It’s easier said than done. Here’s the nub of the problem:
Greek banks, which have been closed all week and rationing withdrawals from cash machines, are expected to run out of money within days unless the European Central Bank provides an emergency lifeline. Finance Minister Yanis Varoufakis is due to meet top Greek bankers later on Sunday and State Minister Nikos Pappas, one of Prime Minister Alexis Tsipras’s closest aides, said it was “absolutely necessary” to restore liquidity to the banking system now that the vote is over.
However the European Central Bank, which holds a conference call on Monday morning, may be reluctant to increase emergency lending to Greek banks after voters rejected the spending cuts and economic reforms which creditors consider essential to make Greek public finances viable, central bankers said.
If Tsipras wants to win this game of chicken he’d better be prepared to fully exit the Euro, for the simple reason that as long as Greeks need Euros to conduct business and transactions of all kinds, the European Central Bank can run his little rebellion into the ground.
This article sheds a little light on the difficulty:
Countries switching currencies must grapple with two major questions: how to introduce new notes and coins, and what to do with bank accounts, debts, and financial instruments denominated in the old currency.
Of course, Bloomberg is an arm of the cognoscenti and is hardly rooting for a successful Grexit, but that doesn’t mean they’re wrong about everything.
One possible solution is to realize just how much the sovereign power can do in this situation as long as it follows natural law. Assuming the Greek government has some quantity of gold or silver**, it could certainly re-institute a gold or silver based drachma at whatever exchange rate made sense given their ability to redeem their notes.
To give you an idea of how this might go, remember that on these pages we suggested that if the US returned to a gold standard the dollar price of an ounce of gold would have to be pegged somewhere north of $30,000 – at least at first. And there’s no real reason to be afraid of that: people need to conduct business, buy and sell food clothing and shelter a lot more than they need to get their hands on gold or silver.
The problem – well, one problem anyway – is I suspect that neither Tsipras nor anyone else in a position of authority in the Greek government has a clue about any of this. Which means if the German dominated ECB wants to turn the screws they can and the Greek people will suffer.
In any case, it’s a fascinating development.
* For those of you who are inexplicably puzzled by this title:
** Of course, when Cyprus went down this road a little ways about 2 years ago, the “troika” confiscated all their precious metals, probably for the very reason that it could provide a viable way out.