Tuesday, February 24, 2015

The Greeks were screwed to save the banks, now the banks are free, they are being screwed to save EU taxpayers and the debt just keeps on growing, how anyone thinks this makes sense I do not know....Grexit is inevitable. The only question is when, and how?  Many imagine Grexit will mean be a return to the Drachma and cheap holidays in Greece and maybe even cheap property to buy in Greece.  The reality will be very different.  You cant wind the clock back to the nineties (some DT journalists think you can!).  Most likely scenario is a semi-orderly/disorderly retreat from the Euro.  Starting this weekend with drastic capital controls to prevent a run on Greek banks next week , in the run up to the 28 Feb deadline.  Followed by either a cut in Govt spending (unlikely) or IOU’s and delayed payments for /salaries /pensions/ contracts from the Greek govt.(more likely)
Reason being the Greek Govt budget is already at -12% at end of last year - they are bankrupt  and this is set to go higher - Greek taxpayers aren’t paying their taxes …they are stuffing their spare Euros in offshore accounts or under the mattress, plus the social spending promised by Syriza– rehiring public employees, pensions at 50, free energy for some (the ones who voted for them).   The introduction of capital transfer controls and IOU’s by Greek Govt will be de facto exit from Euro , although officially Greece wont leave the Euro and cant be kicked out… instead a dual currency economy will exist.   You will still pay for your holiday in Greece this year in Euros… nothing will change for those parts of the Greek economy which are productive and competitive. Likewise real assets like property will keep their Euro value.   A situation much like Cambodia for example – a third world country but with a competitive tourist industry. Tourists pay in Dollars and get dollars from ATM’s , but every time they pay with foreign currency they get their small change in local currency …ending up with a pile of useless local currency at the end of the holiday.
Unproductive parts of the Greek economy – public employees, pensioners, unemployed and the poor will have to use local, depreciating currency on a hand to mouth basis, like all banana republic currencies.  But if you are a Brit- look on the bright side - the depreciation in the Euro , primarily due  to this Greek fiasco, will result in holidays being 10-15% cheaper in2015 , as compared to 2014….

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