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There's theory and there's practice. There's also practical matters even if theory and practice are in alignment.
People keep emailing me stories that Greece can and will print euros, so it will never run out of money. Such stories have been running for years actually.
Let's take a peek at a few of them, and why they are all false from a practical point of view.
June 15, 2012: What if Greece Just Printed the Euros It Needs?
Writer Valentin Petkantchin asked "Why would an extreme leftist such as Tsipras bother switching to drachmas – with the disastrous consequences for the Greek population and his own political future – when Greece already has the capacities to simply print euros?"
His twofold view was twice wrong.
- On one hand, Greece can create euros in a few "clicks" under the cover of the opaque Emergency Liquidity Assistance (ELA) program. Greece is already estimated to have created up to 96 billion euros to help its banks using the ELA.
- On the other hand, the Greek central bank is able to turn on the printing press the old-fashioned way. Greece has the physical means to create any amount of euros it wants.
We have already seen what can and has happened to the ELA.
I will get to the practical side of "Greece has the physical means to create any amount of euros it wants" in just a moment.
July 5, 2015: ZeroHedge wrote Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks.
Says ZeroHedge: "While Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press."
July 5, 2015: Breitbart writes Greece will Never Run out of Money–It Will just Print More.
Spot the Greek Note
Greece indeed has a printing press. In theory it can print all it wants. In practice, there are at least three problems.
First, Greek Banknotes all begin with a "Y". Here's How to Spot Where a Euro Note is From.
Once again theory and practice come into play. In theory the ECB could negate all "Y" notes on zero notice. In practice, it wouldn't because German citizens who happened to be holding "Y" notes would not appreciate having them become immediately worthless.
However, the ECB could offer a short term exchange period on all "Y" notes, rendering them worthless after a certain date. That would be a practical solution, especially in light of the following practical math.
The Guardian discusses practical math in With a Return to the Drachma Unwanted, Could Greece Just Print its Own Euros?
It is certainly physically capable of doing so: the Greek central bank owns a press in Holargos, a suburb of Athens, that once printed drachma and is currently one of 14 high-security currency printing works across the eurozone producing euro banknotes.Theory and Practice Summary
But actually going ahead and printing unauthorised notes would amount to a declaration of war on the European Central Bank.
Aside from moral and legal questions that would undoubtedly arise if Greece were to go ahead and print more of its own euros, however, there is another issue that makes this scenario highly unlikely: according to the ECB’s website, the Greek press is only set up to print €10 notes.
It would need to print tens of billions of those to produce enough money to meet its needs.
Problem 1: There are moral and legal issues. Printing unauthorized euro notes would indeed be declaration of war.
Problem 2: Practical considerations - Does Greece have enough paper and ink to print tens of billions of €10 notes? I think not.
Problem 3: Greek notes all begin with a "Y". The ECB could easily set a small time window in which one could exchange "Y" notes rendering all such notes worthless before Greece could print enough of them, assuming Greece had the paper and ink in the first place (which it doesn't).
ZeroHedge corrects his error in IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes
Sadly, filling up holes worth tens of billions with "rogue" €10 bills would be problematic logistically, and we believe, Greece would run out of printing supplies long before it got to printing anywhere close to the required and desired amount, leaving aside all other questions of propriety and legality.Unnamed Parallel Currencies Now in Use
So IOUs it is. The only question is how these shall be named.
There is no name for the parallel currencies, but corporations are already issuing them.
The Telegraph reports Greece's Yanis Varoufakis Prepares for Economic Siege as Companies Issue Private Currencies.
Businesses in Thessaloniki and other parts of the country are already creating parallel private currencies to keep trade alive and alleviate an acute shortage of liquidity.That article came out on July 3. There is no official scrip currency, yet.
Vasilis Papadopoulos, owner of the Maxi paper mill in Katerini, said the situation was becoming desperate for his industry. "I have enough raw materials to last until July 14. If I don't get any more pulp, I will have to close the factory. It is a simple as that. I have 183 employees and I will have to start laying them off," he said.
Mr Papadopoulis, who manufactures paper towels, napkins, and toilet paper - partially for export - said a consignment of 3,000 tonnes of pulp from Finland was stranded in the port of Salonica. "I can't pay the suppliers because the bank is blocked, so they won't release it," he said.
His firm has reached an accord with regional supermarkets to accept coupons or private scrip money in lieu of payment as soon as next week. His workers will then be able to use this paper as a parallel currency at the supermarket to buy goods.
Mike "Mish" Shedlock