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During the 2010 debt crisis there was much talk of profligate Greece being "thrown out" of the euro zone. In this dark scenario Greek civil servants would get t

During the 2010 debt crisis there was much talk of profligate Greece being "thrown out" of the euro zone. In this dark scenario Greek civil servants would get their pay rises in worthless drachma, but Greek homeowners would be left with unpayable euro mortgages. But nobody ever talked about the Montenegro option (similar to Ecuador and USD). I never understood this. What was stopping Greece from defaulting and keeping the euro anyway?

317070 2mo ago
Look into who they were the debtor to. Turns out that a lot of German banks would have needed to scrap debt from their books.
- bluebarbet 2mo ago
  So a Greek default would have created an EU political crisis. Greece would have been in the doghouse. Perhaps the other members would have suspended its structural funds, or even voting rights. Seems impossible it would have been thrown out of the EU, there's not even an obvious way to do that. All very unpleasant, but then there was clearly an upside for Greece. It just seems interesting that the scenario was never really entertained or gamed out in the media.
  - 317070 2mo ago
    It was though? I remember a default being a real option in the media. But in the end, it was clear that unlike in Iceland, bankruptcies were not considerable, and so a bailout was going to happen. The only question was how the bailout would be structured. Yanis Varoufakis made his name back then by going against the grain and proposing a hairsplit, but instead an approach was chosen where Greece never really defaulted, but its population was harshly punished for it.
    - bluebarbet 2mo ago
      A default plus Greece unilaterally continuing to use the euro was the scenario hardly ever evoked.
    - jen20 2mo ago
      Indeed so: the term “Brexit” was a comical extension of the original “Grexit” at that time.
andrepd 2mo ago
> profligate Greece being "thrown out" of the euro zone. In this dark scenario Greek civil servants would get their pay rises in worthless drachma, but Greek homeowners would be left with unpayable euro mortgages That was indeed the "mainstream media" (I so hate that expression but it does apply) opinion. The reality is more prosaic: German (and French, but mostly German) banks would be screwed if those debts were defaulted upon. Look at the GDP per capita of Greece since 2010. Looks like staying in the Eurozone didn't do them much good either...
- ethersteeds 2mo ago
  It's supposed to go up, huh? It's back where it started, so there's that... https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=GR&start=2010 https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...
- namdnay 2mo ago
  comapre with the trajectory of the GDP per capita of argentina. i think staying in the eurozone did help them
amelung 2mo ago
The Greek state didnʼt just need to get rid of the huge amount of old debts (what a default would have been good for) and was not interested in the currency in itself (keeping the euro outside the euro zone) but needed a lot of more money: new loans and the further payments for being in the euro zone. This money was needed for public expenditure and to keep the Greek banking system running. The biggest creditor banks of the Greek state were, in fact, Greek (ca. 50–60 bn. Euro). The biggest foreign creditor banks were French (ca. 42 bn. Euro). Accordingly, France was for more financial support (for Greece) to be payed by all EU member states. The German banks were only a distant third (ca. 25 bn. Euro). But the German state was the biggest donor among the EU member states. That is why Germany and some other net contributors e.g. the Netherlands were not too keen on keeping Greece in the EU zone at all costs. For them, the solution you named (“defaulting and keeping the euro”) would have been the rather advantageous, but not for Greek nor for other powerful member states. Nor for the Greek oligarchs – remember, Greek is a country of only about 10 million people who were not that well off – in whose hands may have ended most of the 360 bn Euros of the old debt? They liked the toxic fairy tales Varoufakis was telling (married to a member of the Stratos family).
riffraff 2mo ago
> Greek homeowners would be left with unpayable euro mortgages Just fyi, Hungary had a ton of homeowners with loans in EUR and CHF and when the HUF collapsed the rates became untenable and the government just said "eh, fuck the banks, let's keep the previous exchange rate". The banks survived too. It's a hard political decision but not an impossible one. (Disclosure: I deeply disliked that government for other reasons and didn't have a loan, it was just interesting to see populism in action without obvious downsides materializing)
mike_hearn 2mo ago
The whole point of leaving the Euro would have been so the government could continue to pay its civil servants and other bills by printing the money. It would also have used printed Drachma to buy Euros and use those to repay its debts. Reintroducing the Drachma was a "solution" to the political problem of cutting spending by creating hyperinflation, not anything else. So it makes no sense to default and keep using the Euro. The reason for defaulting is because you don't have enough euros....

317070 2mo ago

Look into who they were the debtor to. Turns out that a lot of German banks would have needed to scrap debt from their books.

bluebarbet 2mo ago
So a Greek default would have created an EU political crisis. Greece would have been in the doghouse. Perhaps the other members would have suspended its structural funds, or even voting rights. Seems impossible it would have been thrown out of the EU, there's not even an obvious way to do that. All very unpleasant, but then there was clearly an upside for Greece. It just seems interesting that the scenario was never really entertained or gamed out in the media.
- 317070 2mo ago
  It was though? I remember a default being a real option in the media. But in the end, it was clear that unlike in Iceland, bankruptcies were not considerable, and so a bailout was going to happen. The only question was how the bailout would be structured. Yanis Varoufakis made his name back then by going against the grain and proposing a hairsplit, but instead an approach was chosen where Greece never really defaulted, but its population was harshly punished for it.
  - bluebarbet 2mo ago
    A default plus Greece unilaterally continuing to use the euro was the scenario hardly ever evoked.
  - jen20 2mo ago
    Indeed so: the term “Brexit” was a comical extension of the original “Grexit” at that time.

andrepd 2mo ago

> profligate Greece being "thrown out" of the euro zone. In this dark scenario Greek civil servants would get their pay rises in worthless drachma, but Greek homeowners would be left with unpayable euro mortgages That was indeed the "mainstream media" (I so hate that expression but it does apply) opinion. The reality is more prosaic: German (and French, but mostly German) banks would be screwed if those debts were defaulted upon. Look at the GDP per capita of Greece since 2010. Looks like staying in the Eurozone didn't do them much good either...

ethersteeds 2mo ago
It's supposed to go up, huh? It's back where it started, so there's that... https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=GR&start=2010 https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...
namdnay 2mo ago
comapre with the trajectory of the GDP per capita of argentina. i think staying in the eurozone did help them

amelung 2mo ago

The Greek state didnʼt just need to get rid of the huge amount of old debts (what a default would have been good for) and was not interested in the currency in itself (keeping the euro outside the euro zone) but needed a lot of more money: new loans and the further payments for being in the euro zone. This money was needed for public expenditure and to keep the Greek banking system running. The biggest creditor banks of the Greek state were, in fact, Greek (ca. 50–60 bn. Euro). The biggest foreign creditor banks were French (ca. 42 bn. Euro). Accordingly, France was for more financial support (for Greece) to be payed by all EU member states. The German banks were only a distant third (ca. 25 bn. Euro). But the German state was the biggest donor among the EU member states. That is why Germany and some other net contributors e.g. the Netherlands were not too keen on keeping Greece in the EU zone at all costs. For them, the solution you named (“defaulting and keeping the euro”) would have been the rather advantageous, but not for Greek nor for other powerful member states. Nor for the Greek oligarchs – remember, Greek is a country of only about 10 million people who were not that well off – in whose hands may have ended most of the 360 bn Euros of the old debt? They liked the toxic fairy tales Varoufakis was telling (married to a member of the Stratos family).

riffraff 2mo ago

> Greek homeowners would be left with unpayable euro mortgages Just fyi, Hungary had a ton of homeowners with loans in EUR and CHF and when the HUF collapsed the rates became untenable and the government just said "eh, fuck the banks, let's keep the previous exchange rate". The banks survived too. It's a hard political decision but not an impossible one. (Disclosure: I deeply disliked that government for other reasons and didn't have a loan, it was just interesting to see populism in action without obvious downsides materializing)

mike_hearn 2mo ago

The whole point of leaving the Euro would have been so the government could continue to pay its civil servants and other bills by printing the money. It would also have used printed Drachma to buy Euros and use those to repay its debts. Reintroducing the Drachma was a "solution" to the political problem of cutting spending by creating hyperinflation, not anything else. So it makes no sense to default and keep using the Euro. The reason for defaulting is because you don't have enough euros....