The situation in Greece and Europe doesn’t exactly look pretty. Negotiation positions are entrenched, but more importantly, Greek banks are running out of money and there are rumors they won’t open on Monday.
“Regrettably, no discussion of our proposal took place within the Eurogroup. Even more regrettably, instead of that essential discussion, we observed pernicious ‘leaks’ to the press regarding Greece’s banking system,” Yanis Vanoufakis told Bloomberg
He is upset because rumors like that will only accelerate the bank run and make the occurrence of a bank holiday an actual reality.
Only on Thursday, depositors pulled more than 1 billion euros from Greek banks to prevent being left out in the dark without money like their neighbors from Cyprus two years ago.
Greek banks long ago have been cut off from ECB liquidity because the collateral they have to post to get central bank money (Greek bonds) wasn’t good enough anymore.
However, the Greek Central Bank has been allowed by the ECB to extend up to 84.1 billion euros in emergency loans to Greek banks.
This Emergency Liquidity Assistance is a peculiar mechanism and is Greece’s last ace in the hole. Normally the loans will be made electronically with any type of collateral. However, since Greek banks are being drained of actual physical cash, it is more than likely the Greek Central Bank is printing up its own euros and shipping them to the banks.
Valentin Petkantchin of Euro Pacific Capital has more: “As per the EU constitutional texts, printing euro banknotes (and manufacturing coins) has been physically delegated to the national central banks, including the National Bank of Greece. The Mint of Greece (IETA) thus already prints euro banknotes. It has the latest state-of the art printing presses—it just has to keep running them when no one is looking.
Such illegal money creation recalls what happened in Yugoslavia in the early 1990s, during one of the worst hyperinflations in history when prices increased by the astounding 5 quadrillion percent between October 1993 and January 1994. The Yugoslav equivalent of the ECB at the time had completely lost control over money creation, while central banks in Serbia, Montenegro, Vojvodina, and Kosovo – in a position similar to that of the Bank of Greece—were heavily printing new quantities of Yugoslav currency.”
The same happened after the ruble currency union broke up in the wake of the collapse of the Soviet Union.
This means if push comes to shove—which is looking increasingly likely—the Bank of Greece can provide unlimited amounts of physical euro cash to its banks, if the European Central Bank agrees (which it has to in the ELA framework) or not.
The result is a wholesale dilution of the euro within the whole euro system.
Maybe for this reason, the Bank of Greece is still optimistic: “The governor of the Bank of Greece confirms the stability of the banking system, which is fully secured by the joint actions of the Bank of Greece and the European Central bank,” the bank said in a statement.
There is a small catch, however. Every euro note has a mark on it in the form of a letter which tells the holder where it was originally printed. In Greece’s case, this letter is “Y.”
So if push comes to shove, other countries can just stop accepting notes with a “Y,” on them—unless, of course, the Greek printing presses have the option to change that letter to any country they please.