Greece will Never Run out of Money–It Will just Print More

Greek voters headed to the polls Sunday to decide their country’s cooperation with the terms of an international bailout. The truth is that Greece has actually been in default of its debt obligations for more than half of the last two centuries.

Each time the nation that founded democracy ran out of money, it just printed more. Since the Greek Mint has been printing Greek euros for over a decade, Greece will just print more euro “money” if it runs out in the current crisis.

Financial default has been the norm for Greece, since the country regained its independence in 1830. Having suffered over the period from “three top-level assassinations, two uprisings, three coups d’état, five military conflicts, occupation by the Nazis and a civil war against communists after World War II,” it is difficult to convince Greeks that paying their debts on time is really much of a moral imperative.

The polls for Sunday’s non-binding referendum on whether Greek voters prefer accepting the European Central Bank (ECB) austerity proposal or rejecting the proposal were too close to call. But anything short of overwhelming support will be a huge negative for the Eurozone, because private sector investors, banks and other financial institutions will have little confidence that Greeks will not change their minds and default later.

There are widespread reports that Greek banks are preparing to implement contingency plans to confiscate a percentage of all Greek bank deposits over a certain dollar level. The Financial Times is reporting that their sources confirmed that banks will “borrow” 30 percent of all non-insured money on deposit over a €8,000, about $9,000, per account threshold to restore their solvency.

This “bail-in” maneuver to shore up domestic banks was executed by the Cyprus government in 2013. All uninsured deposits over €100,000, about $110,000, were seized as part of an international bank rescue plan. The total “haircut” amounted to 47.5 percent for shareholders, bondholders, and depositors with more than 100,000 euro in Cyprus’s two largest banks. Of the $17 billion confiscated in the “haircut,” over half was from foreign depositors.

Greece’s banks have been closed since last Monday, when the government initiated capital controls to prevent depositor bank runs following the socialist-led Syriza call for a popular referendum on Sunday to vote on a bailout plan it had already rejected.

Currently, depositors can only withdraw €60, about $66, per day in cash from bank ATMs cash machines, while foreign transfer requests are subject to strict limitations and must be approved by the finance ministry committee and Greek central bank.

Following the ECB’s decision to freeze Greece’s access to “Emergency Liquidity Assistance” loans as of June 30, the FT reported that “two senior bankers” on Saturday said Greece only has enough euro reserves to keep ATMs open until the middle of next week.

But most Greeks have withdrawn their money from bank accounts since the crisis began in 2009, when there was about €235 billion in bank deposits and only €18 billion in euros held by the public. Today with only €$110 billion in bank deposits, there is about €45 billion in euros held by the public.

Most analysts are also naïve to the fact that under the EU constitution, the Greek Central Bank through the Mint of Greece prints its own euro banknotes and stamps their own euro coins. The Mint of Greece in the last five years has legally printed about €96 billion euros under the ECB Emergency Liquidity Assistance program.

JPMorgan estimates that the Central Bank of Greece may have actually printed about €27 billion more euros than they were authorized to print through the ECBs Eurosystem inter-bank trading mechanism, which is used to settle import and export transactions. All the Greek currency printed by the Mint of Greece has serial numbers that start with the letter “Y.”

Whatever the outcome of the Sunday Greek referendum, the Greek government will find a way to borrow or print its own euros.

If you are traveling to Europe, I suggest that you avoid exchanging US dollars for euros that begin with the letter “Y.”