Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Grexit’

The Alchemy Of The Greek Economy

Posted by hkarner - 31. Oktober 2016

Monday, October 31, 2016, Observing Greece Kastner

The former Governor of the Bank of England, Mervyn King, wrote a book titled „The End of Alchemy: Money, Banking, and the Future of the Global Economy„. In it, he discusses the future of the Eurozone and makes the following comments about Greece:

„It is evident, as it has been for a very long while, that the only way forward for Greece is to default on (or be forgiven) a substantial proportion of its debt burden and to devalue its currency so that exports and the substitution of domestic products for imports can compensate for the depressing effects of the fiscal contraction imposed to date. Structural reforms would help ease the transition, but such reforms will be effective only if they are adopted by decisions of the Greek people rather than being imposed as external conditions by the IMF of the European Commission. The lack of trust between Greece and its creditors means that public recognition of the underlying reality is some way off“. 

While King does not use the term „Grexit“, he obviously says that Greece should leave the Eurozone. At the same time, he suggests that Greece could consider re-joining the Eurozone a few years later after a new equilibrium has been reached, if it so wished. Den Rest des Beitrags lesen »

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Was It „Plan B“ Or „Plan X“?

Posted by hkarner - 6. Juli 2016

Wednesday, July 6, 2016, Observing GreeceKastner

Prof. James Galbraith, advisor to Yanis Varoufakis while the latter was Finance Minister and close friend of his, has published a book titled „Welcome to the poisoned chalice: the destruction of Greece and the future of Europe„. It is a collection of his writings, interviews and speeches on Greece from 2010 through the summer of 2015.

The media celebrate this as a major revelation of what happened behind the scenes (and top secretly!) in the first half of 2015 when Varoufakis had commissioned a small group of advisors to develop a Plan B (or Plan X, as Varoufakis allegedly called it) for an exit from the Eurozone. In fact, Galbraith had already reported on that a year ago. Some of the key points of the plan were (allegedly):

* declaring state of emergency
* nationalization of the Bank of Greece and selected other banks
* conversion of bank deposits from Euro to New Drachma
* payment of salaries and pensions in IOU’s
* emergency measures to keep public order Den Rest des Beitrags lesen »

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First Brexit And Then Grexit?

Posted by hkarner - 13. Juni 2016

Monday, June 13, 2016, ObsKastnererving Greece

What the Greek political elite could learn from the present Brexit debates is that any decision about possibly leaving a currency or political union should be preceded by intensive debates among political leaders. By that, I don’t have in mind the kind of campaign speeches which one can find all over the internet with regard to Brexit.

Instead, I have in mind substantiated argumentations just like a Supreme Court would back its decision with a majority opinion (complimented by a minority opinion).

Just like with a possible Brexit, there would be economic as well as political considerations in connection with a Grexit. A good example of solid economic arguments against a Brexit are presented here by Frances Coppola. And an extremely powerful political essay in favor of Brexit is presented here by Ambrose Evans-Pritchard. Den Rest des Beitrags lesen »

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2008 Revisited?

Posted by hkarner - 3. März 2016

Photo of Nouriel Roubini

Nouriel Roubini

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

MAR 2, 2016, Project Syndicate

NEW YORK – The question I am asked most often nowadays is this: Are we back to 2008 and another global financial crisis and recession?

My answer is a straightforward no, but that the recent episode of global financial market turmoil is likely to be more serious than any period of volatility and risk-off behavior since 2009. This is because there are now at least seven sources of global tail risk, as opposed to the single factors – the eurozone crisis, the Federal Reserve “taper tantrum,” a possible Greek exit from the eurozone, and a hard economic landing in China – that have fueled volatility in recent years. Den Rest des Beitrags lesen »

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The Europe Question in 2016

Posted by hkarner - 5. Januar 2016

Photo of Nouriel Roubini

Nouriel Roubini

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

JAN 4, 2016, Project Syndicate

NEW YORK – At the cusp of the new year, we face a world in which geopolitical and geo-economic risks are multiplying. Most of the Middle East is ablaze, stoking speculation that a long Sunni-Shia war (like Europe’s Thirty Years’ War between Catholics and Protestants) could be at hand. China’s rise is fueling a wide range of territorial disputes in Asia and challenging America’s strategic leadership in the region. And Russia’s invasion of Ukraine has apparently become a semi-frozen conflict, but one that could reignite at any time.

There is also the chance of another epidemic, as outbreaks of SARS, MERS, Ebola, and other infectious diseases have shown in recent years. Cyber-warfare is a looming threat as well, and non-state actors and groups are creating conflict and chaos from the Middle East to North and Sub-Saharan Africa. Last, but certainly not least, climate change is already causing significant damage, with extreme weather events becoming more frequent and lethal. Den Rest des Beitrags lesen »

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Varoufakis in Wien: „Es wird noch schlimmer für Griechenland“

Posted by hkarner - 5. November 2015

05.11.2015 | 18:36 | Wolfgang Böhm und Duygu Özkan (Die Presse)

Der griechische Ex-Finanzminister sieht sein Land als Opfer eines wirtschaftsideologischen Konflikts zwischen Deutschland und Frankreich.

yanis-varoufakis-200x200Wien. Verlässlich. Dieses Wort passt nach Einschätzung mancher politischer Gegner nicht zu Yanis Varoufakis. Aber er ist es. Er kommt fast pünktlich zum vereinbarten Frühstück ins Café Korb, hat das gleiche Outfit an wie bei den Verhandlungen in Brüssel: Hochgestellter Sakko-Kragen, darunter einen roten Streifen am Revers, schwarzes Hemd. Und er spielt seine Hits so wie am Vortag vor hunderten Zuhörern im Audimax der Wirtschaftsuniversität. Varoufakis ist verlässlich. Er übt Kritik an der Austeritätspolitik und lässt einen Seitenhieb auf Deutschlands Finanzminister, Wolfgang Schäuble, los. „Er wacht jeden Tag auf, geht am Abend schlafen und träumt dabei noch immer vom Grexit.“ Seinem Land, Griechenland, sagt Varoufakis keine rosige Zukunft voraus. „Griechenland ist genau dort, wo es vor fünf Jahren war.“ Und: „Es wird noch schlimmer als jetzt.“ Die Abwärtsspirale werde sich fortsetzen. „Oder würden Sie in ein solches Land investieren?“

Die Abgehobenheit ist zu seinem Markenzeichen geworden, so wie der aufgestellte Kragen. Und doch kann der ehemalige griechische Finanzminister, der sich diese Woche auf Einladung des Kreisky-Forums in Wien aufhielt, auch überraschen. „Wolfgang Schäuble weiß, dass dieses Programm nicht funktionieren kann“, behauptet er. Und auch Griechenlands Premier, Alexis Tsipras, selbst, ehemaliger Weggefährte Varoufakis‘, halte den Plan, den er „nach 17 Stunden in einem geschlossenen Raum“ unterschrieben habe, für undurchführbar. Bei all den Gesprächen sei Griechenland nicht wirklich im Mittelpunkt gestanden, sondern die Auseinandersetzung zwischen Frankreich und Deutschland um die Zukunft der Eurozone. „Griechenland war nur der Kollateralschaden.“ Es ging um zwei unterschiedliche Wirtschaftsideologien. Den Rest des Beitrags lesen »

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How the IMF Failed Greece

Posted by hkarner - 14. August 2015

AUG 13, 2015 3, Project Syndicate

NEW DELHI – Democracy is about real choices. But, throughout their country’s crisis, the Greek people have been deprived of them. For this, the Europe Union and especially the International Monetary Fund bear considerable responsibility.

Greece was offered two stark choices: Leave the eurozone without financing, or remain and receive support at the price of further austerity. But Greece should have been offered a third option: Leave the euro, but with generous financing.

This option should have been put on the table, recognizing that Greece has broader political reasons for staying within the eurozone. Although exiting the monetary union would have yielded considerable benefits, “Grexit” would have entailed sizeable costs as well. Den Rest des Beitrags lesen »

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Der Griechenland-Deal: Kein Grexit, dafür zwei Jahre Rezession

Posted by hkarner - 13. August 2015

Deutsche Wirtschafts Nachrichten  | 

Deutschland signalisiert Zustimmung für ein drittes Kreditpaket für Athen. Doch der Preis für Griechenland ist hoch: Zwei Jahre Rezession werden Arbeitslosigkeit und Armut weiter verschärfen.

Deutschland wird offenbar einem weiteren Kreditpaket für Griechenland zustimmen.

Griechenland kann offenbar mit der Zustimmung seines größten Gläubigers Deutschland zu einem dritten Kreditprogramm rechnen. Regierungssprecher Steffen Seibert sagte zwar am Mittwoch, die Prüfung der Reformzusagen aus Athen laufe noch. Doch: „Die Richtung der Vereinbarung stimmt.“ Vorgesehen sind unter anderem eine zügige Privatisierung von Staatsbesitz, Steuererhöhungen und der Aufbau einer modernen Verwaltung. Offen bleibt vorerst, ob sich der Internationale Währungsfonds (IWF) weiter finanziell beteiligen wird.

Inzwischen liegen die genauen Texte der technischen Einigung zwischen Troika und der griechischen Regierung vor. Unklar ist zudem, ob alle Regierungen der Euro-Mitgliedsländer den Deal unterstützen.

Dazu Sven Giegold, Wirtschafts- und finanzpolitischer Sprecher der Grünen im Europaparlament: Den Rest des Beitrags lesen »

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Deutschland ist kein Musterschüler: Schulden-Staaten ohne Disziplin

Posted by hkarner - 9. August 2015

,  | 

Der Chef-Analyst der Baader Bank, Robert Halver, sagt, dass das Grundproblem der Euro-Zone der ständige Verstoß gegen die Stabilitätsregeln sei. Fünf Jahre in Folge hatte auch Deutschland gegen jene Regeln verstoßen und wurde dafür nicht abgestraft. Die Griechenland-Krise sei kein Ausnahmefall, sondern der Höhepunkt dieser allgemeinen Disziplinlosigkeit innerhalb der Euro-Zone.

Erinnern Sie sich noch an die Anfänge des Europäischen Gemeinschaftswerks? Die Zustimmung zur Wiedervereinigung machte unser linksrheinischer Nachbar damals davon abhängig, dass in Europa eine gemeinsame Währung geschaffen wird. Nicht zuletzt erhoffte sich Frankreich davon die gleichen günstigen Renditen für Staatsschulden wie Deutschland, um seinen damals schon schuldengeplagten Staatshaushalt zu sanieren und seine Wirtschaft zu stimulieren. Hinzu kam, dass Frankreich von Beginn an eine große Währungsunion haben wollte. Die Absicht dabei war weniger, der Eurozone mehr geopolitisches Gewicht zu verleihen. Primär ging es Frankreich darum, mit möglichst vielen Gesinnungsgenossen des Club Méditerranée ein gehöriges Gegengewicht gegenüber Deutschland, Finnland, den Niederlanden und Österreich zu bilden. Von deren ungeliebter Stabilitätskultur wollte man sich nicht erdrücken lassen.

Den Rest des Beitrags lesen »

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Grexit Stumbling Block: International Courts Likely to Rule Against Forced Contract Redenomination

Posted by hkarner - 8. August 2015

Posted on August 7, 2015 by , Naked Capitalism

Yves here. We’ve focused on how the operational issues of going to the drachma involve considerable delays and costs that look to more than outweigh the oft-claimed advantages. This post describes another set of complexities and costs: that Greece will often come out the loser as far as its efforts to force redenomination of contracts from euros to drachma are concerned.

By Sebastian Edwards, Henry Ford II Professor of International Economics at the University of California, Los Angeles. Originally published at VoxEU

Many commentators continue to think that Greece’s best bet is Grexit and the drachma, but few are talking about what will happen to contracts. This column uses Franklin D Roosevelt’s devaluation of the US dollar to give an historical perspective on currency devaluations and contract litigation. Roosevelt got away with it because the Supreme Court ruled that prices in old contracts were void and, importantly, because everyone trusted the Supreme Court’s rulings. Grexit would mean litigation in international courts – courts that are likely to side with the plaintiffs.

A number of commentators continue to think that Greece’s best option is to exit the Eurozone and reintroduce the drachma at a depreciated level ((e.g. Brinded 2015). Those that favour this policy argue that with a currency of its own and exchange rate flexibility, Greece would gain competitiveness, increase exports, and move towards recovery.

This view, however, ignores the effect of such a policy on contracts. Almost every contract in Greece is written in euros – labour contracts, suppliers’ contracts, debt contracts (private and public), service contracts, investment contracts, and so on. After the reintroduction of the drachma, will these contracts be enforced in euros (the original currency agreed by the parties) or in the new (depreciated) currency? This issue is important even if Greece is granted considerable debt forgiveness.

In principle, the legislation that would reintroduce the drachma could also state that contract originally written in euros would be converted into new drachmas, at a depreciated exchange rate. Creditors, however, will cry foul and will turn to the courts in an effort to receive payments according to the original contracts, in hard and convertible euros.

Greek courts are likely to side with the government, and declare that the old contracts are void and that the new drachma could be used to discharge debts and other obligations. But in a globalised world, domestic courts usually don’t have the last word. Litigation will move to international courts and arbitration tribunals. As a member of the EU, Greece has to abide by EU laws and regulations, and creditors will flood European courts with all sorts of claims related to the annulment of euro-denominated contracts.

Greece has also signed bilateral investment treaties with 39 countries, including Germany, Russia, Korea and China. Thus, any attempt to change the currency of contracts will end up in arbitration at the International Centre for Settlement of Investment Disputes, the World Bank’s tribunal for investment disputes. This is, indeed, what happened in Argentina after it devalued the peso in 2002 and ‘pesified’ contracts. In most cases, the Centre ruled for the claimant and ordered Argentina to pay large compensation awards (on Argentina’s crisis and devaluation, see Edwards 2015a).

But Argentina is not the only historical antecedent that is valuable for understanding what may happen if Greece decides to exit the Eurozone. Another interesting case is the US in the 1930s, when President Franklin D Roosevelt took the country ‘off gold’ and devalued the US dollar by 41%.

The Abrogation of the Gold Clauses in 1933

In April of 1933, and in the light of a major banking crisis and a severe run on the currency, President Roosevelt – who had been in power for little more than one month – decided to declare a gold embargo and take the US off gold. He also decided to devalue the US dollar, mostly as a way of increasing agricultural prices.

However, there was a serious problem with this plan. At the time, virtually all of the public debt and a very large amount of private debt – railway and public utilities’ bonds, and mortgage debt – was denominated in ‘gold coin’, and were payable in specie or its equivalent in paper money. In total, over $100 billion of debt was gold-denominated – nominal GDP at the time was $66 billion. President Roosevelt decided to deal with this situation by asking Congress to “abrogate the gold clauses”. And that is what Congress did on 5 June 1933 (for an analysis of this episode, see Kroszner 1999).

On 31 January 1934, and after a transitional period where a number of unorthodox policies were tried, President Roosevelt officially devalued the dollar by 41% and fixed the new price of gold at $35 an ounce (since 1834 it had been $20.67). In explaining the decision, Roosevelt said that the devaluation was necessary, since the nation had been “adversely affected by virtue of the depreciation in the value of currencies to other Governments in relation to the present standard of value”.1

In a recent paper I discuss in detail the process that led to the devaluation of the dollar (Edwards 2015a). In Figure 1, I present weekly data on the US dollar/sterling and US dollar/French franc spot exchange rates between 1921 and 1936. Both rates are in the form of ‘dollars per unit of foreign currency’. This figure captures:

• The return of Britain to gold in May 1925;
• The re-pegging of the franc to gold in late 1926;
• The abandonment of the gold standard in April 1933;
• The period of a ‘managed’ currency between April 1933 and January 1934; and
• The adoption of the new dollar gold parity in January 1934.

Figure 1. Dollar-sterling and dollar-French franc exchange rates, weekly, 1921-1936

Grexit_0

The 1935 Supreme Court Rulings

Investors that had purchased securities protected by the gold clause claimed that the Joint Declaration of June 1933 was unconstitutional, and various lawsuits were filed.2 Four of them got to the Supreme Court and were heard between 8 January and 11 January 1935. The first two cases had to do with private debts. One referred to a railroad bond (Norman v. Baltimore & Ohio Railroad Co), and the second to a mortgage debt secured by a bond denominated in Gold Dollars (United States v. Bankers Trust). In the railroad case, the bond was a 30-year obligation issued on 1 February 1930 with a 4.5% coupon payable “in gold coin of the United States of America of or equal to the standard of weight and finesse existing on 1 February 1930”.3 On 1 February 1934 the holder of the bond asked to be paid $38.10 corresponding to the semi-annual coupon, at the new price of gold. The issuer argued that it only owed $22.50.

The third case involved a government bond in the series of the Fourth Liberty Loan issued on 15 October 1918. The obligation for this “4.5% Gold Bond” expressly stipulated that “the principal and interest hereof are payable in United States gold coin of the present standard of value” (Perry v. United States). The holder of this bond asked to be paid $35 per troy ounce of gold. The Treasury refused, and made a payment in paper dollars using the old parity of $20.67.per ounce of gold. The fourth case referred to a Gold Certificate (Nortz v. United States).

The Supreme Court ruled on 17 February 1935. In all cases the vote was 5 to 4 in favour of the government’s position. However, the majority used different arguments to decide the public and private debt cases.

In the private debt cases the majority, led by the Chief Justice Charles Evans Hughes, pointed out that according to the Constitution, Congress had the power to conduct monetary policy – more specifically, under Article 1, Section 8, Congress had the power to “coin Money, [and] regulate the Value thereof.” Thus, based on this constitutional prerogative, Congress could invalidate private contracts – including the gold clauses – if they interfered with such power.

In the Liberty Bonds case, the majority used a different reasoning. According to the opinion, which was also written by the Chief Justice, Congress could not abrogate the gold clause for government debt. The reason was that although Congress was allowed, under the Constitution, to regulate the value of money, it could not use that power to invalidate obligations arising from another of its constitutional powers, the power to borrow money on the credit of the US. Thus, concluded the majority, the abrogation of the gold clause for government debt was unconstitutional. However, the Court added, since gold holdings by private parties had been forbidden since April 1933, if the claimant received payment in bullion, he would be obliged to sell it immediately to the Treasury at $20.67 an ounce. Thus, even though the abrogation of the gold clause for government debt was unconstitutional, there were no damages.

There was a single dissent signed by the four conservative members of the Court. It was delivered by Justice James C McReynolds, who said: “The Constitution as many of us understood it, the instrument that has meant so much to us, is gone”. He ended his allocution with strong words: “Shame and humiliation are upon us now. Moral and financial chaos may be confidently be expected.”4

In spite of Justice McReynolds’ sombre statement, after the Supreme Court rulings the economy didn’t collapse, nor did uncertainty take over. In fact, the Treasury had no problem issuing new debt, nor did it have to offer higher yields to place it. The reason for this was that in the US there was a highly respected and credible institution – the Supreme Court – whose ruling was final and accepted by all parties. Moreover, very few foreign investors were affected by the modification of contracts, and even those that incurred in losses had no recourse at the international level.

This, however, is not the case in Greece. As noted, if Greece decides to exit the euro and abrogate contracts, there will be, with all likelihood, a multitude of lawsuits that will be heard by international courts and arbitration tribunals. As in the recent case of Argentina, these courts are likely to rule for the plaintiffs, adding a considerable cost to the Grexit strategy.

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