Predicting the Re-Creating of the Drachma

Currencies, Insolvency 13 Jul 2015

nostradamusWhile I’m not Nostradamus, I observed here, soon after the Syriza government took office, that its then-new Finance Minister, Yanis Varoufakis, believed in the single currency for the Eurozone. Further, “it is unlikely” I oh-so-presciently said, “that he will preside over the finance ministry of a government bringing back the drachma.”

Well, there is some truth to that. History will say at most that Varoufakis presided over the early stages of the process that ended with the re-creation of the drachma. But he doesn’t seem to have worked as hard to keep Greece from heading down this road as I expected he would.

Since I thought that he would exercise influence that might prevent matters from coming to the pass at which they stand now, I should now say … well … mea culpa.

But enough about me …

On the day after the referendum in which Greece decisively voted “no” to the latest rescue package from the Troika, Varoufakis stepped aside. Rather, he was pushed aside, so that he could be replaced by Euclid Tsakalotos. The great gray New York Times seems to see this move as a step toward Greece/Germany reconciliation, and in this it is not idiosyncratic. The thinking goes this way: Prime Minister Tsipras has recoiled from the notion of trying to reinstate the drachma and ’go it alone,’ so he has pushed aside the one of his ministers who has acted most confrontationally in the course of negotiations, implying a kinder, gentler, tone hereafter. The Times  describes this as one of the “first steps” toward reconciliation with creditors.

Chastened though I am by my own misreadings, I can’t really see that the Times has much of a point there. First, it personalizes the issues unrealistically. I doubt the Troika will cut any deal with Euclid Tsakalatos across the table that it would not have cut with Varoufakis there. But second, that conventional reading presumes that Tsakalatos is – or will somehow be seen as – a pussycat in contrast to the tiger that has now departed.

And there is no reason to presume that. Either half of that.

Crucible of Resistance

We can do the social-media thing and look to twitter for guidance. Soon after Tsakalatos’ appointment, Ambrose Evans-Pritchard tweeted that the new Minister was a “brilliant man” and was “more hardline” than his predecessor. Evans-Pritchard is a canny observer, and this post was retweeted hundreds of times in the hours that followed.

Or, we can look to what Tsakalotos himself wrote about the crisis of the Eurozone, and Greece’s part therein, two years ago. The new Finance Minister is the author, with Christos Laskos, of Crucible of Resistance, a 2013 publication about the Eurozone crisis in which the central bankers (described as “neoliberals”) are seen as the enemies of all that is right and pure. The populist resistance forces from below represent “widespread disenchantment with the individualist creed.”

To those of us who actually prize individualism, it seems odd that it should be identified as the cause of central bankers. Individualists aren’t in this fight at all, just competing sets of planners.

Still, judging from this book, it is very likely that Tsakalotos will be proud to think of himself as the Finance Minister who presided over the return of the drachma. The New York Times has this exactly wrong. Exchanging Varoufakis for Tsakalotos doesn’t look like an effort at conciliation on Tsipras’ part at all. It looks, rather, like another act of defiance, another “no” flung at the faces of the northern side of the continent.

At any rate, since I’ve established my unreliability as a prophet, I will attempt prophecy again (it was never a profession for quitters.)

Two points are near certain:

  • The government will have to start using scrip for its domestic obligations. It just doesn’t have the cash and has no plausible way to get it. It might call this “parallel liquidity.” At any rate, its introduction is a matter of days, not weeks or months.
  • Though it will surely introduce the scrip under whatever name as an IOU for eventual payment in euros, nobody will take that seriously. Serious people will treat it from the start as a proto-Drachma.

Further, it is plausible – not safe, but plausible – to suspect that (2) will become a self-fulfilling prophecy.


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One Comment

  1. Peter Urbani
    July 14, 2015 at 11:15 am

    I think the phonetic pronunciation of the new guys name as “Tax-a-lot-a-us” says it all.

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