Will It Or Won’t It? The Ongoing Greek-Euro Tragedy

on Jul 26, 2012

Three hundred and forty point seven five oh. In case you’ve forgotten, that was how many Greek drachmas were needed to buy one euro on 1 January 2001, when the euro went physical. A rather more pressing question today for the Greek people is how many will be needed when their country exits the single currency.

When? Shouldn’t that be if? Six months back, yes, the general sentiment in political and market circles was that the Hellenic Republic could be saved from within the protective folds of the European Union. A Greek exit from the EU’s flagship totem, the euro, was still being projected as unthinkable – and unnecessary. But as the long and bitterly cold winter of 2011-12 gave way begrudgingly to spring, sentiment towards Athens in Brussels and Berlin started moving in the opposite direction – from mildly warm to distinctly frosty. Matters were not helped by the drawn-out – and hugely costly, in terms of opportunities lost – process over the ensuing months by which the Greeks gave themselves a government again.

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!m[](/uploads/story/203/thumbs/pic1_inline.png)Now, the talk all over the financial and business media is no longer of if but when. Also how – with British economist Roger Bootle pocketing £250,000 early this month for showing the way (Bootle’s winning entry in the ‘Wolfson Economics Prize’ was entitled ‘Leaving the Euro – A Practical Guide’). Going back to when, Citigroup (C) chief economist, Willem Buiter – he who history will credit with coining the term ‘Grexit’ – today upgraded to 90% the chance of Greece exiting (Grexit – capisce?) the euro within the next 12-18 months. Indeed, asserted Buiter, Citi “believe the most likely date is in the next 2-3 quarters”. The first of January 2013, for example, a date which has previously been bandied about.

Indeed, if these expert prognostications are to be believed, even now somewhere in the bowels of the Greek finance ministry and national bank, people are beavering away on the detail of the exit plan, the contract is about to be let for the printing and minting of the new drachma (for what else could Greece possibly call its currency?), and instructions are being shuffled up to ground level to keep the ‘troika’ at bay just a little bit longer. The people from the European Commission, the European Central Bank and the International Monetary Fund are in town this week, grilling the newly-cobbled coalition government on progress in shaving 11.5 billion of those pesky euros from its expenditure through 2014. Out on the street, civil servants are protesting the myriad belt-tightening measures already implemented, not least being cuts of up to 40 percent to state pensions.

Looking on the bright side, an enterprising hedge fund based in the Cayman Islands – Naftilia Asset Management – has established a ‘Greek Opportunity Fund’ focused on stakes in Greek equities by reference to whether or not the beleaguered country manages to stay in the euro. Either way, an upside is seen in plays on the valuations placed on Greek listed companies. In the event of a Greek exit, for example, export-oriented companies whose home costs become denominated in ‘new drachmas’ will benefit from revenues which remain in euros.
The troika’s report on Greek compliance with the bailout plan – which of course carries the underlying assumption that Greece stays in the single currency – is due sometime in September. It seems to be anyone’s guess whether it will be of more than academic interest by then.


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