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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros!

Currencies / Eurozone Debt Crisis Jul 02, 2015 - 01:29 AM GMT

By: Nadeem_Walayat

Currencies

This week Greece started to default on its debt repayments. However, unlike other countries that have gone bankrupt in the past, Greece as part of the Euro-zone officially cannot print money and inflate the purchase power of debt, wages and savings away. In exchange for this Greece enjoys monetary stability i.e. low inflation which means the only way to deal with the structural deficit that is generating the debt is to CUT government spending and wages so as to make Greece more competitive.


Unfortunately for Greece, the Greek people fell for anti-austerity propaganda by electing in January a marxist Syriza government into power following which all hell broke loose, with Greece entering into a death spiral right upto this weeks collapse of the Greek banking system with cash withdrawals currently limited to just Euro 60 per day and Greece defaulting on an technical IMF loan repayment of Euro 1.6 billion, but which had already been financed as part of a Euro 360 billion bailout.

As mentioned earlier the Greek banks have been instructed to limit cash withdrawals to just Euro 60 per day that given that Greece is fast running out of euro currency will likely be cut in half imminently as Greece literally runs out of money.

However, In the face of this crisis, Greece does have the nuclear option, one that could threaten to blow the whole euro-zone apart as what apparently no one is reporting on is the fact that Euro's in Greece are printed by the Greek central bank. Therefore Syriza faced with empty bank vaults could just command the Greek Central Bank to start printing Euros without ECB authorisation, which would instantly result in a devaluation of Greek Euros that would be marked down in value against other nation Euros.

Greece printing euros would instantly wipe out the value of the debt denominated in euros as well as wipe out most of the value of savings and purchasing power of earnings i .e. Greece would effectively be printing money to inflate its way out of the crisis and thus the Greek inflation rate would soar.

The reason why this is so dangerous is because contagion would be immediate in that German Euro notes would be deemed as being the most valuable and those of the PIIGS nations being marked down in value as each Euro note serial number is marked with the country of origin prefix as the following Italian euro note illustrates that is identified by S -

List of Euro country of origin prefix:

Belgium Z
Germany X
Estonia D
Ireland T
Greece     Y
Spain     V
France     U
Italy     S
Cyprus     G
Luxembourg 1
Malta F
Netherlands P
Austria N
Portugal M
Slovenia H
Slovakia E
Finland L

So, for example someone shopping in a store in Greece and eventually the other PIIGS would be able to buy MORE with the same denomination German Euro note marked with an X then the notes of other euro-zone nations and especially that of Greek Euro bank notes marked with an Y.

Whilst today the suggestion that Greece could start printing euros without permission may seem impossible, however so did Greece defaulting on the IMF loan and a collapse of its banking system just a week ago!

So all this talk in the media of it being impossible for Greece to launch and print its own currency for many months if not years is WRONG, for Greece already has printing presses ready that can immediately print Euros without limit.

In fact Greece may have been stealthily stock piling currency paper and ink in readiness of detonating its nuclear option. In fact Greece may already be printing billions of euros in secret that will only start to become apparent when Greece as if by magic is able to start to relax its capital controls such as limits on withdrawals. In fact the euro notes would be just the tip of the money printing ice-berg for the Greek central bank only needs to press a few buttons to electronically print tens of billion of euros and then eventually in the hundreds of billions as Greece goes through its own hyperinflation event and we will probably see inflation take off in all other euro-zone nations except Germany.

Think it can't happen ? Well Greece lied about its debt for a decade! So lying about printing euros without permission would be in character of successive Greek governments.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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