake the New Drachma as 1 New Drachma = 1 Euro, and 6 months later the New Drachma has halved in value relative to the Euro (which is quite possible), their national debt, and more pressingly the required interest payments on that debt, has in real terms doubled.
Something similar came up in the Scottish independence referendum debate :- there was a strong argument that if independent Scotland wasn’t going to be allowed to keep the pound, it couldn’t be expected to assume any of the UK national debt, for the reasons outlined above.
It seems anyway the point is somewhat moot, Syriza have backed down on pretty much everything and done a deal that will retain Greek Euro membership.
Easier for whom?
I can only see this being good for whomever is currently paying high taxes and after the exit can dodge that inflation tax instead. Which is probably a minority.
Suction oratory.
Again, it seems that this would be a good thing for the bosses of greek exporting companies who are paid the same while costs (everyone else) are paid less.
Well, the greek ‘governors’ who wrote the cheques are now living confortably somewhere else.
The lenders are enjoying interest rates of average 15% against almost free money from ECB.
What a sweet sweeeeeet deal. If I had ECB friends I could just stop working.
So, indeed, who is preventing this from happening again?strokes white cat with smug grin
Thanks, I’ve just watched it. They say that the drachma would fall and it would make products cheaper to the outside therefore increasing foreign demand and helping the economy.
But if the drachma falls, presumably it would do so because of the aforementioned money overprinting by the government that in its turn would cause equivalent inflation and devaluation. But if so, the prices to the outside remain the same! I don’t get it. Even with kebabs!
Specifically for the OP, this post sums it up nicely.
Not exactly - the change in monetary value doesn’t have to occur because of printing. Here’s something to understand, because it’s extremely important to understanding some of the basic issues at the heart of the Euro:
Money is a commodity and it is worth whatever people will pay for it.
This is why most currencies can and do “float” - that is, they change value over time depending on whether people want to buy it. And this happens a lot in terms of exporting and importing goods. You usually need to buy goods in the currency of the country they originate from. One of the big problems with the Euro is that, while it might seem convenient to be able to just “buy Euros” for any business in the continent, it’s also extremely painful for business located in weak or underperforming sectors, or who aren’t as efficient as others.
Regionally, that happens to be Southern Europe, which has a lot of commodities to sell but must now do so through a very expensive currency. This makes it harder to export, and some of these countries have a very hard time managing the kind of economic plan that works for, say Germany or Denmark, or even France. Even within these countries, the Euro has worked out much better for some groups than others, and might well do better outside the Euro.
However, there’s a problem with leaving. If you live in the Euro-zone, your debt is probably denominated in Euros. if you leave, and your debts aren’t changed over to your new currency, you may go flat broke trying to pay them back. Euros will become more expensive for you to buy, and if you pursue an inflationary path to boost exports, it will get even worse. So, you might declare that you will pay your debts in your new currency (say, Greek Drachmas).
But this has another problem: if other countries believe your currency will now become worth much less, or even just phony monopoly money like Zimbabwe, then you’ve functionally stolen a fortune from them. And they might not like that, because it could put their entire banking system at risk. And they may have ways to retaliating to recover that value from you, such as seizing assets, putting restrictions on your banking, and so forth.
Greece is an interesting case, and I believe that the new government drastically misread two things: first, how well their personal attacks would go over. They probably anticipated much more sympathy for attacking Germany and demanding a generous bailout. That hasn’t happened because (A) Greece already got a very a very nice bailout last time they got into trouble, and (b) many Euro-zone nations are less wealthy than Greece and have not demanded or received nearly so much. Other nations have received some visible benefits from pursuing a more austere path as well.
Apart from which, both the political and economic situation has changed over the last few years such that most European leaders believe that Greece could exit the Euro without the Euro-zone being at nearly so much risk. They’ve de-leveraged Greek debt, many Greeks have moved their money outside their country, and in general Greece is an area of far less concern than even a year or two ago. Greece exiting the Euro is not longer an unthinkable thought for Europe.
As to whether this would be a good thing or bad thing, well, toss a coin and see what turns up. This one is hard to call even for experts in national finance, let alone weirdos on a message board.
Watch the other video I linked too, specifically the 3rd installment. You are misunderstanding how this works, no doubt, and I think that one has a good explanation. I think the part you are missing is that currency, just like a lot of other things, is a commodity that is traded on international markets, so has value. By changing to their own currency, assuming they want to trade with anyone else outside of Greece, they will have to allow their currency to be traded on international markets…which means a value will be assigned to their currency by the market. They will no doubt start off with something like a banking holiday where people in Greece will have to exchange their Euros for the new currency, say the new Drachma. Perhaps it will be 1 Euro for 1 Drachma. This will really suck for basically everyone in Greece who has to make the change (once their currency is traded on international markets they will pretty quickly lose a lot of real wealth as the Drachma sinks like a stone…maybe it will equal a quarter of the Euro, maybe an eighth or a sixteenth) because only an idiot would think that the Drachma will end up worth the same as the Euro. But it would allow the Greek government the chance to basically default on the loan and, perhaps, switch it from Euros to Drachma (going with the 1 for 1, they could say that their 400 billion Euro debt is now 400 billion Drachma).
There are all sorts of downsides to doing all of this, obviously (several of them are explained in that video series I linked too, as well as other installments going over other aspects of this…if you really want to learn this, watch the whole thing), and I think most people advocating for this don’t really understand all of the ramifications (certainly I doubt most Greeks really understand what it would mean if they did this…they just see it as a way to get out of the forced austerity measures and budget cuts/higher taxes and all of the other onerous stuff they are going through).
No, in the short term EVERYONE in Greece will be a loser wrt wealth, including the ‘bosses of greek exporting companies’ (even if they are smart enough to have bailed out and moved their Euros to foreign banks before the floor drops out). Not only will they all lose real wealth almost instantly, but the country will have defaulted on it’s loans if they go this way, and basically no outside investor (and probably few internal investors) will be willing to invest in anything to do with Greek bonds, which means it’s going to be hard for the Greek government to generate funds outside of printing money. The Greeks will have screwed basically everyone who holds their current loans AND screwed anyone in Greece who still is foolish enough to have their money in Greek banks (which will be converted from Euros to Drachma on that bank holiday, which won’t be a very festive time), and I can see a lot of Greek banks failing in the run up to all of this, as people take their Euros out and stuff them in mattresses or bank them in Swiss or other more stable banks.
Assuming Greece doesn’t totally melt down, eventually there could be an upside to having a very weak currency in that it will make their exports cheaper, thus potentially desirable enough that someone will want to buy them, giving the Greeks some external money flow. But this isn’t going to happen very quickly if Greece goes down this path, and it will be years of pain before they get to the point where they can see even this meager silver lining.
Ah, but sovereign countries have options that you and I don’t have.
If Greece leaves the Euro and establishes its own currency, the NewDrachma, it could pass a law that says that all debts of the Greek government are henceforth to be converted to NewDrachma, and that bond-holders have no right to sue the Greek government for anything but NewDrachmas. All debts of the Greek government are henceforth to be paid in NewDrachma.
And, Greece has sovereign immunity from suit in any courts other than Greek courts, so even if someone sues on a bond in the German courts, for example, any judgment is unenforceable against the Greek government in Greece.
That’s sovereign default. They don’t even have to pass a law, they can just announce it. In terms of sovereign debt, nobody even cares what Greek laws say. If Greece issues sovereign debt in the name of the Greek nation in Euros, it gets repaid in Euros.
As I noted in my earlier post, they can default if they like, but even Syriza have ruled that out.