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Greece Considers Exit from Euro Zone


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#1 ChucktownK

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Posted 13 May 2011 - 02:37 PM

Athens Mulls Plans for New Currency

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.
Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles. Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.

'Considerable Devaluation'
Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.
"It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro," the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble's staff have calculated that Greece's national deficit would rise to 200 percent of gross domestic product after such a devaluation. "A debt restructuring would be inevitable," his experts warn in the paper. In other words: Greece would go bankrupt.
It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.
What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy.
"The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.
In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues.

Banks at Risk
Moreover, should Athens turn its back on the common currency zone, it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency "would consume the entire capital base of the banking system and the country's banks would be abruptly insolvent." Banks outside of Greece would suffer as well. "Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts," the paper reads.

The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) "Given its 27 percent share of ECB capital, Germany would bear the majority of the losses," the paper reads. In short, a Greek withdrawal from the euro zone and an ensuing national default would be expensive for euro-zone countries and their taxpayers. Together with the International Monetary Fund, the EU member states have already pledged €110 billion ($159.5 billion) in aid to Athens -- half of which has already been paid out.
"Should the country become insolvent," the paper reads, "euro-zone countries would have to renounce a portion of their claims."



#2 blackcatgrowl

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Posted 13 May 2011 - 02:49 PM

EU:
I have a piece of paper. On it, is a number.

I will give you that paper. You can then turn around and give that number to someone else, who will give you material goods.

The world:
What does this number represent?

EU:
It represents. Umm. A number.

The world:
So, it's just a number? What if I have paper with the same number? What if I tell you my paper represents the ability for my country to create goods.

EU:
:leaving:

The Euro is incapable of self-sustainment. It's existence is a farce. You can't sell it as a representation of the continent's GDP, as there are way too many laws about trade that affect the Domestic Products of the individual states. There is no over-arching authority to manage all the member country's debt to income ratio. Eventually, everyone will abandon the Euro, as it is a Fiat money in the worst sense.

I personally think that will set the stage for a stronger body of government over the European counties. Country after Country will go broke. The rebirth of Rome... not by conquest of arms, but conquest of wealth.

Edited by blackcatgrowl, 13 May 2011 - 03:45 PM.


#3 pstall

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Posted 13 May 2011 - 03:34 PM

why hello S&P and US dollar

#4 SgtJoo

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Posted 13 May 2011 - 04:22 PM

The EU is extremely beneficial economically, a single market and a single currency. Why do you think so many countries like Turkey want to join?

#5 venom

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Posted 13 May 2011 - 04:45 PM

The EU is extremely beneficial economically, a single market and a single currency. Why do you think so many countries like Turkey want to join?


lol wut??

#6 Davidson Deac II

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Posted 13 May 2011 - 06:32 PM

The EU is extremely beneficial economically, a single market and a single currency. Why do you think so many countries like Turkey want to join?


It seems that the EU is good for stronger and more diverse economies like Germany and France. I am not so certain its good for the smaller and weaker economies like Greece and Portugal. Might be good for both of them if there was a divorce.

#7 ChucktownK

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Posted 14 May 2011 - 02:58 AM

European Union Moves to End Passport-Free Schengen Travel

#8 SgtJoo

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Posted 14 May 2011 - 03:27 AM

European Union Moves to End Passport-Free Schengen Travel


Good counterterrorist move too.

;)

#9 SgtJoo

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Posted 15 May 2011 - 12:23 AM

Posted Image

Unemployment + Inflation

#10 Davidson Deac II

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Posted 27 June 2011 - 03:41 PM

Germans becoming resigned to messy European divorce.

Two years ago, at a semi-official Anglo-German meeting with financial and business figures in London, I asked a well-known German bank chairman with whom I have a reasonable acquaintance how he would react if Greece one day asked to leave the euro. This was an open question-and-answer session in front of about 50 people "I would act like Clint Eastwood," my banker friend said, with rollicking good humor. "I would say, 'Go ahead, make my day.'"

Rather revealing.

That was back in the good old days. Spreads between Greek and German 10-year bonds had started to widen. But there was nothing like the same crisis-laden atmosphere as now. I relate the story fairly often to illustrate that, in truth, there's not a great deal of love lost between the Germans at the core of the euro and the outlying states.

Highlighting the mood of growing dismay, an opinion poll in the Sunday edition of the Frankfurter Allgemeine newspaper indicated that 71% of Germans no longer trust the euro — up from 66% in April and less than 50% in 2008.



#11 Niner National

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Posted 27 June 2011 - 03:51 PM

The EU is extremely beneficial economically, a single market and a single currency. Why do you think so many countries like Turkey want to join?


They used to when the Euro was soaring in valuing. Turkey is actually quite happy right now that they did not join.

#12 SgtJoo

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Posted 27 June 2011 - 08:46 PM

They used to when the Euro was soaring in valuing. Turkey is actually quite happy right now that they did not join.


Oh I don't know. I think Turkey would still love to be in the EU.


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