Neither Grexit, nor Grexident. Euro and 'drachma' in parallel?

Fri Mar 27, 2015 11:25am EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Jan Strupczewski

BRUSSELS (Reuters) - Greece is unlikely to exit the euro, either intentionally or accidentally. But it might be forced to introduce an alternative means of payment, in parallel to the euro, to pay some domestic bills if a reform-for-cash deal with its creditors is not secured soon, several euro zone officials said.

Athens has lost access to bond markets and international creditors are not willing to lend it more money until it starts implementing reforms. An official familiar with the matter told Reuters this week that without fresh funds, the government will run out of money by April 20.

"At some point, when the government has no more euros to pay salaries or bills, it might start issuing IOUs -- a paper saying that its holder would receive an x number of euros at a point in time in the future," one senior euro zone official said.

"Such IOUs would then quickly start trading in secondary circulation at a deep discount to the real euros and they would become a 'currency', whatever its name would be, that would exist in parallel to the euro," the official said.

If the government ran out of euros to pay wages, pensions and suppliers, it would have to introduce capital controls to prevent a mass outflow of euros from the country. That might limit the amount Greeks can withdraw from cash machines or send abroad, as happened in Cyprus in 2013.

The IOUs might not be widely accepted in shops and could be used as a way to settle only some government-related payments such as energy bills, at least initially.

At the same time the government would keep euros from tax revenues to cover debt repayments to avoid default.

"The arrangement could be temporary to keep the government going as it hopes to negotiate a deal with creditors that would unlock more euros in loans," a second euro zone official said.   Continued...

 
A Greek national flag flutters as the parliament building is seen in the background in Athens March 24, 2015.   REUTERS/Alkis Konstantinidis