I've been trying to read and to listen carefully to what the Greek government has been writing and saying. This Greek government's public representations have so far matched its actions, so it's particularly important to listen.
Today, Greece's Foreign Minister, Nikos Kotzias, reportedly told China's Ambassador to Greece that Greece is not leaving the euro zone. (The press report used "euro zone" instead of "Eurozone.") Is that possible? It might be.
The key to understanding how a sovereign default could work within the euro, at least in theory, is that there are important, critical differences between the Eurozone (including European Central Bank support and the Eurosystem) and maintaining the euro as legal tender. There are two countries that adopted the euro as their medium of exchange without any monetary agreement or other coordination with the Eurozone: Montenegro and Kosovo. Their entire economies operate on the euro. In principle Greece could do the same. The Bank of Greece could legally maintain its Eurozone membership but, with an uncooperative European Central Bank, de facto operate as Montenegro and Kosovo do.
OK, without commenting on whether that outcome is desirable, is it possible? Probably. Even assuming an ECB that doesn't return the Bank of Greece's phone calls, there's no available mechanism for the ECB to prevent Greeks from using euro. Indeed, efforts to prevent the free exchange of euro would undermine the euro's status as global, convertible currency. Such efforts would also harm Montenegro and Kosovo.
The Bank of Greece has already adopted capital controls including withdrawal limits of 60 euro per day per depositor. A significant fraction of the Greek economy, perhaps a third, is already operating "in the black" and off the books, primarily on a euro cash and barter basis. Austerity-fueled and ECB-supported "bank jogs" have already done great damage to the Greek economy and its financial system. The Bank of Greece could, in principle, maintain capital controls and (probably) nationalize what's left of Greek banks. Moreover, there's no particular reason why Greeks in Greece need to have bank accounts in Greece, and many have already established accounts elsewhere in Europe.
The Greek government is already running a primary surplus, meaning that tax revenues (even with significant compliance problems) are supporting government services and benefits. When (not if) the Greek government defaults on its external debt it'll have more euro to keep. The Greek government won't be able to borrow more, but that's already true.
Could that be the plan, to tell the troika "piss off," run the Greek government on a neutral domestic cashflow basis (better than sending the surplus to the troika), and remain within the euro zone (lowercase) de facto, just as Kosovo and Montenegro do? It could be. Moreover, Greece could be on firm legal footing in doing all that. The troika and the ECB, on the other hand, might have several legal problems (at least) if they try to act maliciously. It's one thing to suspend support but quite another to go to war (metaphorically one hopes) against one of its members. They may be very, very angry, as foolish creditors often are, but I don't see how they legally retaliate against a sovereign in their midst.
Today, Greece's Foreign Minister, Nikos Kotzias, reportedly told China's Ambassador to Greece that Greece is not leaving the euro zone. (The press report used "euro zone" instead of "Eurozone.") Is that possible? It might be.
The key to understanding how a sovereign default could work within the euro, at least in theory, is that there are important, critical differences between the Eurozone (including European Central Bank support and the Eurosystem) and maintaining the euro as legal tender. There are two countries that adopted the euro as their medium of exchange without any monetary agreement or other coordination with the Eurozone: Montenegro and Kosovo. Their entire economies operate on the euro. In principle Greece could do the same. The Bank of Greece could legally maintain its Eurozone membership but, with an uncooperative European Central Bank, de facto operate as Montenegro and Kosovo do.
OK, without commenting on whether that outcome is desirable, is it possible? Probably. Even assuming an ECB that doesn't return the Bank of Greece's phone calls, there's no available mechanism for the ECB to prevent Greeks from using euro. Indeed, efforts to prevent the free exchange of euro would undermine the euro's status as global, convertible currency. Such efforts would also harm Montenegro and Kosovo.
The Bank of Greece has already adopted capital controls including withdrawal limits of 60 euro per day per depositor. A significant fraction of the Greek economy, perhaps a third, is already operating "in the black" and off the books, primarily on a euro cash and barter basis. Austerity-fueled and ECB-supported "bank jogs" have already done great damage to the Greek economy and its financial system. The Bank of Greece could, in principle, maintain capital controls and (probably) nationalize what's left of Greek banks. Moreover, there's no particular reason why Greeks in Greece need to have bank accounts in Greece, and many have already established accounts elsewhere in Europe.
The Greek government is already running a primary surplus, meaning that tax revenues (even with significant compliance problems) are supporting government services and benefits. When (not if) the Greek government defaults on its external debt it'll have more euro to keep. The Greek government won't be able to borrow more, but that's already true.
Could that be the plan, to tell the troika "piss off," run the Greek government on a neutral domestic cashflow basis (better than sending the surplus to the troika), and remain within the euro zone (lowercase) de facto, just as Kosovo and Montenegro do? It could be. Moreover, Greece could be on firm legal footing in doing all that. The troika and the ECB, on the other hand, might have several legal problems (at least) if they try to act maliciously. It's one thing to suspend support but quite another to go to war (metaphorically one hopes) against one of its members. They may be very, very angry, as foolish creditors often are, but I don't see how they legally retaliate against a sovereign in their midst.
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