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Trading Lessons

Greece Debt Crisis to Trigger Euro-zone Credit Freeze, Expiry of Greek Euro Bank Notes

Stock-Markets / Eurozone Debt Crisis Jul 07, 2015 - 06:32 PM GMT

By: Nadeem_Walayat

Stock-Markets

According to to Syriza politicians, Tsipras and Varoufakis a NO vote would have delivered the Greek people victory in its negotiation with the Troika with promises of an agreement already on the table and of course the banks would reopen Tuesday. Which just like a string of promises made for the whole of 2015 have proved totally worthless propaganda aimed at convincing a delusional Greek electorate that a paradise of sorts was awaiting them if only they voted NO / committed mass suicide, the reality of which is only slowly starting to dawn on an increasingly panicky Greek people who are experiencing economic collapse accelerate on a daily basis.


After the NO vote the behind the curve mainstream press attention has turned to what happens next, where those who thought GrExit virtually impossible are now coming around to the view that it in fact is increasingly probable, which has been my consistent view SINCE Syriza were elected in January 2015

26 Jan 2015 - Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch

Grexit - Greece Euro-zone Exit

A Syriza majority government will embolden the radical left to embark on a suicide mission to demand freshly printed ECB Euros to finance an ever expanding socialist spending binge where the price expected to be paid will be by the rest of the euro-zone in terms of printing money to finance unproductive activities such as the public sector and the life styles of corrupt politicians. This puts Greece ultimately on the track towards being ejected out of the Eurozone with the consequences of there being high inflation (at least 30%) if not an hyperinflationary panic event for Greece and its new currency.

Similarly AFTER the NO vote the mainstream press and BlogosFear appears to have googled for what happens next and concluded that Greece has the nuclear option of printing euros as I wrote early on the 2nd of July (indexed 1st July).

02 Jul 2015 - Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros!

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.

Whilst the press and blogosfear may have latched on to this likelihood -

The Guardian - With a return to the drachma unwanted, could Greece just print its own euros?

Monday 6 July 2015 15.42 BST

Faced with shuttered banks and ATMs all but drained of cash, but with most of its citizens saying they would rather stay in the eurozone than revert to the drachma, could Greece simply decide to print its own euro notes?

It is certainly physically capable of doing so: the Greek central bank owns a press in Holargos, a suburb of Athens, that once printed drachma and is currently one of 14 high-security currency printing works across the eurozone producing euro banknotes.

But actually going ahead and printing unauthorised notes would amount to a declaration of war on the European Central Bank.

Zero Hedge - Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks

07/05/2015 23:41 -0400

All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card.

However, this cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press.

It may not get to there: according to Telegraph's Ambrose Evans Pritchard who quotes what appears to be a direct quote to him from Yanis Varoufakis, Greece will, "If necessary... issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago."

However, none so far have apparently realised the consequences of Greece printing own euro notes without ECB permission, which is that as soon as it starts to do so then that would mean that Greek EURO notes would no longer be accepted in other euro-zone nations regardless of any assurances from the ECB, which effectively means that Greece Euro notes have an EXPIRY DATE.

Again my earlier article covered the ramifications of what would happen as Greece's bank notes would no longer be accepted that would impact on the relative value of all PIIGS euro notes. Which effectively translates into every Euro note having an expiry date as their respective values adjust to the state of their domestic economies i.e. The euro notes of the member states would start to behave as free floating currencies rather than a single currency.

02 Jul 2015 - Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros!

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.

Protect Your Cash and Bank Deposits

However, floating euro notes would only be the beginning of the real euro crisis which would manifest itself as a credit freeze across the euro-zone as bank customers will be unwilling to transact business with other less credit worthy euro nations so as to preserve the value of their bank deposits i.e. German bank deposits would be trading at a premium to Italian, Portuguese and Spanish amongst most others. Remember this is BANK DEPOSITS trading at different values and therefore there will be a rush to open to German bank accounts so as to preserve the value of euro bank deposits.

Therefore my best advice to my euro-zone readers is to -

1. Pull cash out of the banks and keep your money in cash, euro notes, or better still German euro notes (X), though given the limited number in circulation when compared against bank deposits and sovereign bonds that may be a problem, but better to act now rather than later.

2. To open an account with a GERMAN bank and transfer as much of your euros into it because Greece pressing the nuclear button and printing its own Euro's will result in euro notes starting to only become acceptable on the basis of their country of origin which will be accompanied by a Credit Freeze as account holders will be less likely to accept transfers from other PIIGS nations bank that may lose a significant proportion of their value i.e. it would be the start of the market pricing in differing rates of exchange between euro-zone member states.

Again those with their wealth in euro accounts need to ACT NOW! As Greece goes bust tomorrow! Because Syriza BOTH want to have Greece's debt written down AND another LOAN of Euro 30 billion! "Write off our debt but we also want to keep borrowing money from you", which means there won't be an agreement. Which means that things may come to ahead long before the Euro 3.5 billion repayment due to the ECB on 20th July. Which means Greece will start to print euro notes or IOU's within a matter of days and that I now rate GrExit as a 90% probability, up from 85%.

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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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Comments

R.E.B
08 Jul 15, 13:49
Greece just a game now.

Greece could buy a bit more time by agreeing to the terms of its creditors in order to free up some more money for a while but then just fail to actually implement any of them. At this point it all just looks like a sad game.


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