Defiant Greeks reject EU demands as Syriza readies IOU currency
by Ambrose Evans-Pritchard / 05 Jul 2015
“Greek voters have rejected the austerity demands of Europe’s creditor powers by a stunning margin, sweeping aside warnings that this could lead to the collapse of the banking system and a return to the drachma. Early returns in the historic referendum showed the No side -Oxi in Greek- running at 61pc versus 39pc for the Yes side as the Greek people turned out en masse to vent their anger over six years of economic depression and national humiliation. A volcanic revolt appeared to have swept through Greek islands. The shock result effectively calls the bluff of eurozone leaders and the heads of the European Commission and Parliament, forcing them either to back down or carry out drastic threats to eject Greece from monetary union The European Central Bank faces an immediate decision over whether to continue freezing emergency liquidity assistance (ELA) for Greek banks at €89bn, a stance that would amount to liquidity suffocation. “If they do that, the situation would be very serious. That would be pretty close to trying to bring down the government,” said Euclid Tsakalotos, the country’s chief debt negotiator. The Bank of Greece (BoG) said on Sunday evening that it will make a formal request to the ECB for fresh support.
The EU’s leadership was in utter confusion as it became clear during the day that support was swinging back to the “No” camp, despite blanket coverage from the private TV stations warning that a “No” meant Armageddon. “The Greek people have proven that they cannot be blackmailed, terrorized, and threatened,” said Panos Kammenos, the defence minister and head of the coalition’s ANEL party. French president Francois Hollande said he would bend over backwards to keep Greece in the euro despite voting no. He is to meet German Chancellor Angela Merkel in Paris on Monday to draw up a joint response to what has turned into the biggest EU fiasco since the rejection of the European constitution by France and Holland in 2005. Martin Schulz, head of the European Parliament, was still insisting on Sunday that a “No” vote must mean expulsion from the euro, but his view is becoming untenable. Jean-Claude Juncker, the Commission’s chief, is equally trapped by his own rhetoric after warning last week that a No vote would be a rejection of Europe itself, leading to calamitous consequences.
Top Syriza officials say they are considering drastic steps to boost liquidity and shore up the banking system, should the ECB refuse to give the country enough breathing room for a fresh talks. “If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago,” said Yanis Varoufakis, the finance minister. California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union. Mr Varoufakis and ministers will hold an emergency meeting tonight with the private banks and the governor of the Greek central bank, Yannis Stournaras, to decide what to do before the cash reserves of the four big lenders dry up tomorrow.
Louka Katseli, head of the Hellenic bank Association, said ATM machines will run out of money within hours of the vote. One official say that Eurobank was “flat out of money” late on Sunday, even though Greek depositors have been limited to €60 a day since capital controls were imposed a week ago. There are mounting signs that the creditors are stepping back from the brink, conceding that they may have to renew talks with Syriza after all, though it is far from clear what this means. Senior German officials were briefing last week that Greece will not get another cent as long premier Alexis Tsipras and Mr Varoufakis remain in power. There is now a clear rift between Germany and France, perhaps serious enough to cause long-term damge to the coherence of monetary union. Sigmar Gabriel, deputy German chancellor, said a No vote means “the last bridges between Europe and Greece to move towards a compromise will have been torn away.”
“With the rejection of the rules of the euro zone, negotiations about a programme worth billions are barely conceivable,” he said. His hardline position was echoed by Slovak finance minister, Peter Kazimir, who tweeted: “The nightmare of the “euro-architects” that a country could leave the club seems like a realistic scenario after Greece voted No today.” Such an approach appears irreconcilable with the views of the French economy minister, Emmanuel Macron, who said the EMU creditors are equally to blame for the crisis and must resist the temptation to “crush” the Greek people. “It is our responsibility to avoid a Versailles Treaty within the eurozone,” he said. Italy’s Matteo Renzi said the sight of pensioners weeping in front of banks was a black mark on the conscience of Europe. “We must start to speak to each other again, and nobody knows this than better than Angela Merkel,” he said. Yet matters will be decided by handful of people in Berlin, Frankfurt, and Brussels over coming days, with the ECB in the unwelcome position of having to decide by its actions whether or not to bring the crisis to a head.
Syriza sources say the Greek ministry of finance is examining options to take direct control of the banking system if need be rather than accept a draconian seizure of depositor savings – reportedly a ‘bail-in’ above a threshhold of €8,000 – and to prevent any banks being shut down on the orders of the ECB. Government officials recognize that this would lead to an unprecedented rift with the EU authorities. But Syriza’s attitude at this stage is that their only defence against a hegemonic power is to fight guerrilla warfare. Hardliners within the party – though not Mr Varoufakis – are demanding the head of governor Stournaras, a holdover appointee from the past conservative government. They want a new team installed, one that is willing to draw on the central bank’s secret reserves, and to take the provocative step in extremis of creating euros. “The first thing we must do is take away the keys to his office. We have to restore stability to the system, with or without the help of the ECB. We have the capacity to print €20 notes,” said one. Such action would require invoking national emergency powers – by decree – and “requisitioning” the Bank of Greece for several months. Officials say these steps would have to be accompanied by an appeal to the European Court: both to assert legality under crisis provisions of the Lisbon Treaty, and to sue the ECB for alleged “dereliction” of its treaty duty to maintain financial stability.
Mr Tsakalotos told the Telegraph that the creditors will find themselves be in a morally indefensible position if they refuse to listen to the voice of the Greek people, especially since the International Monetary Fund last week validated Syriza’s core claim that Greece’s debt cannot be repaid. “It would be a pretty extreme position for Europe to say that the vote didn’t matter. That is not what they did when Ireland voted ‘No’ to the Lisbon treaty,” he said. Mr Tsakalotos said Syriza’s mood hardened a month ago when the talks turned nasty. “A lot of people were outraged when we gave them a 47-page document and they gave us a 5-page document. It was a slap in the face. They were not even taking the negotiations seriously,” he said. Mr Tsakalotos said Syriza is now in a much stronger negotiating position and the creditors will gain nothing from digging in their heels. “The process has now gone for so long in Greece that we haven’t got a hope in Hell of delivering on our promises unless there is a regime change, and by that I mean that people have to feel that Grexit is off the agenda,” he said. To those who complain that his government refuses to reform, he called this a canard. Syriza are the outsiders shaking up a fossilized system. “Even if they forgave all the debt and gave us €300bn we would still be in deep trouble, if we didn’t push through deep reform. No-one in Syriza thinks that everything was hunky-dory in 2008 and we all can go back to that,” he said.”
IOU-currency would put Greece in line to quit euro
by John O’Donnell & Alastair Macdonald / Jul 7, 2015
“The thinning oxygen supply to Greek banks could leave Athens with little choice but to introduce a form of second currency, European officials believe, a temporary means of freezing its membership of the bloc but one that risks its ultimate exit. The idea of putting Greece’s euro membership on hold – a temporary ‘Grexit’ – was recently raised by Germany’s finance minister Wolfgang Schaeuble. Greeks say they have no intention of leaving the currency zone, temporarily or otherwise. But a suggestion by Yannis Varoufakis, who quit on Monday as Greece’s finance minister, that Athens might issue IOUs like the state of California did during a budget impasse in 2009, could amount to the same thing.
Facing a massive budget shortfall, California’s then governor Arnold Schwarzenegger issued more than 300,000 IOUs, known as warrants, with a value of almost $2 billion, to pay taxpayer refunds and others due money from the state. After a few months, the state struck a new budget deal and started to redeem the notes. But unlike California, Greece cannot fix its financial problems simply by passing a new budget; if it issues IOUs, it could probably redeem them only if it receives a future international bailout. Otherwise, the warrants could turn into a permanent parallel currency. “There was never any possibility that California would leave the dollar. It was more a way to replace bonds and financing on the market than to replace a currency,” said Gregory Claeys of Brussels’ Bruegel think-tank. “In Greece, it’s a different issue. Once they produced these IOUs there would be no turning back. It would de facto end up in Grexit.”
Although the Greek government appears not to have planned for a parallel currency, officials both in Brussels, home to the European Union’s executive, and Frankfurt, headquarters of the European Central Bank, believe that it could happen. ECB officials who studied the prospect of IOUs earlier this year concluded that up to 30 percent of Greeks would end up receiving them, rather than payment in euros, people familiar with the matter had said. They might be used to pay pensions and public sector wages, and accepted to pay taxes. However, the danger that this could lead to Greece’s departure from the euro bloc was already recognised then, and since then the mood has only darkened, making it harder to see how any issuance of IOUs could be temporary.
Some of the euro zone finance ministers gathering on Tuesday in Brussels spoke openly about the risk of ‘Grexit’. They expect to hear new Greek proposals for rescue that will then be discussed by government leaders at a summit later in the day. Greece’s immediate weak point is its banks, which depend on euros from the ECB to stay afloat. If talks about a bailout programme stumble on without agreement, the ECB will have little choice but to keep a tight strangle-hold on Greek bank funding. Without support from Frankfurt and if cash runs out, Greece would have to issue some other form of payment to keep its economy alive, said Francesco Papadia, a former top ECB official. “It would begin with IOUs, electronic transfers. But then it could become a fully fledged currency.”
Quite how, legally, Greece could leave the euro is unclear. The only treaty provision is one allowing states to leave the EU as a whole. There is no law defining expulsion. External debts would still be denominated in euros and importers would need a way to get hard currency. “Internally, you would have IOUs,” said one euro zone official. “But you cannot trade that outside of Greece. How long will you be able to continue like this? My hope is that they wake up.” For now, the subject remains a taboo, at least in public, for the leftist government of Prime Minister Alexis Tsipras. Asked on Sunday, whether Greece was set to introduce its own national currency, deputy Finance Minister Nadia Valavani, retorted: “Get serious.” But officials in Brussels say the leaders will have to discuss it. “Discussing Grexit is more likely than discussing a new (lending) programme,” said one European official ahead of the summit. “Greeks cannot be expelled from the euro zone but they are likely to be put (under) conditions that they will ask to quit,” the official said, speculating that even the 60 euros per day that Greeks are now permitted to withdraw from their bank accounts would have to be reduced. Hung Tran, Executive Managing Director of the Institute of International Finance, who negotiated an earlier restructuring of Greek debt, said the time to grasp the nettle may have come. “If they cannot settle their differences, the euro zone leaders should agree on Greece to exit the euro in a planned manner,” he said. “This would be preferable to an uncontrolled accident.”
Minister No More!
by yanisv / July 6, 2015
“The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage. Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms. Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. And I shall wear the creditors’ loathing with pride. We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government. The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.”
What is it and how promissory payment IOUs used [Google Translated] / 07/08/2015
“What is the parallel currency? – It is a debt instrument which is used alongside the main currency of the country. -Who would adopt? – The Ministry of Finance. The Bank of Greece (BoG) is a member of the Eurosystem and the monetary policy of the country is determined by the European Central Bank (ECB), as in other countries of the Eurozone. Thus, the bog could not initiate procedures. – To whom it will be distributed? – pensioners and civil servants. Possibly, the State he could repay and liabilities inwards and in particular suppliers. Already the General Accounting Office (GAO) has created an online system in which registered suppliers of government that have a payment from the state, in order to accelerate the settlement procedures of state debts. – Where can be used? – in all cases , those who have their hands on the parallel currency will not be able to use it outside the country. Civil servants, pensioners and suppliers of the State can use to interact with the State, as the repayment of taxes or public utility bills. Unknown is whether they can use to purchase goods from private business or to cover their obligations to banks. This can be made but great and good technical preparation necessary in cooperation with all stakeholders of the private economy. – Can I exchange the parallel currency for euros? – One of the phenomena that are bound to occur is the creation of “black market. ” As is apparent, those with euro can exchange euros with the parallel currency, but the rate will not be in favor of a parallel currency holders and will vary with the circumstances and needs of those who will provide the parallel currency. – It can be done without the consent of the Eurozone and the ECB? – The government could unilaterally proceed with such a move. According to reports, the ECB -as the guardian of the single nomismatos- would not see with good eyes the introduction within the Eurosystem of a parallel currency. However, one can not rule out its use be for a specified period and with the agreement of the EU – has been somewhat affected by the use of a parallel currency in relations with Europe? – The European Treaty does not allow the use of parallel currency. Indeed, many argue that if Greece progressed in his introduction, it has breached the Treaty and would risk to create the legal conditions for the country’s exit from the euro.”
“…Businesses in Thessaloniki and other parts of the country are already creating parallel private currencies to keep trade alive and alleviate an acute shortage of liquidity. Vasilis Papadopoulos, owner of the Maxi paper mill in Katerini, said the situation was becoming desperate for his industry. “I have enough raw materials to last until July 14. If I don’t get any more pulp, I will have to close the factory. It is a simple as that. I have 183 employees and I will have to start laying them off,” he said. Mr Papadopoulis, who manufactures paper towels, napkins, and toilet paper – partially for export – said a consignment of 3,000 tonnes of pulp from Finland was stranded in the port of Salonica. “I can’t pay the suppliers because the bank is blocked, so they won’t release it,” he said. His firm has reached an accord with regional supermarkets to accept coupons or private scrip money in lieu of payment as soon as next week. His workers will then be able to use this paper as a parallel currency at the supermarket to buy goods. In the meantime, people are trying to offload their bank holdings as fast as possible. (Electronic bank transfers within the country are still allowed). “Everybody is afraid of a haircut. Our clients are trying to pay us as much as possible, and transfer their problems to us. We, in turn, are paying everything in advance: taxes, gas, anything we can. It is like musical chairs because nobody wants to be the last one left standing with money in their account when the music stops. Before all this happened we were about to invest €5m to build new warehouses and buy a new cutting machine from Italy. It is totally suspended,” he said…”
BANKING without BANKS
The emergence of peer-to-peer lending, fintech and new forms of currencies mean people and businesses can act on their dissatisfaction with the big banks
by Leander Bindewald / 7 July 2015
“Dissatisfaction with the banking sector over the last decade has led to numerous calls for the industry to change. Last month, the governor of the Bank of England spoke of how the UK financial sector bears the scars of a market gone wrong, while others have highlighted how the oligopoly of our big five UK banks are not only too big to fail and too big to jail, but simply too big to compete and unable to serve customers needs. Transforming the system from within is one way to do bring about change, for example by turning The Royal Bank of Scotland into a network of local banks. In a report published earlier this year, my colleague Tony Greenham demonstrated how doing this would transform the face of UK domestic retail banking and bring significant economic benefits in the process. But there is also a second transformation picking up speed, one which comes from outside the financial establishment. This transformation is set not only to cut prices for business and consumers, but also to introduce a host of new services and opportunities beyond what even challenger banks – new rivals of the big lenders – can be expected to deliver. By combining recent technologies with age-old practices that now cover all areas of banking, new practices are emerging that go beyond what was previously possible. It short, it is now possible to bank without banks. Here’s how:
1. Peer-to-peer lending
This industry has been the poster child of innovative financial services for the last few years and is now well recognised by regulators and markets alike. These lenders, like Zopa, RateSetter and FundingCircle, are stepping into the arena that to most customers is the core business of banks: providing saving options and facilitating investment. On the savings side, people who place their money through peer-to-peer platforms will receive ISA-like tax benefits from April 2016. On the investment side, even platforms that previously only focused on personal loans, such as RateSetter, are now moving into business loans. You might not expect lower rates there, but the aim of these platforms is to outperform banks with a faster turnaround of applications. What’s more, through deeper and more personal profiling of individual cases they can grant the kinds of loans to small businesses that big banks aren’t bothered about.
2. Innovative ways to pay
The rails that most of our transactions run on are currently provided by private institutions owned and governed by the big incumbent banks. This puts them in a gatekeeper position that effectively discourages them from investing and updating their technology and protocols to match the speed and ease of services you would expect in the twenty-first century. It also leads to high costs that lack transparency for users. Even the banks that want to make a difference to small and medium businesses, such as credit unions, building societies and challenger banks, have to buy into these legacy systems. This sector is ripe for disruption and a host of new platforms are picking up the slack, offering substantial savings for customers. Some, like PayPal and TransferWise, focus on ease and convenience to customers but still link into the conventional system in the back-end. Others are building new sets of rails altogether. The small but highly innovative Brixton Pound offered mobile payments ahead of the high street banks without the need for a smartphone. Bitcoin is still hitting the news regularly, with Cumbria University announcing last year that some of its students will be allowed to pay their tuition fees using the digital currency. However, the hype around its highly volatile currency has seen it now give way tofintech – companies focusing on what the underlying technology is good at: direct transfers between account holders anywhere in the world without any middlemen. Despite big banks now trying to catch up by providing entrepreneurs with incubator facilities and capital, this is pretty much still a start-up industry with high risks but even bigger potential. Islamic traders have used payments without banks for centuries through the Hawala network. The Internet is about to bring such direct financial connectivity to all business and individuals as we speak, with outfits such as Ripple and Stellar already the darlings of Silicon Valley.
3. Creating new money
It still comes as a surprise to many that money is not only transferred by banks, but also created when providing loans. Peer-to-peer lenders and payments services only operate with the money that has been provided by banks at some point. So when liquidity in the economy is low, be it locally or even nationally, it requires a third set of innovations to fill the gap. Complementary currencies do just that at close to 0% interest. They are only valid for businesses that signed up to their collaborative credit networks and are typically not exchangeable for national currency. The WIR-franc in Switzerland has operated for over 80 years and serves close to 50,000 business all over the country. The city of Nantes in France just launched the SoNantes as an way to support SMEs in the region. While these two examples happen to be run by banks – a cooperative in the case of the WIR and a local public bank in Nantes – that both also offer services in conventional currencies to their clients, a banking licence is not required to issue a complementary currency anywhere. Collaborative credit systems are typically run by regular service companies outside the scope of financial regulation. Some operate internationally and are publicly listed companies, like Bartercard, which also operates in the UK, but most focus on a particular city or region. The international trade body IRTA was founded in 1979 as a representative of the industry in the USA, but many more exist around the world.”