The outcome of the Greece saga is far from clear. Greece leaving the Euro could be the next Lehman moment. For that reason we did knew Greece would not leave the Euro back in 2011 Euro Crisis. For now we are less sure. The current Greece leaders see no future for Greece in the current Euro structure. In their opinion they are left with two option either crash Greece right now or suffocate it more slowly.
A member country leaving the Euro Zone will spell a lot of uncertainty and chaos for financial markets and the European economy at large. All contracts with Greece Government, companies and private persons are denominated in Euro’s. As Greece introduces its own currency it will probably start to issue some kind of IOU’s to pay its employees and contractors. This is a paper claims that promise some future payment. We have seen this strategy in California in 2009.
As Greece makes it mandatory to pay taxes in these IOU’s it will force the public to accept these IOU’s in exchange for good and services. This step transforms the IOU in a full fledged sovereign currency.
The value of these IOU’s or new Drama’s against the Euro will be unpredictable. All contracts in Euro’s related to Greece jurisdiction will become highly uncertain.
Changing the countries currency and leaving all contracts unchanged in Euro’s will be a heavy burden for Greece citizens and companies. Greece has to come with laws to change classes of legal obligations. A Greece exit will be followed by an unprecedented juridical, financial and economical chaos.
More worrisome for the Euro zone, a Greece default will be a signal to foreign creditors that the EURO is not for ever and the European sovereign bond market is as strong as it issuer, locked up in the Euro and willing to bow to its German credit masters.
The financial marked do regard sovereign bonds as strong as sovereign currencies. Sovereign countries could always interchange sovereign bonds for sovereign currencies at every price they like through their state institution called Central Bank.
Greece does not only play the financial card but also the Geopolitical. ISIS is gaining the upper hand at Europe’s southern border in Syria, Iraq and Libya. The relation between Europe and Russia are completely changed since 2013. Turkey is losing all its faith in the NATO and it American allies thanks to US disastrous Middle East policy.
It are especially the Americans that realize Greece leaving the Euro could be followed by Greece leaving the Nato giving Russia and China the opportunity to enlarge it powerbase.
Tsipras did visit Putin last April and will visit Russia again 18 June at the St-Petersburg economic forum. The US does understand that a Greece exchange for war torn Ukraine will seen as a victory for Moscow. For that reason the US start pressuring the Europeans to get their act together. The German elite already fed up with the US, will not be moved by the US elite.
As Greece and German (France is irrelevant) politicians are moving closer to a catastrophe , called the Greece exit we are wondering if they are already moved pass the point of no return.
Cash-poor California turns to IOUs (Source CNN Money 2 July 2009)
Greek PM Tsipras in St. Petersburg on 18-20 June (Source Greek Reporter 11 May 2015)
President Barack Obama Warns Both Sides Need Flexibility on Greece Deal (Source The Wall Street Journal 8 June 2015)
