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Greece: parallel currency, default, solutions

Greece remains one of the main topics that markets are thinking about. Its finance minister Varoufakis promised a default on June 5th (€303 million from a 2010 IMF loan) if additional billions of euros aren't poured over the Greek black hole before that day; to feed his corrupt parasitic voters with other people's money will always be more important for him than to fulfill basic international obligations of his country.

He may be bluffing, he may be serious, we can't be sure. It sounds insane that Greece would be the first country in the world's history that would default to the IMF – in some sense, to the whole international economic community – something that no screwed dictatorial regime in Africa has managed to achieve so far. But Varoufakis and his comrades are self-described Marxists so truly insane decisions may be expected, after all.

I follow the Greek media – including those written in Greek. One thing I find remarkable is their local indication that "everything is fine" in the country. Default-related stories are actually just a small part of what they discuss. They don't think that they have a problem. This is remarkable because if the country defaults, the very fabric of the society may be torn apart. And it's only Greece that will be radically transformed.




German finance minister Wolfgang Schäuble began to promote the transition of Greece to a new currency. Ideally, Greece would keep the euro externally and would be repaying its euro-denominated international obligations. But it would use the new currency internally. Public employees and pensioners would effectively get a salary in the new currency whose actual value would be much smaller than the obscenely high salaries and pensions they are getting these days.

(Despite the looming default, Greece is actually Europe's #1 country when it comes to pensions as the percentage of the GDP. I find this fact truly shocking. When someone runs out of money, he should simply reduce the non-essential expenses but they never do.)




The main problem is that the vast majority of the Greeks have gotten so used to their luxurious parasitic lifestyles that they consider it a normal state of affairs and they don't even understand the simple point that it will have to end at some moment which is not far because this setup is completely unsustainable.

But whatever happens, the living standards – incomes converted dollars etc. – will have to drop. Greece is simply not producing and exporting enough to sustain the lifestyle we still observe. This adjustment "back to reality" may occur gradually or abruptly; it may lead to many or fewer unnecessary additional losses. But in each setup and variables you use, the real incomes and pensions, among similar things, will simply have to go down.

The most peaceful way to return to reality is to keep the Euro, adopt 100% conditions prescribed in the bailouts and haircuts, actually enforce them, lower all the public expenses to sustainable level, embrace pro-market policies, and simply become a decent country. This is very unlikely politically because the idiotic Syriza voters and apologists have been led to believe that their high incomes and pensions and "all entitlements, no duties" are just fine and sustainable.

Schäuble therefore proposes a more subtle trick to lower the expenses: to keep the numbers but change the unit of the currency to something that is actually much less valuable. I think that it's obvious that Greece is in such intense mess that the actual devaluation will have to be at least by 50%. Willem Buiter, Citibank's chief economist who also said that gold was a long-lived bubble, criticized Schäuble's recipe as nonsense. The Greeks are very lousy in managing their own currency so only chaos could arise from such a parallel currency.

I agree with Buiter as well. They are not good at managing their fiscal and monetary issues. But tricks like that may be needed to re-introduce some reality. The extra subtlety that makes Buiter's criticism irrelevant is that this new parallel currency should indeed be controlled mostly by others – by ECB or by Schäuble's ministry itself. These civilized European countries should invent, print, and manage the new currency for the parts of the Eurozone – initially just Greece – where the Euro hasn't worked because these nations are incapable of keeping their pensions etc. at realist levels which, in combination with the impossibility of the devaluation, made and will always make their economic life unsustainable.

More generally, many people don't like any "loss of Greece's sovereignty". I think that in similar financial conditions, a significant loss of sovereignty is fair, just, largely inevitable, and common sense. If the Greeks fail to repay the loans according to the contract, they effectively confess their living out of other nations' money. The Germans and others have been and are still being taxed to support Greece.

Now, sorry, but there's a very wise slogan "No taxation without representation". If the German and other taxpayers are paying for the events in Greece, they also have the right to co-determine what happens in that country.

In other words, if the Greek government defaults, it should be treated analogously to companies that go bankrupt. The Greek government should be changed to "The Republic of Greece, a country in liquidation" and a liquidator – probably a committee representing the creditors – should figure out how to reorganize the former country, partially fulfill the creditors' claims using the remaining non-essential assets, and to build a more viable economic model on the ruins of the bankrupt government. The default means a lethal violation of the basic laws and rules by the debtor which implies that he is no longer allowed to do "business as usual". People denying the previous sentence plan to break the basic framework that has made the economy – not only "strictly capitalist" economy – work for centuries or millenniums. If stealing of €320 billion wouldn't be an existential problem for the debtor, then we would be welcome in anarchy. Almost everyone would love to emulate the Greek trick.

I simply can't imagine that a government in Europe would decide not to pay €320 billion, i.e. effectively steal this gigantic amount of money, and be allowed to exist in pretty much the same form. Not one percent of something like that would be tolerated for any company. Why should the same situation be treated differently when the company is a nation? Perhaps because the Marxists deserve more rights than the capitalists? Or because nations have bigger rights? If Liberland and its president Mr Jedlička stole €320 billion, would it also enjoy the special rights that some people want to give to the Greeks? Or is Liberland an inferior nation due to the shortage of Marxists? A country is a form of a company, a group of people with some shared assets who decide to do some business together.

If the Greek government goes bust, it should be liquidated by the creditors and a new setup should be built by them, according to their own decisions. Maybe Greece should be divided to the city states again (those were much better working for the Greece than the single government), maybe its territory should be divided among the other nations (Cyprus, Macedonia, Bulgaria, whatever), maybe Germany or the EU should declare a special kind of protectorate on that territory directly controlled from Berlin or Brussels. If some real chaos erupts in that country, this external supervision by the adults may be desirable for other reasons, too. But even if that happens, I still think that the successor states etc. should inherit the debt. One just can't "forget" €320 billion.

There's another aspect of the looming default that I find crazy. Such an event in Greece would probably impact everyone on that territory, including people and companies that are genuinely innocent. If the EU had any value for similar crisis situations, it would try to guarantee a smooth transition to the post-default era for the companies that were least "guilty" of the mess that grew in Greece in the recent 40 years. It would try to make sure that they can get similar essential loans they could get so far. That they won't be robbed by the Marxist junta. That they can continue to do trade with foreign partners etc.

There actually exist several Greek exporters, not too many but certainly not zero. (Supermarket chain Lidl is having a "Greek week" this week. Some of the Greek products are great – a problem is that all of them are produced in Germany LOL.) Their existence may be threatened by the default as well. And I actually think that the Greek commercial banks have been almost innocent when it comes to the obscene Greek public debt. Each of them is rather likely to collapse soon after the Greek government default. I find it both unfair and counterproductive. I actually think it would be right to save the commercial banks because they have nothing to do with the mess. Well, even the central banker Stournaras is a good guy currently under attack by the Stalinist rulers of Greece.

If the EU had a positive meaning, it would try to separate the parts of the Greek society (which is a majority but not everyone) that caused this mess from those that are the victims, and work on peacefully suppressing the former (the bloated Greek government) and saving the latter. The EU doesn't care about any of these things. So what we will see is escalating robbery by the Marxist scum, increasing suffering of the innocent people and companies, and a further inevitable deterioration of the Greek economy and the Greek nation. Moreover, the "freedom" with which the bad guys will operate in the post-default Greece will energize many of their soulmates in other countries.

For Merkel to refuse to sit next to Tsipras during a dinner is fun but what is needed is to break these Marxists' arrogant mouths into many pieces. If Europe fails to fulfill this vital task, it will be just a question of "when", not "if", for other countries to follow in the Greek footsteps.

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