Tuesday, September 28, 2010

Sneaking out the eurozone's back door

If you are plotting to leave your wife for your massage therapist, it’s probably not a good idea to leave your therapist's name and phone number on the white board by the phone.

Similarly, if you are a bankrupt European country plotting to leave the euro and restructure or redenominate your loans, you might not want to set up a "Working Group on Debt Restructuring and Currency Strategies" in the Finance Ministry (even without the hastily hand-written sign on the door). It would be on Drudge the next morning (“Greece Plots Deadbeat Strategy”).

The NY Times reports that when the eurozone realized they had a Greek problem, they formed a secret committee called the "Committee With No Name, (as opposed to, say, the "Greek Debt Crisis Committee")

The Committee With No Name is the right name for a debt restructuring task force in Greece or Ireland. And the committee with no name should located be on a top-secret military base on a remote island with no population and a total blackout of all electronic communication.

As Vincent Truglia has said on his blog, euro exit has to be a total surprise not only to the FT, the EU and the ECB---but also to the Greek Parliament and the Greek people. The minute the wires light up with word of such a plan, it’s game over. No more loans from Germany, no more bond buying by the ECB, no lines of credit anywhere in the world. It means going cold turkey without the 12 steps.

So if you are going to Plan B, whatever it is, you have to secretly cook up the entire scheme, write the Emergency Presidential Decree and the ex-post enabling legislation, decide which famous Greek faces go on the currency, and who's cousin gets the printing contract. ("Constantine, save some for the family.")

You will have to draw lots to see who’s going to make those calls to “Europe”. On second thought, maybe it’s better to just send emails:  “Dear [insert first name], I’m sure you were surprised and upset when you opened your paper this morning. Please allow me to...”

JFK faced a very similar when he decided to “secretly” prepare for a Cuban invasion in 1962. There is a great scene in Thirteen Days when Johnny Apple of the Times confronts Kenny O’Donnell about the quite visible trainloads of troops and tanks headed to Florida. O’Donnell tells him “Johnny, it’s just an exercise”.  Apple replies “Yeah, and the name of the exercise is Castro spelled backward”. O’Donnell replies “Shit. Give me your boss’s phone number.”

It is easy for Greece to get Europe to lend it money because it owes their banks (and now the ECB) so much. It is not at all easy to stiff Europe and force them to once again recapitalize their banking systems.

There is one thing I do know: every phone call, email, fax and water-cooler conversation at the Greek finance ministry is being monitored by at least 20 security services, including ours. I wonder where that remote island is? The French know.

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