Will Greece Be Able to Print Drachma in a Rush?

If or when policymakers finally decide Greece should leave the euro, the exit could happen so quickly that “new drachma” currency notes might not be printed in time.

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In principle, some of the long-term consequences of Athens leaving the currency bloc are not unappealing. The euro zone would no longer have to worry about what has always been its weakest link. While a new Greek currency would almost certainly immediately crash in value as soon as it was issued, in doing so it would make the Greek economy much more competitive.

But the short-term effects would be brutal, both domestically and on the global economy. A post-euro Greece could find itself struggling to import food and fuel, with everyday life reduced to barter in goods and services and the government unable to pay workers in anything they would want to receive.

“It would be chaos,” says Marios Efthymiopoulos, a visiting scholar at Johns Hopkins University Center for Advanced International Studies and president of Thessaloniki-based think tank Global Strategy.

“The banks would collapse and you would have to nationalize them. You wouldn’t be able to pay anyone except in coupons. There is only one (currency) printing press in Greece. It is in the museum in Athens and it doesn’t work any more.”

The cost of managing what is increasingly being termed “Grexit” – with its resulting global market turmoil and colossal financial pressure on Spain and Italy – could dwarf the cost of keeping Greece on financial life support. But with northern European states – and their electorates – becoming tired of bailouts, the probability is seen clearly on the rise.

World leaders meeting at the G8 at Camp David recommitted themselves to keeping Greece in the euro zone, underlining worries over the costs of an exit. Not everyone believes that will prove enough. The unknowns, however, are enormous.

“There’s so much we don’t know,” says Domenico Lombardi, a senior fellow specializing in the global economy at the Brookings Institution. “If Greece leaves the euro, it will also have to leave the EU,” he added, though some suggest treaties may be interpreted or amended to keep Athens in the wider bloc.

Lombardi questioned how much help Greece could count on: “How much international support is there? Probably not very much. It’s very hard to know what they could practically do.”

With life for the Greek people changing overnight with a euro exit, social turmoil would be inevitable. Whoever made the decision – if it were to be made in Athens at all – could certainly not count on being in power weeks or even days later.

“It would be truly revolutionary, in every sense of the word,” says Tyson Barker, head of transatlantic relations at the Bertelsmann Foundation. “There are various ways it could be done … but you could end up like Cuba with use of multiple currencies or with essentially a barter economy, at least in the early days.”

Private companies and foreign states, including Britain and the United States, have detailed contingency plans for euro zone collapse. Greece, however, is in a more delicate position.

Had it become public knowledge that any Greek government was  preparing to leave, the resulting panic could easily have made it a self-fulfilling prophecy.

Already this week, Greek savers – and smaller numbers elsewhere in the southern euro zone – have begun to take money from banks. Tourists are staying away, exporters are demanding cash up front.

Should Grexit ever happen, it would have to begin within days or even hours of the decision being made at the top.

Walking Out or Kicked Out?

But just as it increasingly appears incapable of pushing through the tough austerity measures and reforms required by international lenders under the terms of existing bailouts, Athens might prove simply unable to take the decision to leave. Almost without exception, its political leaders have pledged to remain in the single currency even if they opposed the bailouts.

In theory, there is no provision under EU treaties for Europe’s other states to unilaterally kick out a member. But in reality, analysts and officials say they could effectively freeze Greece out by closing its access to European Central Bank lending.

That might effectively force Greece to issue its own currency as it might not have any other way of paying workers or providing enough cash to keep the economy moving.

At that stage, Greece would likely also attempt to convert all local and perhaps also its international debt into the new and rapidly depreciating currency. Its international creditors, however, would cry foul. That would likely be the beginning of a debt restructuring that could last years. But historic debts would be the least of Greece’s immediate problems.

Even the physical production of a new currency would be fraught with problems. Any foreign firm hired to print Greek notes would almost certainly require money up front. Any coupons or temporary notes produced locally might swiftly be forged, rendering them even more worthless.

As in some other non-euro zone states such as Montenegro, the euro might remain the principal currency for many transactions. But it would be in much shorter supply and be beyond government control or even influence, making it almost impossible to use for salaries or benefits payments.

Euro savings held in Greek banks would inevitably be redenominated in the new currency — with its rapidly slumping value. Physical euro
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] notes already in circulation, however, would retain their value or even become much more prized.

Border Closures, Troops on Streets?

It would most likely be necessary to close borders to stop Greeks smuggling out euros to stash in banks elsewhere. But with hundreds of miles to cover, much of it in inaccessible mountain, wood and scrubland, security forces would be stretched thin.

Simultaneously, police would likely have to manage a dramatic spike in unrest and perhaps more political and criminal violence. Already, there have been isolated examples of Germans — or those suspected of being German — being assaulted in apparent anger over EU-enforced austerity.

Greece’s leaders could decide to deploy the army onto the streets in an attempt to reassure the population and bring calm. But that could prove deeply divisive.

“If this happens, there are definitely going to be security incidents in the streets of Athens,” says David Lea, Western Europe analyst at Control Risks.

But the Greek military is not designed to deal with this. It’s designed to deter Turkey. And you have to remember, this is a country with a recent history of military dictatorship and using it could go down very badly.”

Rarely would a country have needed international financial aid so desperately. But euro zone countries would likely want to preserve their financial resources to protect other states, particularly Italy and Spain, and might even push the IMF to hold back. In a tightly fought U.S. election year, financial aid from the United States would also be virtually unthinkable.

Greece could try to turn elsewhere. In 2008, Iceland raised eyebrows amongst other NATO members when it approached Russia for a massive financial loan that many suspected would come with strategic strings attached, perhaps rights to use military bases on the island. But neither Moscow nor Beijing are seen particularly keen to take on Athens’s woes.

In easier times, it might have been possible to extricate Greece quietly and slowly. Dozens of countries have successfully left currency blocs since 1945, mainly colonial states breaking free of their former masters. But doing it under this much pressure and global market focus makes that impossible.

“An exit is technically feasible,” said Lea at Control Risks. “But managerially, it is extremely difficult to do well. It requires a lot of planning and a lot of agreement. And given current circumstances, there is no chance of that.”

Article source: http://www.cnbc.com//id/47493265

Euro Zone Row Gets Fat Pay Rise for German Workers

BERLIN (Reuters) – A record-breaking pay deal will give millions of German workers their biggest rise in wages in two decades, boost consumption in Europe’s biggest economy and help towards adjusting the regional imbalances that have caused severe tensions within the euro zone, analysts said on Sunday.

Germany’s largest industrial union IG Metall agreed to a 4.3-percent pay rise from employers just before dawn on Saturday — giving the 3.6 million car and engineering industry workers their biggest wage increase since a 5.4 percent deal in 1992.

The eye-catching 4.3 percent increase in the headline number will cover the 12 months from May 1 to April 30, 2013, union officials said. The agreement that ends a series of disruptive strikes takes effect from April 1, 2012 but will encompass a 13-month period. Workers will get no raise for April 2012.

The highest wage increase in two decades was agreed after German political leaders broke a long-standing, self-imposed taboo of staying out of wage talks and instead repeatedly called for strong pay rises.

Low wage growth in Germany has been identified as a source of danger in the euro zone with economists blaming it for causing imbalances that have exacerbated the sovereign debt crisis. Nominal wage growth in Germany was 1 percent on average from 2007 compared to 2.7 percent in the combined euro zone.

“I think it is a good agreement that will contribute to the rebalancing in the euro area,” said Guntram Wolff, deputy director of EU policy think tank Bruegel in Brussels, after the breakthrough in the talks being closely watched across Europe.

Even though wages in the crisis-hit euro zone periphery are falling, German workers this year are savoring the benefits of a robust economy, a healthy labor market and the unusual verbal backing for higher wages from political leaders, such as Finance Minister Wolfgang Schaeuble who earlier in May said German wages should grow faster than in the rest of Europe.

“The IG Metal pay deal is another clear sign that the era of very moderate wage increases is over,” said Joerg Kraemer, chief economist at Commerzbank, adding that German unit labor costs will now rise in excess of the euro zone average.

“This helps the peripheral countries to regain the loss in price competitiveness they had suffered relative to the euro-zone between the introduction of the euro and the burst of the debt bubble,” he said. “But the euro zone as a whole gets weaker when Germany loses price competitiveness.”

More money in the wallets of German consumers should in theory boost demand for imports from European partners. Economists believe higher labor costs in Germany could, over time, also make products manufactured elsewhere in Europe more competitive relative to those made here.

BENCHMARK DEAL

The IG Metall deal, which will cost engineering employers some 7 billion euros, came after an all-night negotiating session in the southwestern town of Sindelfingen, near Stuttgart. The sector is at the heart of the German economy.

The deal will also set a standard for other agreements even though analysts believe other unions will not be able to match the results in the thriving engineering sector, which represents Germany’s leading manufacturing sector that includes carmaking powerhouses such as Volkswagen VOWG_p.DE, Daimler DAIGn.DE and BMW BMWG.DE.

“The deal will set a benchmark for other sectors in Germany,” said Holger Schmieding, an economist at Berenberg who calculated it works out at a 3.97 percent annual pay rise if the 13th month is included. “But as few sectors are as buoyant as metal engineering with its focus on the global market, wage gains in other sectors are likely to modestly lag behind.”

It exceeded the 6.3 percent pay rise over a 24-month period that Germany’s 2 million public sector workers agreed to accept on March 31 that will cost taxpayers some 7 billion euros over the next two years.

The above-average pay increases in Germany come after a decade of wage deals that even failed to keep pace with the country’s inflation rate of around 2 percent. The moderate agreements had improved the country’s competitiveness and helped the unemployment rate fall to a two-decade low. But that put strains on the single currency.

“Higher German wage inflation is part and parcel of the internal rebalancing of Europe,” Schmieding said. “The shift within the euro zone, already visible in a decline in Germany’s trade surplus with other euro zone members and an export boom in the euro periphery, will become even stronger over time.”

Schmieding said declining wages in countries like Greece and rising wages in Germany show that rebalancing within the euro zone is possible without causing the euro zone to lose members.

“Countries do not have to leave the euro and devalue a new currency,” he said. “The facts prove that they can rebalance within the protective umbrella of the single currency.”

(Editing by Greg Mahlich)

Article source: http://www.cnbc.com//id/47494610

Greek Crisis Poses Choices G8 Leaders Rather Not Make

The leaders of the Group of 8, emphasizing growth as well as fiscal discipline at their meeting on Saturday, made a strong plea for Greece to stay in the euro zone and the European Union.

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And no wonder.

Despite efforts at official reassurance, no one really knows the consequences of a Greek exit from the euro zone, or how rapidly big countries like Spain and Italy, and their banks, will feel the effects.

However cavalierly some European officials talk of “managing” a Greek exit, the political and financial costs would represent a fundamental challenge to the European Union and its credibility, and the point of no return may be approaching faster than anyone anticipated.

“Anyone who thinks a Greek departure would be cleansing and not cause systemic contagion is deluding themselves,” said Simon Tilford, chief economist at the Center for European Reform in London. “Already we’ve seen a sharp increase in spreads and the beginnings of capital flight in other struggling euro zone economies,” with the risk of a full-blown banking crisis in Spain, where 16 banks and four regions have just been downgraded by Moody’s Investor Service.

The stresses on the system are now so great that to contain panic and contagion, while protecting countries too big to bail out, would require political choices and financial commitments that many countries, including Germany, Finland and the Netherlands, seem unlikely to make — the prime reason they would prefer that Greece remain.

The problems of Greece and Spain are complicated enough, but the pressure on euro zone leaders to resolve the evident contradictions in the common currency and to move faster toward more political and fiscal integration is rising by the day. The election of François Hollande, a committed European, as president of France may help push Berlin toward more collective responsibility for the euro zone, but Chancellor Angela Merkel of Germany , with her own domestic political concerns, has rarely been willing to move quickly or boldly, which many believe has prolonged and deepened the euro crisis.

Even the British prime minister, David Cameron, warned Europe of the urgent need to fix its economic imbalances and structure. Britain is outside the euro zone and has no intention of joining, so Mr. Cameron’s words were resented. But they rang loudly. Europe, he said, “either has to make up, or it is looking at a potential breakup.”

While Greece is only a small part of the euro zone — and European officials concede it should not have been allowed to join in the first place — its exit is likely to be more expensive and complicated than figuring out a way for it to remain. That would subject, of course, to Greek voters producing a functioning government in new parliamentary elections on June 17.

Ms. Merkel is now talking of special stimulus programs for Greece to help ease the pain of austerity, but any new deal with Athens will have to be negotiated with a real government, and there is no guarantee that the next elections will produce a working majority. They might even lead to a governing coalition that is hostile to the loan agreement that Germany has insisted is not open to significant renegotiation.

In the interim, as European officials try to send strong messages to Greek voters about the consequences of an exit, a continuing run on Greek banks — a panic that threatened to spread to Spain last week — could force the European Central Bank

to jettison Greece anyway by refusing to replace the euros fleeing the country for lack of proper collateral.

European finance officials are trying to be reassuring about a Greek exit, saying that most Greek debt is now held by nations, which can afford the loss if necessary, and that better firewalls exist to protect the rest of the euro zone, and so that the impact on the world economy will be manageable. But while Europe is better prepared for a Greek restructuring of its debt — writing down what is currently held by states and the European bailout funds — a Greek departure is likely to be seen as the beginning of the end for the whole euro zone project, a major accomplishment, whatever its faults, in the postwar construction of a Europe “whole and at peace.”

“A Greek exit should be avoided; it will be very disruptive and disorderly, and not just for the Greeks,” said Nicolas Véron, an economist at Bruegel, a research and policy institute, in Brussels and the Peterson Institute for International Economics in Washington. “It’s a classic clash between moral and economic attitudes. A neighbor may keep starting fires, which is exasperating, but if you know his fire is going to run to your roof you have to act to put it out. Leaders need to make hard calculations about what is best for everyone.”

Daniela Schwarzer, a European Union expert at the German Institute for International and Security Affairs, said that a Greek default, within the European Union or without, would be costly, requiring a write-down of much of the debt held by European states and the European Central Bank, which member states would then have to recapitalize. But that is just the financial expense, which is the least of it.

Article source: http://www.cnbc.com//id/47496164

Strong Quake Hits North Italy, At Least Three Dead

A strong earthquake rocked a large swathe of northern Italy early on Sunday, killing at least three people and causing serious damage to the area’s cultural heritage.

The 6.0 magnitude quake struck at 4:04 a.m. (0204 GMT) while most people were sleeping, and thousands ran into the streets in their night clothes in panic.

“I ran out in my underwear,” one man told Italian television.

The epicenter of the quake, the strongest to hit Italy in three years, was in the plains near Modena in the Emilia-Romagna region of the Po River Valley, and the tremor was felt in nearby regions of Lombardy and Veneto.

One person, believed to be a Moroccan man working a night shift in a polyester factory, died when he was hit by falling debris. His shift was to have ended 56 minutes after the quake.

Two men, also working a night shift, were killed when part of a modern ceramics factory made of steel collapsed in the town of Sant’ Agostino.

“He wasn’t supposed to be there. He changed shifts with a friend who wanted to go to the beach,” the mother of one of the victims told state television.

A woman believed to be a German was reported to have died after suffering a heart attack because of the quake, and several dozen people suffered minor injuries.

Rescue officials were checking reports that other people were buried under rubble and were preparing to house people whose dwellings had been damaged or destroyed.

There was serious damage to historic buildings and churches in the province of Modena.

One badly damaged building was the 14th century Estes Castle in the town of San Felipe Sul Pan, near the quake’s epicenter.

There were fears that one of the towers of the famous mediaeval castle, the town’s biggest attraction, could collapse. The town’s main church was also severely damaged.

The quake also shook the major towns of Bologna, Modena, Ferrara, Rovigo, Verona and Mantua. No serious damage was reported in the larger, heavily populated towns and cities.

A series of strong aftershocks hit the area, the strongest measuring 5.1, and local mayors ordered residents to stay out of doors.

The quake was centered 22 miles (35 km) north-northwest of Bologna at a relatively shallow depth of 6.3 miles (10 km), the U.S. Geological Survey said.

The last major earthquake to hit Italy was a 6.3 magnitude quake in the central Italian city of L’Aquila in 2009, killing nearly 300 people.

After that quake, then Prime Minister Silvio Berlusconi moved a G8 meeting that was to have been held in Sardinia to near L’Aquila as a show of solidarity with the victims.  
  

Article source: http://www.cnbc.com//id/47492104

Facebook’s CEO Mark Zuckerberg Marries Sweetheart

Facebook founder and CEO Mark Zuckerberg updated his status to “married” on Saturday.

Zuckerberg and 27-year-old Priscilla Chan tied the knot at a small ceremony at his Palo Alto, Calif., home, capping a busy week for the couple.

Zuckerberg took his company public in one of the most anticipated stock offerings in Wall Street history Friday. And

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Chan graduated from medical school at the University of California, San Francisco, on Monday, the same day Zuckerberg turned 28.

The couple met at Harvard and have been together for more than nine years.

A company spokeswoman said Zuckerberg designed the ring featuring “a very simple ruby” that he designed himself.

The ceremony took place in Zuckerberg’s backyard before fewer than 100 guests, who all thought they were there to celebrate Chan’s graduation.

According to a guest who was authorized to speak by the couple, Mark wore a suit and tie.
Pricilla wore a traditional wedding dress. Guests ate family style from Mark and Priscilla’s favorite Palo Alto restaurants – Palo Alto Sol and Fuki Sushi. The desert was Burdick Chocolate “mice” – which the couple had had on their first date

Even after the IPO, Zuckerberg remains Facebook’s
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] single largest shareholder, with 503.6 million shares. And he controls the company with 56 percent of its voting stock.

The site, which was born in a dorm room eight years ago and has grown into a worldwide network of almost a billion people.

Zuckerberg founded Facebook
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] at Harvard in 2004.

He was named as Time’s Person of the Year in 2010, at age 26.

Zuckerberg grew up in Dobbs Ferry, N.Y.

Article source: http://www.cnbc.com//id/47491832

World Leaders Vow to Combat Financial Turmoil

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World leaders backed keeping Greece in the euro zone on Saturday and vowed to take all steps necessary to combat financial turmoil while revitalizing a global economy increasingly threatened by Europe’s debt crisis.

A summit of the G8 leading industrialized nations came down solidly in favor of a push to balance European austerity – an approach long driven by German Chancellor Angela Merkel with a new dose of U.S.-style stimulus seen as vital to healing ailing euro-zone economies. But it was clear that divisions remained.

“We commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us,” the leaders said in a joint statement issued at their meeting at the Camp David presidential retreat in Maryland.

The overarching message from the summit hosted by President Barack Obama reflected his own concerns that the euro-zone contagion, which threatens the future of Europe’s 17-country single currency bloc, could hurt the fragile U.S. recovery and his re-election chances in November.

With Greece’s political and economic upheaval high on the summit’s agenda and stoking concerns over instability in Spain and Italy, Group of Eight leaders sought to calm the situation.

In the first line of their final economic communique, they essentially endorsed calls to broaden Europe’s focus beyond German-backed fiscal belt-tightening, calling it “our imperative” to promote growth and job creation.

Anxious to quell investor fears, the G8 said: “We reaffirm our interest in Greece remaining in the euro zone while respecting its commitments.” But leaders offered no specific prescription for extracting Athens from its worsening crisis.

It was unusual for the often-bland G8 communique to single out a relatively small nation. But fears that a political stalemate in Greece would lead to its departure from Europe’s monetary union at unknown costs to the financial system and global economic stability have spooked markets.

Greek voters this month toppled a government that had agreed to painfully austere terms of an international bailout plan, and uncertainty hangs over the next election set for June 17.

Spain too has roiled markets by revealing huge bad loans in its banking system as it struggles to rein in its budget while facing recession.

Merkel, increasingly isolated by a French-led push for a more growth-oriented approach, sought to play down the differences, saying: “Solid finances and growth belong inseparably together and should not be put into contrast.”

Obama, who has pressed Europe for more growth-boosting  measures like those he pursued at home, used his closing statement to remind euro-zone leaders that the stakes were high and there could be “enormous” costs if they failed.

“Growth and jobs must be our top priority,” he said, reaffirming that Europe has the capacity to meet the challenge.

Marc Chandler, currency strategist at Brown Brothers Harriman, said: “It is significant that a group as weighty as the G8 backs Greece and reinforces the idea that Europe needs a strong union. It strengthens its hand.”

In another move to shore up shaky global growth, the G8 leaders said they would monitor oil markets closely and stand ready to seek an increase in supplies if needed. While crude oil prices have declined by 10 percent over the past month, the threat of tighter sanctions on Iran loom next month.

The G8 said the global economic recovery shows promising signs but “significant headwinds persist.”

Casual Setting, Tense Issues

The mountain cabins at Camp David where a shirt-sleeved Obama hosted the G8 leaders contrasted with recent tense meetings in European capitals about a sovereign debt crisis that just keeps getting worse.

The economic communique endorsed a recent political shift away from the budget-cutting austerity that has been championed by Merkel and British Prime Minister David Cameron as the route to prosperity.

Instead it recognized a need to combine budgetary discipline with a growth strategy. This strengthens the hand of newly elected socialist Socialist Francois Hollande as president of France before a crucial European Union dinner on Wednesday to discuss growth.

The G8 said it had “an interest” in specific measures from Europe, signaling it wants concrete steps from a dinner meeting of European Union leaders later this week and an EU summit in June.

Cameron, after an early morning gym workout with Obama, said he detected a “growing sense of urgency that action needs to be taken” on the euro zone crisis. London relies heavily on international finance and banking instability would strike a fresh blow to an economy already in recession.

“Contingency plans need to be put in place and the strengthening of banks, governance, firewalls – all of those things need to take place very fast,” he told reporters.

European leaders seemed keen to stress that they would stand firm in protecting their banks, after news of escalating bad loans raised the specter that rescuing Spain’s banks would crash the euro zone’s fourth largest economy.

Hollande suggested using European funds to inject capital into Spain’s banks, which would mark a significant acceleration of EU rescue efforts. But there was no direct mention of Spain in the communique or any indication of action leaders would take to combat the financial stresses.  
      
Germany Softening on Austerity

Obama and Merkel, on opposite sides of the growth-versus-austerity debate almost since the U.S. president took office in 2009, discussed what one White House aide called an “emerging consensus” in one-on-one talks after the Camp David summit.

There already had been signs of a softening in Germany’s austerity stance as the G8 meetings began.

Germany’s largest industrial union, IG Metall, struck its biggest pay deal in 20 years early on Saturday. The 4.3 percent pay increase, more than double Germany’s inflation rate, will boost worker buying power in the euro zone’s richest nation and lift consumption. That is something the United States has urged as a means to bolster overall growth throughout the world’s second largest economic region.

G8 leaders also raised pressure on Iran over its nuclear program, which they suspect has military objectives, by committing to a common approach. They pledged to implement sanctions fully against Tehran and indicated they would act together to lower oil prices if needed.

“Our hope is that we can resolve this issue in a peaceful fashion that respects Iran’s sovereignty and its rights in the international community, but also recognizes its responsibilities,” Obama told reporters.

The Camp David summit kicked off four days of intensive diplomacy that will test world leaders’ ability to quell unease over the threat of another financial meltdown as well as plans to wind down the unpopular war in Afghanistan.

After the Camp David talks, Obama and several of the G8 leaders headed to his home town of Chicago where he will host a two-day NATO meeting at which the Afghanistan war will be the central topic.

Article source: http://www.cnbc.com//id/47488177