Greece, the Euro, Michael Jordan and LeBron James

Today, it’s again time to talk about Greece.
When I’m in groups, the main question is always - “What will happen if Greece defaults?” The sub-topic is - “Let Greece default; it’s not so important anyway.”
So, let’s tackle these two themes.
First, everyone is now saying what some of us have been saying for more than a year now - Greece will default and it is only a question of how and when. The G8 meeting last weekend put the Greek question on the table, and it made German Chancellor Angela Merkel uncomfortable, I’m sure. That’s because if Greece defaults, Germany and German banks will be big losers.
So, instead of trying to sort out how to proceed to save Greece or help it exit the Euro as painlessly as possible, the G8 and Chancellor Merkel pushed the can down the road yet again, more or less saying, “Let’s wait to see what the 17 June elections produce.”
The truth is that it doesn’t matter who is elected to the Greek parliament on 17 June. Greece cannot support the borrowing it needs to pay its ordinary current bills (its 10-year bond interest rate is now 23%), but nobody is lending to Greece, except the European Central Bank, which is really lending to Eurozone member countries which then pass the money along to their banks holding Greek and other questionable debt and the banks use the money to build up their bank capital.
The problem with this is that since EU rescue funds intended for banks can ONLY be lent to national governments, who then re-capitalize the exposed banks based in their country, such lending increases the nation's sovereign debt, thereby solving one problem by creating another.
Bank of America, Merrill Lynch, Citigroup and Barclays have already published various reports with titles along these lines: “What to Do If and When Greece Exits the Euro.” All of the reports say this likelihood is becoming more and more probable.
Dear readers, you will note that there are no banks headquartered on continental Europe in the above list. That’s because continental banks are singing the same song as the Eurozone leadership. Basically, they say, Greece cannot exit the Euro; Greece has made commitments to its lenders that it must honor; and the people of Greece will decide on 17 June if they want to keep the Euro and stay in the Eurozone. Germany could have written the script and probably did.
But, all over Europe there are rumblings of plans being finalized to be ready when (not if) Greece defaults and leaves the Euro behind for its old Drachma.
To be somewhat unpleasant about it - Greece is a patient on expensive life support; at some point Greece or her family of Greek citizens will say, “pull the plug” because we can’t go on watching her suffer and we can’t pay any more. This could easily happen on 17 June if a new anti-Euro anti-austerity parliament is elected.
And, even if the new Greek parliament muddles along and tries to force austerity on a people already suffering beyond most of our imaginings, and even if Greece keeps taking the life-support money from the Eurozone, someone else could say, “pull the plug.”
That would be the Eurozone leadership and the Central European Bank. They could very well reason that there are other patients (Spain and Italy, for example) who need life support, and since it is clear that Greece is dying, they could wake up one day and say, “Hey, let’s pull the plug on Greece so we can plug in and spend the money now going to Greece to save these other patients who have a greater chance of surviving.”
And, the truth is that Greece’s already- weak economy has been so devastated by the austerity program forced on her by Eurozone “friends” that the chances of a Greek economic revival in the mid-term are next to zero. So, she has no chance to survive on the Euro - it is too expensive for her ailing economy and +20% unemployment rate.
So, if Greece either chooses to opt out of the Euro on 17 June or is forced out later, what happens then?

1. The Eurozone and the ECB will refuse to “lend” Greece more money and so Greece will have no money to pay her debts. Greek banks will collapse because they will have none of the Euros they need to operate.
2. There could be a run on Greek banks, but this would probably not happen because the Greek government would declare a Bank Holiday and keep the banks shut…no open desks or cash machines = no money for Greeks whose funds are still in Greek banks. This possibility has already led to several mini-runs on Greek banks by Greek citizens trying to get their money out while they can.
3. There will be even more unemployment, retirement checks will not be mailed, state social services will shut down, the military and police won’t be paid, and Greek citizens will be pretty much left on their own to sink or swim.
4. This could lead to severe civil unrest, perhaps even a military takeover such as occurred in the 1970s when The Colonels took over Greece.
5. European and other banks that hold Greek debt will need to write it off their books. This is one of the reasons that America and the European Union have been demanding that all banks boost their capital - to cover such write-offs and still stay afloat.
6. Greece will begin the long process of printing Drachmas, agreeing with the international financial community on their value vis-à-vis the Dollar and the Euro, and then distributing them to Greek citizens in exchange for their Euros in the frozen bank accounts.
7. At the same time, Greek businesses will have to re-negotiate their commercial lines of credit and other contracts with suppliers and customers. This will make the Greek cost-of-living go up because with a devalued Drachma, Greeks will have to pay more for imported goods and services.
8. The Greek government will need to re-negotiate all it debt, finding acceptable terms for repayment with Drachmas, and also finding banks and other financial institutions willing to lend Greece money on a Drachma basis.

Enter President Hollande of France…elected on the basis of promising a growth pact instead of the Fiscal Compact between France and Germany. Merkel has said NO RE-OPENING of the Fiscal Compact, but this weekend at the G8, Merkel said the words that France, Spain, Italy and the world have been waiting to hear, “Of course there must be growth and we will make a separate pact to provide for growth.”
François Hollande's election in France has shifted the Eurozone crisis debate, and Hollande has lent his weight to several important players who were not able to budge Merkel on their own - José Manuel Barroso, president of the European Commission, and Mario Monti, Italian prime minister -- a powerful new Hollande ally.
This next weekend, there will be meetings in Europe to tackle the agenda of possible growth programs.
This just might save Spain and Italy, but not Greece. It is too late for a Greece poisoned and beaten to death by austerity programs not of her own making. Greece will leave the Euro and will finally find her feet again as a country managing her own affairs in the way that suits her economy and with her own currency that can be valued over time as is best for Greece.
Experts may argue, and people in the street may say, that Greece should pay for her over-spending and too lavish social welfare way of life.
But, given the lavish social welfare programs in every country in the Eurozone, that is something like Michael Jordan telling LeBron James that he’s making too much money and should give most of it back.