Sunday, July 05, 2015

Referendum and Default

No one is asking me, but I would vote “No” in the referendum, if I were Greek. The conditions being imposed by the European government are unreasonable. The latest IMF report confirms this. The European government requirements are driven more by their fears of their own voters than concern for the Greek people.

The Greeks would be better to default completely, than to surrender to the Europeans once more. There might be some short term pain, but the long term future would be much better without the albatross of debt hanging round their necks.

A full default would bring the collapse of the Greek banks. Fortunately, most depositors have already got their money out of their banks. As much as €50 billion in Euro notes and coins could be hidden under Greek mattresses and much more may be off-shore banks. Many businesses have borrowed Euros from Greek banks and moved the money to European banks, or into US dollars or sterling. They intend to make a profit when a new devalued drachma is introduced.

If the banks fail, and are liquidated by the state, the remaining domestic depositors would become senior creditors of the banks with first claim over their remaining assets. They European creditors would be left with nothing.

If Greece defaulted on all its debts, lenders would soon return. Greece would be seen as a good credit risk, because debt levels would be very low. Loan money would soon be flowing again, but it would be possible to keep it under control.

Greece should probably withdraw from the EU and get free of its shackles. Greek companies would still be able to export to the west, but it would be much easier to trade with the Middle East and Eastern Europe, where the demand for their products is likely to be much greater.

No comments: