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Greeces owes billions of Euros to the IMF and European Union. What happens to those debts if it leaves the Euro? Do the debts get translated into Drachma or can the government just print Drachma to convert to Euros freely?

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If you owe euros you have to pay in euros. If for example the British government owes euros, then they get some funds (perhaps take another loan) and in case this is in a currency different from euros they convert it to euros on the market. If the sum is large enough it is wise not to convert it all at once but in smaller installments. This way the exchange rate stays stable and you can also get a better deal.

So nothing will happen to Greece's debt because they leave the Eurozone. But as the whole issue is political, there could be debt relief/partial bankruptcy because of the same reasons that might cause them to leave the Eurozone.

About printing drachmas:
There is a technical issue to be addressed: It is not the government that prints money but the central bank and their goal is maintaining price stability, not providing the government with revenue. (In time of crisis this may change.)

Printing money causes inflation which in turn will weaken the drachma relative to the euro. Usually when the state prints drachmas all drachmas would be worth less, but states wealth may increase because their share of drachmas increases.
However, this is a special case because there are no drachmas at all. So initially all drachmas would be owned by the state. Hence I think if they print more the worsening exchange rate would balance it out.
What they could do would be to print some drachmas, exchange it with whomever was willing for euros, and then print more. This would only work if printing more is not expected.

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  • $\begingroup$ A government can print its own currency freely. Could they do that to cover the Euro debt by then converting or does that not work? $\endgroup$ – felipa Jul 6 '15 at 16:26
  • $\begingroup$ I will edit my answer to cover this interesting aspect. $\endgroup$ – Giskard Jul 6 '15 at 16:49
  • $\begingroup$ @denesp printing money doesn't necessarily cause inflation in this case. F.ex. if they simply renominate euros with drachmas at this point in time, (Greek M2 has shrunk by approx 20% in the last 2 years), then it's entirely possible that the drachma would re-value to above the euro. It then gets interesting as Greeks who have withdrawn money in Euros, then have to buy drachmas to move money back into Greek bank accounts. $\endgroup$ – Lumi Jul 6 '15 at 19:11
  • $\begingroup$ @Lumi you mean there would not be inflation w.r.t. one year ago, right? But if I understand your argument correctly I still don't see why printing money would not increase prices relative to how prices would be if they did not print money. $\endgroup$ – Giskard Jul 6 '15 at 19:27
  • $\begingroup$ @denesp - perhaps it's better to think of it as replacing rather than printing. Changing over to drachmas in the banking system is just a symbol change in the computers - if they do that and don't change total quantities... it's a wash. Now long term, betting on the greek government to suddenly become a beacon of fiscal stability and maintain a low monetary expansion rate... well, stranger things have happened. $\endgroup$ – Lumi Jul 6 '15 at 20:08

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