Weekend Economists Enumerate the Wealth of Nations, February 10-12, 2012

[girl gone mad]

3. The Grexit is coming sooner or later

from Edward Harrison:

I wrote this outline for Italy in November before the ECB’s Italian job. I didn’t and still don’t see an Italian exit or default as a baseline. However, a Greek exit for the eurozone has been my baseline for a number of months. Citigroup’s Willem Buiter has talked a lot about this recently. He and his colleagues call it "Grexit". Business Insider’s Simone Foxman has a good synopsis of that view.

Here’s how I see it happening, based on my Italian default post.

1. Plan. The Greek government can plan for a redenomination into New Drachma in secret that takes advantage of the Greek law jurisdiction over their sovereign debt obligations.

2. Law. “Euroization” would remain in place and the euro would continue as the currency of physical payment. However, New Drachma would become the national currency, pegged at 340.75, exactly the same rate as the Drachma was fixed on 19 June 2000 and converted into euros on 1 January 2002. All debt under Greek law would be redenominated into New Drachma at the 340.75 New Drachma exchange rate peg. This would effectively bring us back to 31 December 2001 for Greece.

(snip)

P.S. – Two posts todat at Credit Writedowns outline the social mood in pictures and video in Greece right now. My take: these deflationary policies mean that nationalism is coming back, just as it came back in the 1930s because a shrinking pie produces an us versus them mentality. See here and here.

read more: http://www.nakedcapitalism.com/2012/02/the-grexit-is-coming-sooner-or-later.html