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Greece and the Euro: Fifty Ways to Leave Your Lover

Five creative alternatives to an ugly break-up.

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Rather, it is a confederation of central banks. Each European national central bank can theoretically do the same types of market operations as the ECB and then some. The forefathers of the euro have left many monetary windows open, which, if used correctly, can solve the European debt crisis in a very short period without taxpayer funds.

He cited article 14.4 of the Protocol on the Statute of the European System of Central Banks, which provides:

14.4. National central banks may perform functions other than those specified in this Statute unless the Governing Council finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB. Such functions shall be performed on the responsibility and liability of national central banks and shall not be regarded as being part of the functions of the ESCB.

That means the National Center Banks can do whatever the ECB can do—and even things it can’t.  The Greek central bank could step in and start issuing euros itself.  Again, there is precedent for this.  It was under Article 14.4 that the Irish Central Bank was able to print 80 billion euros as “emergency liquidity assistance,” and the Greek central bank has already printed 44 billion euros itself.

The Greek government could print euros, refinance its sovereign debt, and pay the interest to itself, effectively eliminating the interest burden.  Among other precedents, there is Canada, which borrowed from its own central bank from 1939 to 1974 to fund major infrastructure projects and social programs.  It pulled this off over a 25-year period without hyperinflating the currency, driving up prices, or increasing the public debt, which remained low and sustainable.

There is the concern that the euro might suffer by devaluation if other Eurozone members followed suit.  But Kesarios points to the Japanese experience, “where one can print and print and then print some more, without the value of the currency being marked down (due to positive trade flows).”   The euro might be equally resilient.

3.  Divorce: Just Walk Away

According to the May 29 th New York Times, the 130 billion euro bailout that was supposed to buy time for Greece is now mainly just servicing the interest on the debt.  The “troika”—the ECB, IMF, and European Commission—which holds three-fourths of the debt, is sequestering the bailout funds to be paid right back to themselves in interest payments.  This is merely going to compound the debt to disastrous levels, without a single cent going to the Greeks or their comatose economy.

Interest rates on Greek ten-year bonds have gone to nearly 30 percent recently.  Under the Rule of 72, at 30% compounded annually, debt doubles in 2.4 years.  If the Greeks can’t even pay the interest on the debt today except by borrowing, how are they going to repay double the principal in a mere 2.4 years?  At 30%, the Greeks could be paying over 100% of their GDP in interest charges.  Legally, a contract that is impossible to perform is void.

Alexis Tsipras, leader of the radical left-wing Greek party Syriza, which is now in second place in the Greek parliament, calls it an “odious debt,” a legal term for a national debt incurred by a regime for purposes that do not serve the best interests of the nation.  An odious debt under international law need not be repaid.

4.  Spousal Support: The Public Bank Option

If divorce is too much to contemplate, Greece’s crippling interest burden can be relieved by taking advantage of the ECB’s very generous 1% rate for bankers.  Article 123 of the Maastricht Treaty forbids member governments from borrowing directly from the ECB, but it makes an exception in paragraph 2 for “publicly-owned credit institutions”—something Greece will have plenty of when it nationalizes its banks.  They can line up at the ECB’s window for its bargain-basement 1% banking rate and use the borrowed funds to buy up the national debt.

 
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