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Wed Dec 14, 2011, 10:53 AM

Leaving the Euro: Scenarios...

NYT: Pondering a Dire Day: Leaving the Euro

... Instead of business as usual on Monday morning, lines of angry Greeks form at the shuttered doors of the country’s banks, trying to get at their frozen deposits. The drachma’s value plummets more than 60 percent against the euro, and prices soar at the few shops willing to open...

... As the country descends into chaos, the military seizes control of the government...

... In “Leaving the Eurozone: A User’s Guide,” Mr. Dor starts with the obvious: any return to the drachma would have to be preceded by an immediate freeze on bank deposits.

To prevent panicked Greeks from sending the rest of their deposits abroad, transfers to countries outside of Greece would be halted. As the new currency inevitably lost value, new drachma accounts would remain frozen.

/... http://www.nytimes.com/2011/12/13/business/global/a-greek-what-if-draws-concern-dropping-the-euro.html?_r=2&pagewanted=1&ref=global-home

Leaving the euro zone: a user’s guide (.pdf)

... For a country wanting to abandon the euro the only legal way possible following the European treaty regulations would be to leave the whole of EU using article 50 of the treaty and then try to rejoin but asking for special dispensation with regards to the monetary union. Another legal way would be to negotiate an amendment to the treaty with other member countries. All these options require long negotiations and ratification by all member states. Some people therefore think that, because of urgency, only a unanimous agreement by the European Council leading to the issue of a European regulation, could be sufficient despite the legal uncertainty that this could entail. Some articles from the Vienna Convention on the Law of Treaties could also be used when a country wants to leave the euro zone without leaving the UE, as long as it is accepted that international public law applies to the European treaty, which is however a much debated issue.

The difficulties related to the abandon of the euro by only one country (or a subset of countries) in the EMU arise because the other countries would keep the euro. The new currency of the country leaving the EMU will have to coexist with its old currency, the euro, that would be kept by the other countries. It must therefore not be taken for granted that any debt that the country had in Euros would be converted automatically to their new currency. This situation would be even more critical if the new currency was expected to depreciate and become worth less than its initial conversion rate with the euro.

A description of the procedures to be undertaken by a country when wanting to leave the euro zone allows you to measure the difficulties that you may come across in the process. A crucial question is how to undo the euro denominated debts and claims of the country’s national central bank to or on the other national central banks in the Euro System, including the European Central Bank. To avoid a panic and too strong devaluation in the new national currency value, the saving accounts could be temporarily blocked. Moreover, contrary to the free circulation of capital in the EU, temporary measures of capital movements control may be taken even though this may be illegal under the European treaty.

In the hypothesis of a state wanting to leave the euro zone, it would only be under certain conditions that certain debts that would have been issued in euros by either a public or private institution of the country before the date of exit, or certain payments deriving from contracts in euro’s settled before this date, could be automatically converted into the new currency at the initial conversion rate. In general such a conversion could only apply to debts and contracts for which the involved contractors intended to refer to the “lex monetae” of the leaving country...

/... http://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=1046781054_2011-ECO-06_Dor.pdf

AFP: Impact studies on failed euro intensify

A return to the drachma, the deutsche mark, the punt and the franc or any other national currency would mean devaluations for some, appreciation for others.

According to Jens Nordvig of Japan’s Nomura Securities, Germany’s currency would rise against the US dollar, but Greece would lose 60 percent of its money’s value.

Italy, Spain or Belgium would lose around one-third each.

While scope for exports would improve, debt restructuring on that basis would mean a dramatic rise in borrowing costs for those governments who write off the most.

National banking systems would collapse, experts say, because of a loss of confidence in the value of the currency that replaced the euro.

/... http://www.taipeitimes.com/News/biz/archives/2011/12/12/2003520513

Time: Scenarios of Euro Collapse Appear

... That’s all pretty bleak—though some observers insist there may be a silver lining in the current black cloud of crisis. French researcher Emmanuel Todd argues that though the implosion of the euro would produce a period of economic pain, panic, and instability, he says that shock wouldn’t last as long as some predict (18, maybe 24 months), before companies and governments picked up and moved on. And because many euro countries would be starting anew after having brushed off huge amounts of debt through various degrees of default, Todd argues the post-euro economies could be re-constructed on more solid fiscal foundations.

Another consequence of such default, Todd says, would be freeing economies and governments from control of what he calls the “oligarchy” of mega-rich investors whose fortunes and interests drive and shape bond markets—and whose gain through safe government securities have influenced political leaders into building up huge public debt in the first place. Another benefit for European nations, Todd says, would be throwing off the domination of Germany, which he describes as dysfunctionally psycho-rigid, and so focused on its own national interests that it no longer cares about ruining its euro partners. Burning the rot from a teetering house, Todd suggests, will be hard and grim work, but at least leave enough of a sanitized structure to rebuild from.

That may sound to some like too extreme of a blame-and-punish-the-rich view to take seriously, yet Todd isn’t an observer anyone should write off. An unabashed leftist who switched his early opposition to the euro to more recent resignation that the useful and beneficial currency is probably doomed, Todd is no ideology-blinded seer of capitalistic disaster. His 1976 book, “The Final Fall”, used demographic and economic data to predict the collapse of the Soviet Union almost to the year, and he has since written studies across a variety of sociological disciplines to accurately forecast (and explain) major developments in Europe. It’s for that reason few people in France are willing to write off Todd’s warnings that recent socio-political events make very real the possibility that authoritarian forces may seek or take power in Italy, Greece, Portugal, Spain, and perhaps elsewhere in Europe, particularly if E.U. turmoil results in monetary and economic failure.

Read more: http://globalspin.blogs.time.com/2011/12/13/as-the-crisis-refuses-to-calm-scenarios-of-euro-collapse-appear/#ixzz1gWGcEMsK

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