We read an interesting synopsis of “A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution” by Jonathon Tepper, Chief Economist at London-based research firm Variant Perception in a recent Businessweek.com article. The sections that strikes us as important are the following:
Variant’s Tepper agrees that the element of surprise is essential: “Almost all emerging-market devaluations were ‘surprise’ devaluations, and there is no reason to believe that any exit from the euro would not be a surprise as well. There is no technical definition of what constitutes a surprise devaluation, but it would likely involve official denials in public while political leaders prepare the way behind the scenes for devaluation and potentially capital controls.”……
If Greece decides to abandon the single currency, it must start printing drachmas again or introduce some new unit of accounting. If authorities were to announce such a plan, they would certainly trigger the collapse of the local banking industry, as Greeks rushed to withdraw their deposits in anticipation that they would be converted to the new currency. To prevent that from happening, policymakers would have to institute capital controls—perhaps even resort to an Argentine-style corralito, where depositors face stringent restrictions on how much money they can withdraw from their accounts.
Still, an important question remains: How would Greek leaders go about printing piles of new currency without alerting the public and the international community?
We are less and less inclined to listen to what the EuroZone politicians are saying and more and more inclined to watch what is happening in the streets and in parliament of Greece. This Greek drama is far from over, and the interesting parts are yet to be played out.