Would euro departure help or hurt Europe's currency union?

[Jonathan Fairfield]

Would euro departure help or hurt Europe's currency union?

DAVID McHUGH, AP Business Writer

FRANKFURT, Germany (AP) — With aid negotiations off and ATMs running out of money, it's not speculation any more. Greece could leave the euro. And soon.

What would that mean for the Greek people and for the European Union's 16-year-old shared currency — the crown jewel of a six-decade-old project in binding Europe's countries closer together?

For Greece, the short-term pain and turmoil could be extreme whereas the currency union would likely survive the initial shock.

The longer-term costs — and any possible benefits — could take years to become apparent.

Ironically, a few experts think one of the most devastating outcomes for the euro would be if Greece leaves and, against all expectation, thrives. That would undermine claims for the euro being a key to prosperity.

On Sunday Greeks are asked to vote on the painful demands made by creditor countries for desperately needed bailout loans. The vote could be the turning point. A "no" could mean no more loans, leaving Greece little choice but to print its own currency after running out of euros needed to pay government wages and pension and to refloat troubled banks.

Here is a look at some of the possible damage — and any benefits — of a Greek-euro divorce.

___

FORTRESS EUROZONE?

There's a widespread view among analysts that the eurozone would not collapse in the short term if Greece left. There would be turmoil. Stocks would fall. Borrowing costs for the weaker eurozone members, such as Portugal or Italy, might rise for a while.

But, this view has it, the European Central Bank could handle it. The ECB is already pouring 1.1 trillion euros ($1.2 trillion) of monetary stimulus into the economy through regular bond purchases and stands ready to do more. Since the Greek crisis started in 2009, the governments that use the euro have come up with crisis backstops. Those include tougher banking supervision and a pot of money to bail out troubled governments.

Other voices say the short-term implications are scarier. U.S. Treasury Secretary Jacob Lew has persistently warned that the global economy, currently enjoying an uneven recovery, doesn't need the uncertainty of a Greek euro exit, or "Grexit."

___

THE HOTEL CALIFORNIA

For the long term, a Greek exit would disrupt the euro's "Hotel California" principle: that, as the Eagles put it, you can "check out any time you like, but you can never leave." It is supposed to be permanent.

But if it turns out that one country can leave, investors might think, so can others.

They might demand more interest for the risk of lending to countries such as Portugal and Italy. A market crisis could drive another country out.

Some think such higher rates would be beneficial, by forcing countries to shape up their finances. The euro would in fact be stronger. Greece was an anomaly, a backward economy that didn't belong in the club in the first place, the thinking goes.

A number of economists, however, think a Greek exit could cause long-lasting damage to the euro.

As analysts at Standard & Poor's put it, "the permanence of the monetary union will have been proved false, and this could throw into question assumptions underpinning more than two decades of economic and political policy."

Ben May, chief European economist at Oxford Economics, says that the worst blow Greece could deal to the eurozone "would be if Greece left and its economy quickly started to grow strongly."

The example would not be lost on other weak members of the currency union.

"For perennial slower growers such as Italy and Portugal an exit, devaluation and default strategy would now become a credible alternative option."

___

THE BILL AT THE TAVERNA

There's little doubt that leaving the euro means imminent disaster for Greece.

"In the short term, which may in fact last a couple of years, the process of exit would be extremely messy," said Zsolt Darvas, senior fellow at the Bruegel research institute in Brussels. The start would be a banking collapse that would make normal commerce impossible. Greece's new currency would plunge, meaning default on its bailout loans denominated in euros.

The economy would plummet — some say by 10 or 20 percent. That's on top of a fall of 25 percent in the six years, about the drop the U.S. suffered during the Great Depression.

And there's more. Greece imports energy and medicine, so those essentials could double in price. Greek companies that owe money to foreigners would be unable to pay. Many would go bankrupt. With no lenders and tax revenue plunging, the government would have to slash spending even more sharply than under the hated bailout deal. Greece might even need humanitarian aid.

Inflation could run out of control, especially if the central bank has to print money to rescue banks and fund the government.

___

A BETTER FUTURE?

The larger question is whether Greece would benefit much from a sharply devalued national currency, which in theory helps exports. To do that, you have to have something valuable to export and sell — and to be able to do so efficiently. Olives and nice vacation beaches aren't enough.

Economist Darvas says the demands of Greece's lenders have pushed the country to reform some aspects of its economy, making it somewhat more competitive. Labor contracts are more flexible now, for instance.

Greece has risen from 108th before the crisis on the World Bank's ease of doing business index to 62nd — not great, but progress. If it cuts excessive regulation and bureaucracy, that might improve further.

But that might prove more difficult if Greece was no longer a part of the euro — and did not face external pressure from fellow eurozone states to modernize its economy.

-- (c) Associated Press 2015-07-04

[Mudcrab]

Who cares?

[Aforek]

Who cares?

336 millions people do care: don't worry, Euro is not dead and will be much better without Greece

[sirineou]

Who cares?

336 millions people do care: don't worry, Euro is not dead and will be much better without Greece

would the Euro be better of if Greece exited the Union and started doing much better?

If that happened, what do you think, would be Spain's, Italy's,Portugal's, Ireland's reaction would be? ,

When Tsipras recently visited Russia what do you think talked with Putin about ? do you think they met to discuss the weather?

Would the Euro be better off with Russian access to the Mediterranean sea?

All of these are uncertainties a Grexit will introduce in to the Union, do you think Markets like uncertainties?

what do you think uncertainties would do the cost of borrowing for some of the other ailing Euro economies?

Edited July 4, 2015 by sirineou

[NeverSure]

This is the tip of the iceberg - the first domino. The Eurozone was invented by dreamers who when it failed became the same dreamers who thought they could carry Greece and all would be OK. They think they can carry Italy, Spain and Portugal too.

The Eurozone failed a long time ago and this is just the beginning of the inevitable admitting of it.

The Eurozone can't even carry itself. In all of this experimental dreaming the UK's debt has swollen to be almost as much as that of the US as a percentage of GDP and it's climbing. This while supporting every Tom, Dick and Harry that waltzes up to the border and wants in. The UK itself and indeed the Eurozone doesn't have the economic engine to pull this freight.

I think I'll go get a beer and watch these Euro dreamers try to figure out what's for lunch.

[does]

You obviously not. But EU expats living in Thailand on small pensions probably care. And I bet some of them are TV readers.

Who cares?

[sdanielmcev]

Means Greece has to put on its' big boy pants. If the Euro was for strictly monetary purposes, e.g. trade, it would work whether or not a country was a member of the European united countries. But as usual it became a tool for social engineering. Millenia of social, political, and ideological divides are too deep at the moment in Europe for Eurozone to be effective. They forget the Eurozone is supposed to be about capitalism, not socialism.

[NeverSure]

^^^ "They forgot the Eurozone is supposed to be about capitalism, not socialism".

Perfectly stated. The death of Greece and eventually the Eurozone is due to socialism. They will never learn.

[ggt]

With the world's economies puttering along at a snails pace...this is just the first of many potential economic failures for the not too distant future...sovereign nations are printing money out of thin air to pay their bills because their products are not producing enough income to keep them afloat...one nation buys another nations bonds to help keep them from going bankrupt...

It seems to me the whole house of cards could collapse at most any time...we are living on borrowed money and borrowed time...how long can it last?

[NeverSure]

With the world's economies puttering along at a snails pace...this is just the first of many potential economic failures for the not too distant future...sovereign nations are printing money out of thin air to pay their bills because their products are not producing enough income to keep them afloat...one nation buys another nations bonds to help keep them from going bankrupt...

It seems to me the whole house of cards could collapse at most any time...we are living on borrowed money and borrowed time...how long can it last?

Who tells you this stuff? Who is printing money? No one is printing money that I know of. The US hasn't created any money and there are no more USD in the world than there were ten years ago.

Which nation is buying bonds of other countries to keep them afloat? Greek debt is owned by financial institutions who are in danger, and not by nations. The USD is the international currency of trade and nations such as China and Thailand must have USD to engage in international trade. No one will accept their money for goods or services. They and many others must buy USD in the form of bonds to back their international trades and for no other reason. End of.

People buy USD and GBP in the form of interest bearing bonds as a form of safety, and to own those currencies which are readily liquid. End of.

The easing of money in various countries is done by increasing the percentage of banks' customers' deposits they can loan, and then influencing interest rates to get them low to stimulate borrowing of the "additional money".

That's it and all of it despite what tinfoil hats who have no clue may say.

Cheers

[sirineou]

Means Greece has to put on its' big boy pants. If the Euro was for strictly monetary purposes, e.g. trade, it would work whether or not a country was a member of the European united countries. But as usual it became a tool for social engineering. Millenia of social, political, and ideological divides are too deep at the moment in Europe for Eurozone to be effective. They forget the Eurozone is supposed to be about capitalism, not socialism.

How is the EU a tool for social engineering rather than for trade? please explain,

[NeverSure]

So, it's that hard to see the social engineering. A lack of sovereign borders allows the poorer to gravitate to the richer because that is "fair". Trying to make Greeks equal with Brits without Greeks having the work ethic or the skills or the industry which Brits have developed is "fair". Using the hard-earned money of taxpayers in richer nations to prop up the socialism of other nations is "fair".

...

Geez...

[sirineou]

So, it's that hard to see the social engineering. A lack of sovereign borders allows the poorer to gravitate to the richer because that is "fair". Trying to make Greeks equal with Brits without Greeks having the work ethic or the skills or the industry w hich Brits have developed is "fair". Using the hard-earned money of taxpayers in richer nations to prop up the socialism of other nations is "fair".

...

Geez...

"without Greeks having the work ethic,or skills, or industry which Brits have developer" ?????

talk about Geez....

Freedom of movement between boarders in a union equates to unfair "social engineering? Do you mean something like the social engineering in the USA.

Darn South Carolinians gravitating to rich North Carolina trying to make themselves equal with the north Carolinians with out them having the work ethic ,skills and industry of the N.G.

Geez..... Load up your musket NS

[NeverSure]

NC and SC are both part of the sovereign US. Even so, a resident of one state can't rock up to another state and collect benefits. He's free to move if he can afford it.

This topic isn't about the US.

[sirineou]

NC and SC are both part of the sovereign US. Even so, a resident of one state can't rock up to another state and collect benefits. He's free to move if he can afford it.

This topic isn't about the US.

I guess you mistook my attempt to point out the irony of your reply via sarcasm, as a real comparison of the two unions,

Much in the way that you mistook trade agreement of movement of goods and people as socialist social engineering .

[nidieunimaitre]

To Neversure:

I have always liked your posts - but maybe you want to rethink what you are posting on this thread.

For starters, EU and Euro are 2 different things.

And calling EU or Euro "socialist" will not make you popular with those that are currently in charge of Europe.

[sdanielmcev]

Means Greece has to put on its' big boy pants. If the Euro was for strictly monetary purposes, e.g. trade, it would work whether or not a country was a member of the European united countries. But as usual it became a tool for social engineering. Millenia of social, political, and ideological divides are too deep at the moment in Europe for Eurozone to be effective. They forget the Eurozone is supposed to be about capitalism, not socialism.

How is the EU a tool for social engineering rather than for trade? please explain,

If you are honest about wanting to know, I will explain. But don't ask me if you've already made up your mind.

[sirineou]

Means Greece has to put on its' big boy pants. If the Euro was for strictly monetary purposes, e.g. trade, it would work whether or not a country was a member of the European united countries. But as usual it became a tool for social engineering. Millenia of social, political, and ideological divides are too deep at the moment in Europe for Eurozone to be effective. They forget the Eurozone is supposed to be about capitalism, not socialism.

How is the EU a tool for social engineering rather than for trade? please explain,

If you are honest about wanting to know, I will explain. But don't ask me if you've already made up your mind.

what does it have to do with my mind? the facts stand on their own regardless of what goes on in my mind.

[sdanielmcev]

Means Greece has to put on its' big boy pants. If the Euro was for strictly monetary purposes, e.g. trade, it would work whether or not a country was a member of the European united countries. But as usual it became a tool for social engineering. Millenia of social, political, and ideological divides are too deep at the moment in Europe for Eurozone to be effective. They forget the Eurozone is supposed to be about capitalism, not socialism.

How is the EU a tool for social engineering rather than for trade? please explain,

If you are honest about wanting to know, I will explain. But don't ask me if you've already made up your mind.

what does it have to do with my mind? the facts stand on their own regardless of what goes on in my mind.

Because we wouldn't be dealing with facts. It's politics. Since you aren't even able to my first, there is no second.

[JakeSully]

The Euro is nothing more than a modern form of Germany trying to control the continent via economics.

Back after WWII on encouraging by the United States, most of Europe forgave Germany's debt and you can see where Germany is now.. the bulling loan shark. Too bad the Greeks can't go to a court for justice over this debt.

I eventually see the euro weakening further but not becoming totally extinct. Germany is behind it after all. It'll just have fewer Eurozone members.

[Gulfsailor]

With the world's economies puttering along at a snails pace...this is just the first of many potential economic failures for the not too distant future...sovereign nations are printing money out of thin air to pay their bills because their products are not producing enough income to keep them afloat...one nation buys another nations bonds to help keep them from going bankrupt...

It seems to me the whole house of cards could collapse at most any time...we are living on borrowed money and borrowed time...how long can it last?

Who tells you this stuff? Who is printing money? No one is printing money that I know of. The US hasn't created any money and there are no more USD in the world than there were ten years ago.

Which nation is buying bonds of other countries to keep them afloat? Greek debt is owned by financial institutions who are in danger, and not by nations. The USD is the international currency of trade and nations such as China and Thailand must have USD to engage in international trade. No one will accept their money for goods or services. They and many others must buy USD in the form of bonds to back their international trades and for no other reason. End of.

People buy USD and GBP in the form of interest bearing bonds as a form of safety, and to own those currencies which are readily liquid. End of.

The easing of money in various countries is done by increasing the percentage of banks' customers' deposits they can loan, and then influencing interest rates to get them low to stimulate borrowing of the "additional money".

That's it and all of it despite what tinfoil hats who have no clue may say.

Cheers

The majority of Greek's debt is held by Eurozone countries, eg the taxpayer. Around 160 billion is owed just to Germany, Spain, Italy and France alone.

[NeverSure]

To Neversure:

I have always liked your posts - but maybe you want to rethink what you are posting on this thread.

For starters, EU and Euro are 2 different things.

And calling EU or Euro "socialist" will not make you popular with those that are currently in charge of Europe.

I know the difference between the two. If I misspoke at some time I apologize. Greece's problems stem largely from people being promised too much from the government and they still are demanding despite a lack of money. I call this sharing other people's money socialism just as Maggie Thatcher did.

[NeverSure]

The majority of Greek's debt is held by Eurozone countries, eg the taxpayer. Around 160 billion is owed just to Germany, Spain, Italy and France alone.

^^^ You're right, sorry.

Cheers.

[Mudcrab]

You obviously not. But EU expats living in Thailand on small pensions probably care. And I bet some of them are TV readers.

Who cares?

I'm sure many are.

And one of the contributing factors for the demise of the Greek economy is the free for all pensions handed out at a relatively early age.

The Greeks will have to swallow some hard medicine very soon and realise that not everyone can sponge off the taxpayer ad infinitum.

Someone has to pay.

And yes I realise you paid into whatever Government insurance scheme for your pension but the cold hard facts are the money you paid in was to support those who were on a pension at that time.

Taxpayers are now supporting you.

It is an absolute fallacy to imagine the Government was studiously putting away your contributions for the day you retire.

When the crunch comes...and it will.... the overseas pensioners will be the first to be hit as they are not that politically important and may be seen as being on a taxpayer funded holiday by those still in the old country.

Already happened in Australia. I believe you now have to be resident in country for two years before getting the OAP and the amount you receive is factored by the time you have spent in Australia.

While a pension may be well deserved there is no getting away from the fact that the money is leaving the country of source instead of being churned through the local economy and this will be one justification for the changes that will, no doubt, eventuate

[Aforek]

The majority of Greek's debt is held by Eurozone countries, eg the taxpayer. Around 160 billion is owed just to Germany, Spain, Italy and France alone.

You want the numbers ? Eurozone : 193.8 billions € ; Germany 56.473 ; France 42.409 ; Italy :37.267 ; Spain : 24.763

Nederlands : 11.893 ; Belgium : 7.233 ; Austria : 5.790 Finland 3.739 ; Slovakia : 1.503 ; Portugal 1.102

All in all, Greece's debt is 320 billions €

Edited July 5, 2015 by Aforek

[melvinmelvin]

Mudcrab:

Not only Australia. Something along those lines happened in Norway some years ago.

And I would not be surprised if it would happen in more countries.

[HenryB]

It looks like Euro is finished tomorrow without the Fed bailing out Europe as before.

A decline of the Euro by over 25 per cent to the dollar

Do not tell me about America or American Banks watch the Euro fall tomorrow to 90 US will get you 100 Euros

The Fed and the America Bankers planned this

[sirineou]

How is the EU a tool for social engineering rather than for trade? please explain,

If you are honest about wanting to know, I will explain. But don't ask me if you've already made up your mind.

what does it have to do with my mind? the facts stand on their own regardless of what goes on in my mind.

Because we wouldn't be dealing with facts. It's politics. Since you aren't even able to my first, there is no second.

Why your question about the honesty concerning my open mindedness in the subject, has my past posting history indicate to you a closed mind ? Or is it that you don't want to waste your time answering to people who might be close minded? If so do you always ask this question before replying in the past? I looked at some of your past replies and I did not see any such test directed at others, So it begs the question, is this a test only reserved for me, or is this a lame attempt to deflect answering my question ? a lame attempt to indicate that you have a good answer and could defend your position but yo would not do so do to my close mindedness

If so it is more a reflection on your state of mind rather than mine.

1. Definition of AD HOMINEM. 1. : appealing to feelings or prejudices rather than intellect. 2. : marked by or being an attack on an opponent's character rather than by an answer to the contentions made.

if as you say we are not dealing with facts, then we would be dealing with opinion unsupported by facts , and many people have one of those.It is called a belief. I dont deal in beliefs, I deal in facts, it is the facts that would force me to change my position, not my state of mind. So as such I dont need to explain to you, or anyone else ,my state of mind.

So is the EU social engineering? it certainly is. Is it Socialist social engineering? there are no fact to support this. The EU came out of the ashes of WWII ,It's founding moment was the Schuman Declaration in 1950 in his speech based on economic cooperation and prevention of war.

- To make war not only unthinkable but materially imposible

-to encourage world peace

-to unify Europe and prevent the spread of communism

-to create an international unti-cartel agency

to create a single market across the community.

in 1951 under this principles, France, W Germany, Netherlands,Belgium, Luxembourg ,and Italy formed the European Coal and Steel community. This was the first step in the evolution of the EU that included such steps as 1957 Treaty of Rome, and the founding of the EEC, the single European act in 1987to establish the EC . The Establishment of a single currency had it's birth at the Treaty of Rome and capital controls set at that time under the Bretton Woods agreement, fixing exchange rates fixed to the US dollar. In 1971 the Bretton Woods agreement failed when the US wen to a Fiat currency system . at rhese time exporters could make or loose more money from exchange rates rather than from their export products., an attempt to coordinate exchange rates known as the "snake' was established based on a fluctuating margin . These Exchange Rate Mechanism worked with mixed success results,

This EMR was the precursor of European monetary union, by that time Ireland the UK and Denmark had joined the EEC, and othe countries were participating in this EMR with out full EEC membership,

In 1992 the British pound was forced out of the EMR, the Italian Lira followed a month later and then followed by devaluations of the Spanish paceta , Portuguese escudo and Irish Pound in excess of the fluctuating margin of the EMR so RIP EMR.

In comes the Maastricht treaty ratified in 1992 which paved the way to the Euro introduced a decade later.

If anyone thinks Europe will go back to EMRs is sadly mistaken.

A cursory timeline to say the least, and certainly open to additions and/or corrections but all with in a Capitalist framework

All of the above were political machinations and all are facts. Out of respect to you, I took the time to offer an IMO significant reply , It is only fair you offer me the same respect and explain where in the framework of the EU, you find an abandonment of the Capitalist principles under which it was formed and engagement in "Socialist Engineering "

[melvinmelvin]

Thanks for this sirineou, always good to have some facts on the table.

People tend to forget the background of things quickly (memory is short).

In these Greek/Messy times I'd like to add some text re a topic which concerns me:

What are the Greeks actually saying yes/no to today?

1 Some argue that its about leaving the EU.
2 Some argue that its about leaving the Eurozone.
3 Some argue that its about the most recent offer from the Troika.

I would like to argue that leaving the Eurozone is not an option for Greece.
Simply put; the treaty framework for the Eurozone does not contain any
exit clauses. There are noe legal provisions/instruments for leaving the zone.
You can choose to join or not, but once in you can't leave.
This is in line with how community legislation generally is written.

(you may leave the EU, there is a legal framework for doing that, but its a
complicated and lengthy process)

Many leading economists and politicians frequently mentions the possibility
of Greece leaving the zone. However, this wouldn't be the first and probably
not the last time economists and politicians screw up on what is actually
legally possible. These people are into politics and don't want their
political processes cluttered with legalities, or facts for that matter.

So far I have seen only two frontpage figures saying the same as me;
The Greek minister of finance has stated clearly just about the same
as I say above.
The German minister of finance has stated firmly that regardless of
the Greeks voting yes or no today they will remain both in the EU and the zone.

Since this Greek calamity started to really accelerate there has been quite a number of legal studies on leaving the zone.

(available on www)
As far as I can see they all conclude that leaving the zone and staying in the EU is not viable way forward.
Hence, changes to the treaty are needed in order to provide for exits.
Treaty changes need to be ratified, takes TIIIIIME.

Now.
If things go really haywire in Greece. Something must be done.
You cant have people starving for lack of satang and food or dying
because hospitals cannot buy medicine and other essentials.

Cancel debts and pouring in fresh Euros (free of charge) is a possibility.

There are legal (tricks)/techniques that could be applied to ensure a quick
fix to the treaty to enable exit clauses. These techniques are applied now
and then in other treaty organizations, like WHO, UPU, ITU, IMO, ICAO etc etc provided the membership agree.
There is no tradition in EU for applying such techniques so the path is not readily available.
Also, even if it should come to amending the treaty it is NOT obvious that all zone members would agree to the fix and letting Greece exit.

just my tuppence

Edited July 5, 2015 by melvinmelvin

[HenryB]

The Greeks are like Babies they just want to Spend other Peoples Money