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Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros

Posted by WARREN MOSLER on May 25th, 2012

>   
>    Apparently, MMT is a hard concept for the IIF to grasp.
>   

Yes!
Incompetent disgrace.
No reason an exit has to cost them anything in real terms.

But because they believe otherwise they’ll work to keep Greece in.

Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros

By Andrew Davis and Rebecca Christie

May 25 (Bloomberg) — The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.

The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,”Charles Dallara said in an interview in Rome today. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”

The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.

“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”

35 Responses to “Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros”

  1. Willie Lomax Says:

    Incompetent buffoon.”

    Warren, what a HARD slam, that is not becoming of you, seems to convey weak human emotions. The second time I have seen a pretty charged emotion from you (the first being when carney didn’t consult with you before publishing an MMT article)

    I don’t know that this is a good trend, robot spock like currency trader warren mosler who usually has a good sense of humor getting into these emotionally charged states, can’t end well. Death of an MMT salesman.

    Reply

    Walid M Reply:

    @Willie Lomax, Disagree . Today Every one in Europe has their own understanding of the Greek situation …Tower of Babel stuff…if we have learnt anything from MMT is how few people really understand monetary operations .

    Reply

    WARREN MOSLER Reply:

    Altered thanks

    Reply

    roger erickson Reply:

    @WARREN MOSLER,

    Spouted nonsense from incompetent policy staff at critical junctures simply reflects an incompetent aggregate-intelligence. If we can’t act, in the aggregate, based on distributed knowledge, then it’s our group ability that’s bankrupt.

    That’s the scary part.

    Face it. How to most effectively intervene with & re-shape an unstable aggregate requires disciplined execution of an absolutely focused, well-planned & agile campaign strategy.

    If that were easy, the whole world – & especially the USA – wouldn’t be in this mess.

    Fiscal policy represents only one of a spectrum of lagging policy processes. Any aggregate in 2012 faces multiple developmental inflection-points, and most are still plotting linear responses, if at all.

    I can agree completely with Warren’t frustration. Countering it now depends entirely upon recruitment & organization, not ANY amount of insight or commentary.

    That’s our challenge. We first need to recruit those people willing to emigrate to novel, more scalable operational theaters – which are entirely virtual, not geographical. Figuring out how to drag the rest of the USA along is stage 2.

    That’s analogous to the Committees of Correspondence that catalyzed the 1776 revolution.

    http://allthingsjohnadams.blogspot.com/2008/03/john-adams-committees-of-correspondence.html

    http://en.wikipedia.org/wiki/Committee_of_correspondence

    Reply

    roger erickson Reply:

    @roger erickson,

    ps: then, as now, armed conflicts often come about as a competition between competing merchant guilds

    Back to the main point. Rebellions are often late in organizing, and always betrayed if diverted into hasty revolutions. They have to occur, but the goal is graceful evolution, not wasteful revolution.

    roger erickson Reply:

    @roger erickson,

    ps: ps: I’d summarizing Warren’s whole train of thought this way. Aggregates everywhere should dump their incompetent policy staff & the overly narrow lobbyist channels that produce those constraints, so that far better options can be explored.

    Good suggestion. Posing 2 follow-on tasks.

    1) How? How to actually loosen resistance to change & open receptivity to changes – without allowing uncontrollable disorder – requires input from many fields OUTSIDE of MMT. Logical fiat-currency accounting operations are necessary but not sufficient methods if 312 million people are going to start exploring options that arrive faster every day.

    2) What operational methods to replace our current mess with? I’ve been musing on that dilemma, & call it the “Entrepreneurial Aggregate’s Task.”
    http://openmonetaryopsforum.blogspot.com/2012/05/entrepreneurial-aggregates-task.html

    The solution will require far deeper sampling & more agile use of existing group intelligence. We need new aggregate-instrumentation. What we have isn’t cutting it, that’s for sure. The OpenSource movement is exploring those frontiers.
    see https://sites.google.com/site/cositechnology/

    beshiva Reply:

    @roger erickson, Interesting to me that you refer to Committees of Correspondence. Had not heard of those for years, but just yesterday also heard mention of them because they are being established by InterOccupy. There is a lot of undirected & misdirected energy in the Occupy movement. The Libertarians & Ron Paul folks have captured some of that energy, but most are too skeptical about capitalism to accept the Libertarian brand of Austrian economics. May I suggest that MMT advocates consider blogging and posting more often on Occupy websites like InterOccupy? A lot of young people are looking for answers.

    Save America Reply:

    @roger erickson, Lets look at the really macro scale! Don’t worry Roger, even if ww3 comes, shouldn’t take but maybe 10 million years to get back some of that lost output – well within the few billion years of time we have left on planet earth:

    http://www.sciencedaily.com/releases/2012/05/120527153810.htm

  2. MamMoTh Says:

    There is no way in which an exit will not cost the Greeks dearly in real terms of trade.

    Reply

    Greg Reply:

    @MamMoTh,

    I believe Warren was referring to the ECB not losing anything “real” not Greece.

    Greece obviously is already losing real output and real demand. They just have to decide if what Eurozone is asking them to further give up is more than what they would lose by a return to Drachma. They are in for more pain its only a matter of do they want to determine how much or let a bunch of sadistic Germans determine how much. Its obvious by my choice of descriptor which I would choose. Would you want to leave your fate in the hands of humorless, robotic people with a history of animosity to the rest of the continent?

    I’m not anti German mind you, but German mindset is not the one we should project on the rest of the world.

    Reply

    WARREN MOSLER Reply:

    the next surprise could be the greek economy starts growing due to the deficit being high enough,
    and maybe if that happens they’ll let them alone and see if they grow their way out of it.

    Reply

  3. Woj Says:

    Although the ECB cannot run out of Euros (go bankrupt), it seems that incurring actual losses blurs the line between monetary and fiscal policy. This result from a Greek exit, which appears increasingly probable, may hinder support for further expansions of the ECB’s balance sheet.

    http://bubblesandbusts.blogspot.com/2012/05/greece-continues-to-run-up-liabilities.html

    Reply

    Unforgiven Reply:

    @Woj,

    So, it looks like it will be a contest between Dogma v. Drachma.

    Who’s got the dry mouth?

    Reply

  4. Harold Says:

    How many trillions did it cost Greece to go off the Drachma?

    Reply

    Jacob Goense Reply:

    @Harold,
    It costed them about 7.000.000.000.000 Drachmes back then, they did get some EYPOs for it though ;)

    Reply

  5. Dan Kervick Says:

    Incompetent buffoon? Or just a liar?

    Reply

    Dave Begotka Reply:

    @Dan Kervick,

    +1

    Reply

  6. Jacob Goense Says:

    Anyone know where I can find the full text of this “projection”?

    Reply

  7. Poomac Oracle Says:

    Let’s all send tweets to @GreeceInUSA informing them of our unanimous concurrence in their resuming use of the Drachma and full sovereignty. Also telling them that it won’t cost the ECB anything in real terms.

    Reply

    Dan Kervick Reply:

    @Poomac Oracle, I don’t think I concur. True fiscal union under the Euro with a “United States of Europe” seems like another way to go.

    Reply

    Jacob Goense Reply:

    @Dan Kervick,
    How is another entity that can’t spend without taxing/borrowing first going to help?

    Reply

    Dan Kervick Reply:

    @Jacob Goense, It could spend without taxing or borrowing. Europe could move to a continental fiscal authority with broad sovereign powers over the ECB. Effective macro policy needs fiscal authority yoked to monetary authority. Europeans could get it by going smaller, creating national currencies and national central banks accountable to national governments and public interest. Or they could ho big and create a sovereign European Congress with the power to write laws directing the ECB to directly find a European fiscal policy.

    Save America Reply:

    @Jacob Goense, Dan, why stop with the europeans, why isn’t 50 state currencies in the USA also a good idea?

  8. roger erickson Says:

    Very useful commentary at this url
    http://www.planbeconomics.com/2012/05/25/the-decline-and-fall-of-the-roman-british-and-american-empires/?utm_source=twitterfeed&utm_medium=twitter

    Reply

    Save America Reply:

    @roger erickson, http://www.fcpp.org/publication.php/1134

    Roger here is Kling on 250 states. Our current centralized government has been captured in DC.

    I just watched al gore’s tv channel on weed wars, and they say its over for DC, because they can’t enforce federal laws anymore relating to drugs (and anything else from banking regulation and enforcement to a million other issues), warren is in a room with a gun and has 6 bullets, but there are 350 million people, no way he can enforce his will on all of them. In fact if he push on them too hard, he may kill a few, but he will be killed himself in the revolt after the 6 bullets are out. AS bill paxton said, Game Over dude.

    Reply

    roger erickson Reply:

    @Save America,

    Exactly. Lot’s of people have harped on our declining representation ratio, for over a century. In lot’s of other systems, from neural networks to engineering to ecology to cellular biology, it’s abundently clear that inter-dependency-mgt has to scale FASTER than the # of components to be organized. Only possible way to keep up is to cut every corner imaginable & use every hack available. But that gets to be a mess.

    So how do impossibly complex systems continuously re-tune themselves to changing situations?

    It’s sexual recombination. You periodically re-connect everything to everything, and then relax into a state of hacks & shortcuts that matches that brief situation. When things change, you can’t undo yourself, so you die & spawn kids to re-connect & do it all over again.

    US democracy doesn’t require 250 states. Closest we come to dynamic democracy is district gerrymandering. We should just keep subdividing existing districts into population-committees, and then DISTRIBUTE responsibility to distributed decision-making.

    Congress should be replaced with an Android app, reflecting real-time decision-making by our ~150million eligible voters.

    Otherwise, we’re mathematically condemned to group-policy remaining dumber than the capability of aggregate-intelligence. That, as a policy choice, is assisted suicide, which – ironically – is supposedly illegal.

    Reply

  9. roger erickson Says:

    Some thoughts on the big picture.

    Succession Plan for the USA: How to Re-purpose the Insitutional Momentum of the Pentagon, Intelligence & Finance Industries
    http://mikenormaneconomics.blogspot.com/2012/05/succession-plan-for-usa-how-to-re.html

    Reply

  10. roger erickson Says:

    Very educational reminder that this guy Chalmers Johnson, diversely knowledgeable as he is, quite obviously understands NOTHING about currency operations.
    http://www.youtube.com/watch?v=Q2CCs-x9q9U

    currency comments at 0:49:15

    Reply

  11. Alexander Says:

    Warren,

    They understand MMT very well which is why they want to blame the Greeks for revolting.

    Deadbeat Greeks refuse to pay fake taxes and rent to the banking cartel and so now we must save the bankers by printing money and giving it to the criminals.

    When they say ‘insolvent’ they mean they need to print electronic money and give to the bankers as a Greek exit will hurt bonus pools for the next few years.

    Reply

    roger erickson Reply:

    @Alexander, Have to conclude that your analysis is entirely correct, even if it’s innocent fraud by ignorant buffoons. Giving in to their prescription is what completes the fraud.

    Up until then, they have plausible deniability, & can plead innocent all the way to their next bank account (& the real assets they quickly secure with it).

    Reply

  12. Leverage Says:

    This is just getting silly.

    I think behind all this may be some concern with “price stabiliteee” and the notion that negative equity for CB’s is either: a) inflationary; b) in damages CB credibility (confidence fairy).

    As if it did matter a single bit to the 99.99% of the european population using euros who don’t care/don’t understand/don’t know about such things. People is not going to stop using euros because of that.

    And any market player that thinks people will do is gonna end obliterated. This… is… just… too stupid to believe.

    Reply

  13. Alexander Says:

    When a Ponzi scheme is not stopped by the authorities, it sooner or later falls apart for one of the following reasons:

    1. The promoter vanishes, taking all the remaining investment money (minus payouts to investors already made).

    2. Since the scheme requires a continual stream of investments to fund higher returns, once investment slows down, the scheme collapses as the promoter starts having problems paying the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run.

    3. External market forces, such as a sharp decline in the economy (for example, the Madoff investment scandal during the market downturn of 2008), cause many investors to withdraw part or all of their funds.

    Reply

    WARREN MOSLER Reply:

    nor can it be sustained once it’s realized what it is.
    what is this meant to pertain to?

    Reply

  14. John Says:

    Why MMT fails to convince (along with every other school). It’s the terminological mess and imprecision.

    An Attack on Paul Krugman
    By Michael Edesess May 15, 2012
    http://www.advisorperspectives.com/newsletters12/An_Attack_on_Paul_Krugman.php

    It is difficult for a non-economist to decipher the debates, which revolve around esoteric
    terminology known only to the disputants – like “aggregate demand” and even “money.”
    Most people certainly don’t know what economists mean by “money.” A friend of mine told
    me he was at a meeting recently with a number of people, most of whom thought that
    when the central bank increased the money supply it actually physically printed currency –
    and all the people at the meeting were financial advisors.
    As I said, almost all of the debates are among economists, bandying about terms that are,
    in principle, quantified aggregates of manifestly intangible, imprecisely defined theoretical
    objects like “aggregate demand,” “economic growth,” and “money” (not just currency),
    none of which can be measured very accurately, even if they are defined.

    Reply

  15. bob Says:

    The second time…The first was 2010. EUR falling, german exporters throwing gasoline on the fire, and then refusing to “print”. It’s much more responsible to burn it(devalue through giberish).

    Germany is in the drivers seat, and they benefit big from the devaluation.

    How many times can they pull this off?

    Reply

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