Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

Grexit – Back To The USSR (Beatles, 1973)

24 January 2015


Tomorrow the Greek voters have a chance writing history in their 2015 general election. Let’s assume that the radical left-wing party Syriza will win. This idea is not too far-fetched by the way. What would be the consequences?

Second assumption: Syriza will opt-out of the EU and the Euro. That is widely expected anyway.

Such an opt-out would leave the ECB with significant doubtful Greek (bail-out) receivables. If these are collateralised then a long process of law suits may follow. No immediate impact however.

Syriza will need to re-introduce the Greek Drachme as Greece will no longer be allowed to use the Euro as national currency. It is likely that the Greek Central Bank will push lots of Drachmen into the economy – similar as the ECB is now doing with government bond purchases – to boost the Greek economy. The Greek economy has been very rigid since decades however. It is more likely that the abundance of Drachmen will cause a high inflation (more money while same goods) rather than kick-starting the economy.

Greek imports will not be in Drachmen as no foreign supplier will want to receive illiquid Drachmen in exchange for its goods or services. Only the USA has that competitive advantage since decades. The Greek will need to pay in Euro and in US$ (oil). Tourism is a great way of getting foreign currencies. Sale of government properties too. Even sale of small Greek islands.

The international demand for Greek Drachmen is likely to be very small given the existence of highly liquid and thus highly marketable currencies like Dollars and Euros. Hence the exchange rate between the Greek Drachmen and the Euro or US$ is likely to be poor. While this is excellent news for boosting tourism and real estate (buying a 2nd house in the Greek sun), it is very bad news for importing food, oil, cars or anything else that is not produced domestically.

Any company that is highly dependent on (Euro denominated) imports – or has its debts in Euro – may not be able to survive as it is unlikely that a left-wing Syriza government will let those companies increase its customer prices to reimburse the huge currency losses. Commercial banks would have a similar fate but the biggest of them are likely to be bailed out by the new Greek government and will become government owned banks.

The Greek economy is likely to find an equilibrium after a period of rocketing inflation and deteriorating exchange rates. In the meantime they are most likely to turn to an old friend. Either China or Russia will be asked for funding a Greek left-wing government in despair. Given the limited size of Greece I would expect help from Russia – despite their own current Rouble troubles – as some small geo-political power game may be welcome to the Russian President. Military access to ports and airfields may be the Greek prize to pay as well as becoming a haven for money laundering.

The future of Greece may well become a copy of Cuba.

We all know how that one is unfolding right now: Back In The U.S.A. (Bruce Springsteen, 1975)


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