SPECIAL REPORT – The hidden bargaining chip of Greece – And The Return To The Drachma

The following is a translation by hellasfrappe of an article that was contributed to our blog from the skeptomenos-gr website.

Since the beginning of the crisis, Greek politicians together with the Troika made many promises which they never respected and just as many predictions which were never realized. But perhaps worse than all these false promises are the hidden truths that are not known by the Greek people but are vital for our very own existence as a nation.

In fact we heard so many falsehoods that it became difficult at one point to distinguish the truth from the lie. Most of the time the truth was bent and twisted to such a degree that a massive amount of misinformation started becoming more credible than the actual facts. This had as its result (and aim) to instill fear in the public and make citizens willingly accept what they were being told as the only solution and as the only truth, when in all actuality citizens had and have nothing to fear at all and have not been told the truth at all.

In the following short series of articles we will attempt to expose some of the more popular hidden truths about the Greek crisis, the disclosure of which may decisively change the image most of you have about the present situation. The methodology that will be followed is simple: At first we will refer to what Greek politicians and the Troika have supported on a number of issues, and following this we will set the record straight by presenting the real facts.

Hidden Truth # 1: The Greek debt, the debt of citizens and companies can be paid in drachmas without triggering a default.

WHAT WE HAVE BEEN TOLD – “The return of the drachma, with a guaranteed devaluation, to assist the country to exit from the crisis will cause an explosive growth of the state debt, as well as the debts of citizens and businesses. And this is because the state might return to the drachma, but its debt have to be paid in euros. Since the drachma will be devalued by at least 50% and even possibly 70%, the debt will skyrocket and its repayment will become impossible. This will be catastrophic for both the country and for citizens and businesses. “

THE TRUTH BASED ON FACTS – This was one of the main arguments that politicians used to convince Greeks before they signed the memorandum with the Troika. The facts, however, are completely different: In April 2010 Greece’s public debt was 319 billion euros of which 294 was in bonds, with some 90% of which were legally regulated by Greek law. Under the current legislation, if Greece reverted to the drachma, the situation with our creditors would likely land in the hands of the Greek Parliament. The state could then instruct the Parliament to craft new terms on the bonds, which would thus commit holders to  mandatory applicable law, or i.e. state lenders. Greece could then pay 90% of its debt in bonds with drachmas, which could be printed by the Bank of Greece. Lenders would be compelled to accept this payment and Greece would avoid bankruptcy and repay a huge portion of its debt.

The fact that Greece had and STILL HAS THIS RIGHT could, if anything, be used as a powerful bargaining tool with the Troika.

This possibility has still not been lost but is only valid for a portion of the Greek debt, or around 220 billion euros.

The above information is supported by three legal studies conducted by the Universities of Chicago, New York and Duke, as well as an exclusive law firm based in New York that specializes on sovereign debt. The above is also supported by publications and reports from the Wall Street Journal, the Financial Times, Reuters and ARD (German public television).

Debt of individuals & businessesWhat applies to state debt, as mentioned above, to a large degree also applies to the debt of citizens and businesses.

In a recent publication, the Wall Street Journal presented the expert views of the debt legal corporation of London, Allen & Overy LLP and Clifford Chance LLP on the issue of national debt.

The companies said inter alia:that “if Greece decided to revert back to the drachma, the situation with its creditors would likely land in the hands of the Greek Parliament. It would have to craft laws spelling out exactly what happens to the euro-denominated obligations of Greek institutions and individuals. The most-likely scenario, based on previous instances of currency changes, is that euro-denominated loans would be converted into drachmas at a predetermined exchange rate. That could stick big foreign lenders with hefty losses, as a newly minted drachma would probably lose value rapidly against the euro and other currencies.”

In simple words, the decision on whether or not to convert the state debt, the debt of Greek citizens and that of firms to the drachma lies solely in the hands of the current legislation, or the the Greek Parliament or even better Greece itself.

Did Greek politicians know the truth?In order to hide the truth, a prerequisite is knowledge. The question is whether Greek politicians the Troika knew this as well? The answer is simple, YES. There is no doubt that Troika knew this from the start, since there were other similar cases such as ours in the past and this process was the most likely scenario for Greece anyway claim the two law firms (noted above).

With regard to Greek politicians, well.. they knew about this since July 2010, when XrimaNews.gr posted a relevant story, but also from the multitude of Greek articles that were published thereafter entitled “The secret bargaining chip of Greece” which reported the highlights of the Duke University Study in details as well as that of the report from the law firm mentioned above.

Skeptomenos-gr had endorsed and promoted the evidence to senior political figures through various Greek journalists (both the study intact and the article as well).

The Greek government hired the aforementioned law firm that was mentioned in the article as an adviser.

The ultimate proof, however, that claims all Greek political officials knew, stems from the fact that when the law firm mentioned above was hired in August 2011 as a state consultant they presented the study in a translation entitled “The hidden bargaining chip of Greece ” which was also included in a book entitled “Case: Greek Crisis – Strange Coincidences ” from the Livanis Pulishing Company.

The news that the Greek government hired this company also made headlines in the Financial Times with additional information that this same company was recruited by Argentina and Iceland before they declared bankruptcy.

Panos Panayiotou
Head of stock market technical analyst
XrimaNews.gr, GSTA

Here is the text in English as written by Panos Panayiotou. I warn readers it is a raw version and has not been edited. The article was featured on the mitsosagj777.blogspot.com blog on Saturday, November 5, 2011. 

Despite the fact that in Greece there is still the political chaos in which direction they will move things in the country’s economic future seems set: Government and opposition will support the signing of a new Agreement of October 27 ‘as is’ to avoid bankruptcy and exit the country from the euro, the cash available to end in mid-December. According to reports of German television ARD however, which aired on October 27 and according to reports the Wall Street Journal, which published the morning of November 4, in order for banks to accept a haircut on Greek government bonds held by 50%, Greece agreed to the transformation law governing these bonds from Greek to English. Under the existing legislation and so far as the law of Greek bonds remains the Greek, if Greece does not avoid bankruptcy could repay the debt in the hands of individuals rather than institutional lenders (IMF – EU) drachmas, without no legal sanction. The lenders in this case obliged to accept payment in Greek currency. Thus, Greece can simply be printed as many as DR is the debt of individuals and to repay it.

Conversely, if the law changed in English as provided in the Agreement of October 27 under the two previous reports, in case of bankruptcy, Greece will have to repay all its debt in euro, although the rate of the drachma – Euro will roll probably less than 700 / 1. That would mean the final delivery of the country’s lenders, who will be able to assert and enforce law in Greece or debt repayment in full by imposing burdensome taxes on citizens or seizing public property or both simultaneously. The history of the law of Greek bonds is perhaps the greatest secret of the Greek crisis.

Study of the legal departments of the universities of New York, Chicago and Duke established in February 2011 reported on the following: “If this were a series of bankruptcies states of Latin America such as Argentina, then the debt would be almost wholly foreign currency governed by foreign law, typically New York or English. But in the case of Greece the vast majority of bonds governed by Greek law and so Greece has a real advantage as it could change the law, thereby altering the conditions of contract bonds and thus promote the changes in the serve.

“Today approximately 220 to 280 billion Greek debt governed by Greek law (according to the law relating to the bonds purchased by the ECB). Anyway the amount of incorporated under Greek law debt is extremely large. Greece can change the law so that if 51% of debt holders agree to be mandatory for all a restructuring by 50%, 60%, 70% or more (less is more likely to withstand legal restructuring in any judicial challenging).

Leaving out the bonds and the debt held by institutional lenders, which probably will be repaid in euros, there are approximately 220 billion. Of these, however, more than 100 billion held by Greek and Cypriot banks and institutions means that Greece can go it alone in an agreement to restructure the 51% of private holders of Greek government bonds, ie a PSI, with just the participation of Greek and Cypriot banks and institutions.

The PSI will be mandatory for all banks and profit for Greece would be proportional to the magnitude of the restructuring. If this had happened at the outset, then Greece could reduce its debt by 147 billion euro in early 2010, reducing its debt to GDP ratio to 72% within a few months. If this is done now then the Greek debt will be reduced from 110 to 154 billion depending on the shearing rate is chosen, from 50% to 70%.

In the scenario of 70% cut Greek debt to fall to 87% of GDP directly. All this on only in Greece is a small part of the larger, perhaps, the secret of European crisis. This is because, with the report of three universities that I have the same legal advantages as that of Greece have, to varying degrees and Ireland, Portugal and Spain. Ie the so-called PIGS, disparagingly of the markets (hogs from the original Portugal, Ireland, Greece, Spain), hold in their hands since the outbreak of the crisis in global banking system and not just because they can restructure their debt causing autonomous enormous damage to the holders of debt and such a move would trigger the payment of premiums of their counterparts in the air shaking banks such as Goldman Sachs, JP Morgan etc. but will cause, perhaps, the collapse of the euro area, at least as we know it today,

Especially in the case of Greece there is so much Greek debt held by Greek and Cypriot banks and institutions, promoting a fast PSI is very easy law. But suppose that Greece wants to move outside the system or to exploit the huge advantage it has in its hands.

Consider the assumption that in order not to endanger international and European banking system and most importantly the euro by Greece will continue to try to endure many sacrifices required to ensure the common good and not to seek a quick, related, way out dramatic location where found. Why would also lose the right to think and its own interests if for any reason prove that its partners or made a mistake in the program of imposed and thus ultimately lead to bankruptcy or finally having themselves been secured leave in fate?

Why Greece has accepted the Agreement of October 27 to deliver the greatest negotiating paper on the future and this, perhaps, that forced the Europeans to the ‘support’ so far and why other countries have not accepted a similar agreement continues to have this advantage in their hands? Just a few days the famous economist Roubini gave the house a mini seminar for clients where he spoke on three issues, one of them is the crisis in the Eurozone (the subject was published in Greece by XrimaNews.gr). In his presentation he said that the draft of the IMF and Germany to Greece to support for so long as to be ready a rescue mechanism of Italy and Spain and by then, once it is clear that the austerity measures do not succeed, Greece is allowed to fail.

Rubin identified the time at about a year from now. He argued that the hope of the IMF and Germany is that by the bankruptcy of Greece, Italy and Spain will endure and will not collapse under the weight of their own problems. Let’s start with the fact that we do not accept the above terms of Ruby to win but accept the possibility that not wrong.

Taking also into account that until now the Troika failed dramatically in all forecasts for Greece, while none of the government projections on the state of the economy has not confirmed the question arises what happens if Troika and the government do now wrong and Agreement of October 27 and ultimately save Greece and not prevent bankruptcy.

For the protection of Greece, it is more appropriate if you go there, since this is seen as inevitable by the government and opposition, to keep at least this whole crucial for the survival of the country our legal advantage? In the summer of 2010 Article “The secret bargaining chip in Greece (including the book” Case Greek Crisis – Strange Coincidences “Publications Lebanon) quoted translated a substantial part of his study at Duke University on Greek debt and how this can restructured from Greece and the translation of a part of Harvard University study on how to make the most painless way possible a debt restructuring. In the aftermath of the meeting of EU leaders on 27 October, when the German television published information that Merkel persuaded the banks to accept a haircut in exchange for the conversion of the law of Greek bonds from Greek into English, published the article entitled “Greek Merkel’s gift to banks to cut “where I quoted the figures as reported in the study of the three universities mentioned above. Today, I write this document after I launched the studies and the WSJ article mentioned this to Greek journalists, calling for intervention in order to reach the issue as a question in the Greek parliament. Was, indeed, an agreement making the law that governs the Greek bonds from Greek into English, as reported by the German channel ARD on 27 October, as reported by the WSJ article published today, 04 November and if so why?
 I hope both of these reports are inaccurate or wrong but I’m afraid of what it means for the country if the opposite is true.

Panos Panayiotou
Head of stock market technical analyst


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