On Why a DExit Would Be Preferrable to a Grexit

On Why a DExit Would Be Preferrable to a Grexit

A lot has been mentioned about the constant refinancing of Greece’s sovereign Euro debt, and how the Greeks could just solve all their problems in one fell swoop simply by exiting the Euro, however the coiunterintuitiveness of such a contemplated move is not based on logic, and neither would it benefit any of the stakeholders.
The media is blowing the whole issue out of proportion, because Greece’s GDP at 242 billion USD is less than 1.5% of Europe’s GDP, so even in a worst-case scenario of a total meltdown of their economy, the rest of Europe would remain largely unaffected. True, their debt to other European countries is high but here’s the thing: Eurostat claims that their debt to GDP ratio is 175% which would make it 423.5 billion USD, but the figure I got when I added up all the individual debts to individual countries and institutional investors is only 159.4 billion USD. Huh? Where’s the difference coming from? Interest accruals for the next few years? I also found out that 24 billion of that is owed to other PIIGS countries (Portugal, Italy, Ireland, Greece, Spain). And even when you rank the PIIGS countries by absolute debt (NOT per capita), Greece has the second-lowest debt of them all, the highest being Italy. In other words, someone somewhere is blowing this Greece thing way out of proportion and the elementary question is, like why? In this latest bailout, Germany agreed to provide another 7 billion, and again, a really big deal is being made of this when in fact it’s like putting a band-aid on a gunshot wound.
The thing with all the PIIGS countries is the fact that they have an interlocking debt structure where each of these countries owes, and is owed money by one or more of the others (except Greece, which just owes), where if you do a mutual debt cancellation, then yes, Greece would still be in the red by 244 billion USD, Portugal by 33.3 billion, and Italy by 36.3 billion; however: Ireland would actually gain 31 billion and Spain would gain 63 billion Dollars! Again, this is all my own math from my own research.
Flash sideways for a second here: back in 2010 my bank tasked me with an interesting mission- to compare our flagship money market fund with those of the competition. So I went to about 15 different banks posing as a customer and was able to “acquire” their portfolio structures for their funds, and frankly the results SHOCKED me. It was just like the PIIGS countries only worse. Much worse. They were all in on this. ALL the banks were holding each other’s paper, some to the tune of up to 90% of their portfolios, and the remainder were toxic waste like Glitnir, Landsbanki, Kaupthing and other Icelandic banks. When I probed deeper, I found out that they were NOT marking to market. In other words, the declared value of these toxic assets was based on their pre-crisis values, and I’m like: this is fraud! True, they were forced to re-value these assets after I had made my analysis, but the kicker is that the central bank managed to convince the government to give the top 3 banks in the country a NEGATIVE TAX, which for all intents and purposes was a bailout. And none of this was mentioned by any media, mainstream or alternative. I only found this out through one of my “spies” working for these banks, and verified this by manually re-calculating their balance sheets and income statements from their prospectuses.
It’s exactly the same as if I were to sign a paper stating that I owe you 100 billion Dollars, you do the same for another person, and that other person does it for me. On paper we each have 100 billion Dollars on both the asset side and the liability side. But as you know, there’s a lot of “alchemy ” you can do with that liabilities side. Or we could just lease Gold to each other. The big banks do just that, and sometimes they sell said Gold. That’s the same thing as me renting a house, and then selling it. If a private person were to do almost anything these big banks do, they’d be prosecuted like nobody’s business. Telling you, a house of cards is a steel-reinforced concrete structure compared to today’s international banking system.
Back to the Greek tragedy, but before I continue, I have a joke. A Greek, an Italian, and a Portuguese guy go into a bar. Which one of them pays the tab? Answer: the German. To date, the Germans have loaned out 22,497 USD per person (including newborn children) to countries like Greece. Excuse me? Would Angela Merkel and the members of the Bundestag invest any of their PERSONAL money into this financial black hole? Anybody? Of course this all becomes a lot easier when you’re using Other People’s Money (OPM), but I don’t recall there being any kind of referendum regarding whether anybody would want to finance this with their own money. I know that 97% of the Greek debt is held by other sovereign wealth funds (i.e. other countries) with only 3% of that debt being held by the private sector. That being the case, any kind of default by Greece would affect the balance sheets of these other countries, notably Germany, and both Merkel and the Bundestag seem to think that by pumping even more money ito Greece that they will somehow avert this. Unlike the US Federal Reserve, the ECB can’t just print money willy-nilly because the Euro is still backed by Gold to the tune of 10% which perfectly explains the repatriation of said Gold from the New York Fed.

Enter the DExit

Greece, on the other hand thinks it can solve its problems by exiting the Euro(zone), issuing their Drachmas and that somehow it’s all gonna work out. I beg to differ. The instant that Greece does that, the Drachma falls in value A LOT. A lot worse than the irrevocable 340.75 GRD/EUR they had when they acceded to the Euro. But their Euro debts will remain, and with an increasingly worthless Drachma, they’re looking at the exact same situation as Germany was in following the Treaty of Versailles, which resulted in the Weimar inflation of 1922-1923. Looks like the shoe’s on the other foot, eh? Since such a situation would benefit neither Germany nor Greece, I can’t understand why either of these stakeholders would want that, because under either a status quo situation, or a Grexit situation, everybody loses.
The only logical thing would be for Germany to exit the Euro, and start issuing Deutschmarks again. But again, that rate will NOT be at the 1.955 DEM/EUR it was at before the Euro was instituted, but a lot lower. Sure, all the exporters are gonna start screaming bloody murder, but just like when Switzerland de-coupled its Franc from the Euro, the situation stabilised, and they wound up making out pretty good on that. Thing is, that the value of the Euro is kept artificially low specifically by countries like Greece because as a multinational currency there’s a Euro-cost-averaging effect as it were. In the case of a hypothetical DEexit, the post-German Euro would definitely go down in value, making it easier on the Greeks to repay the debt, while the Euro-denominated counterparty bonds get paid in a timely fashion and nobody loses money, at least on paper. True, the value of these Euro bonds will have declined but currency risks are something every institutional investor HAS TO factor into their calculations. It’s still a lot less painful than for these creditors to get nothing in return. The Greek central bank gets to keep all its Euro denominated Loro accounts, thus facilitating trade. If you have a Grexit, I don’t know too many central banks that would hold Loro accounts in Drachmas for Greece. Why would they?
Basically, for a country with a weaker economy like Greece it would have been better off had it never acceded to the Euro and kept their Drachma instead, but once inside the Eurozone, getting out is the worst possible option. I saw this coming when Slovakia joined the Euro, and boy what a disaster THAT was. They’ve never fully recovered when you look at their pre- and post-Euro stats.
In case that a DEexit actually does occur, it will have a domino effect in that other creditor countries will want to emulate the Germans. The BeNeLux countries come to mind, as well as France. This will further depress the value of the Euro against currencies like the US Dollar, facilitating exports, and boosting the tourism industry. Then again, the Germans will only be emulating what the Swiss did when they de-coupled from the Euro, and like the Swiss, their institutional investors could potentially benefit on the Euro carry trade. Sure better than a rise in interest rates. A cheaper Euro would also decrease unemployment in Greece and the other PIIGS countries, which over time would stabilise the value of the Euro.
In short, a DEexit is the most sensible solution, and the only reason that it’s “unthinkable” right now is because Germany and the ECB think they can just keep on doing this ad infinitum, which they can’t, kind of like QE infinity in the United States. Also, they’re afraid that if they DON’T do another bailout then Russia just might step in to save the day and acquire a port or a military base or two in Greece. But Merkel is way too wishy-washy for the German position to have any standing in Europe.

An Olympic-Sized Headache

You might be wondering what triggered this whole fiasco in Greece? Short answer: the 2004 Olympic games. Total cost was about 9 billion Euros, of which 7 billion was financed by the Greek people themselves, and this did NOT include the metro extension they had to do, or the new airport they had to build. The Olympics have a reverse-Midas-touch effect anywhere they are INFLICTED. All those venues they built are overgrown with weeds and I’ll bet you any money you can hear chickens clucking about if you go there. Just because something’s a tradition thousands of years old doesn’t mean it’s a good thing, or that it should continue it in this, the modern era, or that we should have to pay for this useless thing which only benefits a handful of already-wealthy corporations.
I mean, you’re telling me that there’s people out there willing to pay dear money to sit in the hot Greek sun just to watch some guy running around in a big circle? All because he raised 3 blind cats as a tennager and helped old ladies cross the street? You serious?
Just that one thing, the Olympics, DOUBLED the Greek government’s budget deficit to over 6% of GDP, so I don’t see how that’s a good investment of taxpayer money. I don’t have the figures, but I do know that every country in Europe subsidises “professional” sports except Denmark, a clear travesty of justice. Which means that in all likelihood Greece too is subsidising “professional” sports. If they want to implement austerity measures, that should be the first thing to cut, and not old people’s pensions or unemployment benefits. It’s simple, in Greece the average unemployment benefit is about 300 Euros, whereas in Germany it’s about 800 Euros. Now, if you’re getting only 300 Euros but you need more just to survive, you’re gonna come up with all kinds of ways to scam the system. This actually encourages lawlessness and supports the existence of the black market, leading to further lawlessness. It’s the Broken Window Theory- look it up.
The fiscal shortfalls faced by Greece and other countries, notably Italy, are not entirely their own fault because these countries also happen to be the ones getting the most immigration from non-European countries. This places an inordinate burden on already struggling economies in addition to being a potential security risk from radical Islamic infiltration, and it’s not just the southern European countries that are affected by this, but the whole of Europe to one degree or another, so if you want to implement austerity measures, the logical thing would be to cut all benefits to these immigrants and ship them out. This would have not only economic benefits, but political ones as well because if such immigration continues unabated, sooner or later you’re gonna have a backlash where the have-nots of the host country rise up againt the have-nots of the immigrant population and you have a civil war on your hands before you know it, because you’ll see the rise of extremist right-wing parties. The way I see it, it’s going to continue unabated, and this will not end well. From a deterministic viewpoint, a civil war in Greece is the only logical outcome, unless we see a DExit. Then again, what’s more important: Europe, or the Euro?