MondayJuly 6, 2015www.bloombergbriefs.com

Refresh This Page: Live Updates HereThis special edition of Bloomberg Brief will closely monitor developments in Greece, with updatesevery few hours to highlight the latest news and analysis available from Bloomberg's teams ofreporters and experts on the ground and around the world. Keep refreshing your browser; in thisspace, we'll tell you what's been updated. Also check out our daily Economics Europe brief at 6:30a.m. London time for more. Terminal subscribers can find it free ; others can sign up for a freeheretrial . online Most recent update: 9:36 p.m. London time, updates page 1 story and page 3 storieson the markets' , adds ECB and page.reaction coverage verbatim

Bloomberg Brief Editors

Greece Given Hours to Save Place in EuroBY NIKOS CHRYSOLORAS, MARK DEENAND PATRICK DONAHUE

Greek Prime Minister Alexis Tsipras wasgiven hours to come up with a plan tokeep his country in the euro and stave offeconomic disaster as citizens suffer undera second week of capital controls.

Adding to the pressure, the EuropeanCentral Bank made it tougher for Greekbanks to access emergency loans.German Chancellor Angela Merkel saidtime is running out, as she and FrenchPresident Francois Hollande responded toSundays referendum result in Greece.Euro-region finance ministers gather foran emergency meeting on Tuesday.

Tsipras has all but run out of chances to reach a deal with creditors, who have insistedon tax hikes and spending cuts as the price for a new bailout of Europes most indebtednation. Greeces economy is grinding to a halt, with bank closures extended throughWednesday to stem deposit withdrawals.

It will be important tomorrow that the Greek prime minister tells us how this shouldmove forward, Merkel said at the Elysee Palace in Paris. The last offer that we madewas a very generous one. On the other hand, Europe can only stand together, if eachnation takes on its own responsibility.

Just after Merkel and Hollande met, the ECB maintained its lifeline to Greek lenders atthe prior level, the equivalent of a drip feed. Yet it also increased the haircuts oncollateral pledged against emergency liquidity, raising the discount applied to reflect thedire economic situation. (See related .)story

The Greek government has to take a decision tonight, this evening, on what theyregoing to do tomorrow, and whether they come with a serious story to the summit, DutchPrime Minister Mark Rutte said in The Hague.

Unless it finds a solution to its cash crunch, Greece could drift toward an exit from theeuro area an outcome that Tsipras and other European leaders say they want toavoid at all costs. Without funds to pay salaries and allow commerce to occur, the Greekgovernment could eventually be forced to issue IOUs or some other medium ofexchange, which might gradually evolve into a parallel currency.

Time is running out and the window for a deal keeps narrowing, Mujtaba Rahman,head of the Europe practice at Eurasia Group in London, wrote in a note to clients. Theeuro leaders summit on Tuesday is likely to prove decisive for Greeces euromembership.

Philippe Legrain@plegrain

With 60% No vote to creditors' offer & IMFadmitting Greek debts unsustainable,Merkel needs to show leadership andoffer debt relief #OXIDetails

Jeff Black@Jeffrey_Black

Maltese fin min: ''It is obvious that wehave witnessed a hastened vote over anunintelligible question by a confusedelectorate'' #greeceDetails

TWITTER REACTION

ECB JEFF BLACK, BLOOMBERG NEWS

Equities Move Lower

Source: Bloomberg. Updated at 1:27 p.m. London.

Punters' View of Grexit

Source: Betfair. Updated 1:27 p.m. London.

'No' Wins by Wide Margin

July 6, 2015 Bloomberg Brief Greece 2

ECB JEFF BLACK, BLOOMBERG NEWS

ECB Tightens Collateral Terms for Greek Bank Liquidity AidThe European Central Bank made it

harder for Greeces banks to accessemergency loans, adding pressure on acountry whose financial system remainsshuttered as it awaits political talks inBrussels.

The financial situation of the HellenicRepublic has an impact on Greek bankssince the collateral they use inEmergency Liquidity Assistance relies toa significant extent on government-linkedassets, the Frankfurt-based ECB said ina statement on its website. ELA can onlybe provided against sufficient collateral.

While the ECBs Governing Councilagreed in a conference call to leave thecap on ELA unchanged at 88.6 billioneuros ($98 billion), the change incollateral terms represents a stricterpolicy overall. That signals officials viewthe countrys lenders, which have beenshut and under capital controls for morethan a week, as a greater default risksince voters in Greeces referendum onSunday delivered a decisive no tocreditors bailout terms.

Greek banks can cope with the newterms and the ECB didnt impose a harddeadline on the country, a Greek officialsaid on condition of anonymity becausethe matter is confidential. The ECB willreview its decision on Wednesday, theofficial said.

German Chancellor Angela Merkel metFrench President Francois Hollande inParis on Monday evening, with theleaders concurring that the door remains

open for talks with Greece. Euro-areafinance ministers will convene onTuesday to prepare for a summit of thecurrency blocs leaders the same day.

The ECB has been reluctant to preemptthe political process as it treads the linebetween funding a system close tobankruptcy, and the dramaticconsequences of shutting it off.

ELA funds are nominally provided bythe Bank of Greece, with the ECBexercising a veto. A total shut-off of thefacility would likely cause the countrysbanking system to collapse. Greek

All Instruments

lenders have been reliant on the systemsince February, shortly after thegovernment of Prime Minister AlexisTsipras came to power.

The ECB also signaled that it remainsready to act if the Greek situation causeswider instability.

The Governing Council is closelymonitoring the situation in financialmarkets and the potential implications forthe monetary-policy stance and for thebalance of risks to price stability in theeuro area, the ECB said. The GoverningCouncil is determined to use all theinstruments available within its mandate.

MARKET REACTION

A Look at the ECB's Balance Sheet

July 6, 2015 Bloomberg Brief Greece 3

MARKET REACTION

How Bad Is No for Greek Banks? Analysts SplitBY FABIO BENEDETTI-VALENTINI AND AMBEREEN CHOUDHURY, BLOOMBERG NEWS

Greeces no vote, rejecting further austerity demanded by creditors, left analysts andfinancial researchers rushing to predict whether the European Central Bank will continueproviding the nations banks with aid and what will happen without it. Below areexcerpts from research notes and interviews:

Barclays economics research, led by Francois Cabau, referring to the ECBsgeneral council: We would expect ECBs GC to shut down ELA at the latest by 20July. Assuming that all of the pledged collateral at the ECB is recorded at (close to) paron Greek banks balance sheets and that current average haircut on collateral is 50percent, then retention of the collateral by the euro system would translate into a morethan 30 billion-euro loss for the banks. This alone would wipe out shareholders equity.The Greek central bank will eventually need to print its own currency in order to injectnew liquidity and capital.

Citigroup Inc. European banking analysts, led by Ronit Ghose: We estimateabout 150 million euros to 250 million euros has left the banks daily in ATM withdrawalspost capital controls were announced last Monday. At the current rate, Greek bankscould run out of cash by the middle of the coming week. ... In the context of Grexit, a fullnationalization is likely.

Roy Smith, finance professor at New York Universitys Stern School ofBusiness: "The ECB may not want to see the Greek banking system go down in flamesovernight before some sort of smoothing exit arrangements can be made that couldenable Greece to have a decent survival chance outside the euro. Maybe a 30-day lineof credit to enable the banks to reopen, and to see for sure whether Greece is going toleave the euro or not. I dont see how the troika can continue to work with Greece, but Ido see a willingness to help them leave as gracefully as possible.

Oil Falls Most in Five Months on Greece, China RisksBY MARK SHENK AND GRANT SMITH

Crude tumbled the most in five months amid mounting concern about economicstability in Europe and Asia. Futures dropped 7.7 percent in New York and 6.3 percent inLondon. European leaders will hold an emergency summit Tuesday after Greek votersrejected creditors bailout terms.

Were getting our summer correction and I dont know where it will stop, MichaelLynch, president of Strategic Energy & Economic Research in Winchester,Massachusetts, said by phone. We could soon be looking at $50-a-barrel ceiling forWTI.

West Texas Intermediate for August delivery fell $4.40 to close at $52.53 on the NewYork Mercantile Exchange. It was the lowest settlement since April 13. Brent for Augustsettlement declined $3.78 to $56.54 a barrel on the London-based ICE Futures Europeexchange. It was the lowest closing price since April 8. The European benchmark closedat a $4.01 premium to WTI.

The result of the Greek vote on Sunday reverberated quickly across Europes politicalestablishment. German Chancellor Angela Merkel and French President FrancoisHollande called for a summit of euro-area leaders Tuesday, with banks includingJPMorgan Chase & Co. saying a Greek departure from the euro is now the mostprobable scenario.

Weve got a toxic brew for the crude-oil bulls, Bob Yawger, director of the futuresdivision at Mizuho Securities USA Inc. in New York, said by phone. Theres a lot ofnews out there and all of it is negative for the oil market.

Greek Contagion AcrossMarkets MutedBY JEREMY HERRON AND ANNELISEALEXANDER, BLOOMBERG NEWS

Financial markets barely shudderedafter Greek voters rejected austeritydemands, in a sign investors see thenations crisis contained for now.

The Standard & Poors 500 Indexslipped 0.4 percent at 4 p.m. in New York,while the Stoxx Europe 600 Index lost 1.2percent. The declines were mutedcompared with a week ago, when Greecefirst announced a referendum. The eurofell to $1.1054, paring a loss of as muchas 1 percent. Treasury 10-year yieldsdropped 10 basis points to 2.29 percent.

While investors sold equities around theworld and sought havens from the yen toGerman bunds after Greeks voted toreject austerity terms, signs of financialpanic did not materialize. The pressure ison Greece to develop a plan to stay in theeuro, as the nation stares at an economiccalamity that investors are speculating willremain largely contained.

I think its going to be hard to get anyreal traction until we get some type ofclarity, said Walter Todd, who overseesabout $1 billion as a chief investmentofficer for Greenwood Capital. You cantescape the noise created by this situation.Our opinion has been and remains at thispoint that Greece is more noise thananything else.

European stocks plunged 3.4 percentlast week for their biggest drop of theyear, while U.S. equities posted the worstweek since March after Greeceunexpectedly called the referendum. Theeuro has been resilient in the face of theGreek crisis, which could lead to thecountrys exit from the common currency.

After five years, you have to believe ameasure of the news from Greece isalready built into the market, BruceBittles, chief investment strategist atMilwaukee-based Robert W. Baird & Co.,which oversees $110 billion, said byphone. How many times can you beconcerned about the same news? It losesits effectiveness over the near term.

The muted reaction in the worldsfinancial markets means the FederalReserve can continue to watch the latestU.S. economic data and avoid hardconclusions about the timing ofinterest-rate increases for now.

VERBATIM BY CHARLES STEIN, MAX ABELSON AND MARGARET COLLINS, BLOOMBERG NEWS

July 6, 2015 Bloomberg Brief Greece 4

VERBATIM BY CHARLES STEIN, MAX ABELSON AND MARGARET COLLINS, BLOOMBERG NEWS

BlackRock, TCW Say Surprise Greek Vote Won't Trigger Wider PanicMany of the worlds smartest investors were taken by surprise after Greeks overwhelmingly voted on Sunday to reject further austerity

measures. Still, most are betting that the European Central Bank will prevent the crisis from spreading.BlackRock Inc. and TCW Group are among money managers predicting that the potential fallout from the Greek crisis wont roil the

broader markets. Investors including Bill Gross of Janus Capital Group Inc. and Rebecca Patterson, chief investment officer ofBessemer Trust, said a key date for Greece will be July 20, when the country has to pay 3.5 billion euros back to the ECB.

Below are excerpts from interviews and notes from investors and analysts following Greeces no vote on Sunday.

Bill Gross, manager of Janus GlobalUnconstrained Bond Fund: Grexit is a 70percent-80 percent probability. Youreseeing massive support behind the scenesof course on the part of the ECB. Youreseeing central governments throwingeverything they have at the markets andkeeping them calm.

Dinakar Singh, former Goldman SachsGroup Inc. partner and co-founder ofhedge fund TPG-Axon Capital: I think the

market obviously now appreciates the risk of Grexit but is alsorecognizing that the actual impact is minimal. For markets, theeconomic contagion worry is very far-fetched. Candidly, ifanything, the reaction over the past week has already been toosevere. Fundamentals are improving in other countries. Banksare well capitalized across Europe. Sovereign QE and otherprograms are in place. And, most importantly, banks are nowsupported directly by ECB.

Christopher H. Turner, chief administrative officer and a:managing director in capital markets at Warburg Pincus

This outcome was unexpected by most here, but obviously verymuch in the realm of the possible kind of like Donald Trumprunning for president. We dont see this outcome having a director material effect on our funds.

Willem Buiter, chief economist at Citigroup Inc.: Overall, theNO vote implies that Grimbo (Greece in limbo) is a near-certaintyand Grexit (Greece euro area exit) risk has risen. But even then,formal Grexit could still take months or even years to happen.

Hans Humes, founder of GreylockCapital Management: No question aboutit in the short term. Tsipras won this.Theres latitude for the Greeks to go backto the Europeans and present them withsomething thats a little bit more palatable.Tsipras can sign something now.

Stephen Kane, group managing director,U.S. fixed income at TCW Group Inc.:This has been the slowest moving train

wreck in history. It has played out over weeks. The markets havebeen well-prepared for the negative news.

Russ Koesterich, global chief investment strategist, Europe is stronger than it was, its banks areBlackRock Inc.:

better capitalized and the Greek debt is held by publicinstitutions. Even if Greece leaves the euro, this is not going tobe a Lehman-style event.

Rebecca Patterson, chief investment officer at BessemerTrust: In our view, Greek banks hold the key to how things playout. Greek bank capital has fallen quickly, even with withdrawalsfor most depositors now limited to 60 euros per day. The banksneed emergency liquidity assistance (ELA) from the ECB to meetthe countrys cash needs. So far, the ECB is continuing toprovide assistance; however, another default by Greece couldforce the ECB to reconsider. What if there is no deal? Without adeal, it is difficult to see how Greece stays in EMU for long.Default on the July 20 ECB payment seems likely, as iscontinued closure for local banks, which in turn will be faced witha number of options, none attractive.

PROFILE: TSAKALOTOS BY MATTHEW CAMPBELL, BLOOMBERG NEWS

Source:Bloomberg/AndrewHarrerBill Gross

Source: Bloomberg/ScottEellsHans Humes

July 6, 2015 Bloomberg Brief Greece 5

PROFILE: TSAKALOTOS BY MATTHEW CAMPBELL, BLOOMBERG NEWS

A Look at the New Finance MinisterGreek Prime Minister Alexis Tsipras is

counting on a change of style, if notnecessarily substance, by turning to alongtime ally to seek a deal with creditorsto keep his nation in the euro.

Euclid Tsakalotos was named financeminister to replace Yanis Varoufakis, whoresigned Monday after more than fivemonths of fruitless back-and-forth. AnOxford-educated economist who waspreviously deputy foreign minister,Tsakalotos had already begun to take aleading role in debt talks before Tsiprasssurprise referendum call brought them toa halt on June 27.

Tsipras is betting that a new, lessconfrontational face will help him bringGerman Chancellor Angela Merkel andother European leaders back to the tableafter Greeks voted to reject furtherausterity in Sundays vote. Varoufakis hadvowed to cut off my arm rather than signa bad deal, and was involved in a longseries of spats with negotiating partnersin his six months on the job.

Its an important symbolic andnecessary move, Famke Krumbmuller,an analyst at political consultancy EurasiaGroup, said by e-mail. Creditors nowreally need to see the trust restored by aserious and credible commitment from theGreek side to implement reforms, shesaid.

Time is running short: Greek banks arealmost out of cash and commerce isgrinding to a halt in the absence of a newbailout deal and lifeline from theEuropean Central Bank. Tsiprassgovernment has extended bank closuresand capital controls through Wednesdayto stem withdrawals.

Unlike Varoufakis, who joined justbefore elections in January of this year,the new finance minister has been amember of Tsiprass Coalition of theRadical Left, or Syriza, since 2004. Hefirst won election to parliament in 2012.

Born in 1960 in the Netherlands thehome of Jeroen Dijsselbloem, thepresident of the group of euro-regionfinance ministers with whom Varoufakissparred repeatedly Tsakalotos waseducated in the U.K., at the universities ofSussex and Oxford, where he receivedhis doctorate in 1989. Like the U.K.sConservative Party chancellor of theexchequer, George Osborne, he attendedSt. Pauls, a London private school thattraces its roots to the 15th century.

Tsakalotos became more prominent inGreeces debt negotiations in June asrelations between Varoufakis andcreditors worsened. Varoufakis today saidhe was resigning because there was acertain preference among someEuropean governments that he beabsent from the next round of talks, ifand when they begin.

Though Tsakalotoss button-downedstyle may help endear him to creditors,hes still a staunch supporter of Syrizas

more radical policies and a harsh critic ofEuropean austerity, putting him on theopposite side of the ideological spectrumfrom key politicians including GermanysWolfgang Schaeuble.

I dont expect Tsakalotossappointment to lead to a significantchange in Greeces policies but his lessconfrontational approach should definitelyhelp negotiations, said Diego Iscaro, aneconomist at research group IHS Inc.

The new ministers likely approach totalks can be divined from the most recentbook. Co-written with the economistChristos Laskos, it was titled TheCrucible of Resistance: Greece, theEurozone and the World Economic Crisisand printed by self-described radicalpublisher Pluto Press.

It criticized permanent austerity andargued that Syriza represents a model forother European countries to emulate. Thebook was endorsed, among others, byVaroufakis.

TIMELINE MADELEINE LIM, BLOOMBERG FIRST WORD

Source: Bloomberg/Simon Dawson

July 6, 2015 Bloomberg Brief Greece 6

TIMELINE MADELEINE LIM, BLOOMBERG FIRST WORDWhats Next in the Greek Crisis Saga

With 61 percent of voters rejecting further austerity in the referendum on Sunday, European leaders must now decide whether afinancial rescue for Greece is still possible even as the country nears financial collapse and the odds of an exit from the euro rise.Heres a timeline of the key dates ahead in the Greek debt crisis.

July 7: Emergency euro-area leaders summit Greece to sell 26-week billsJuly 8: Greece needs to refinance EU2b in t-billsJuly 10:IMF loans repayment totaling ~EU450m dueJuly 13:

Eurogroup meeting Greece needs to repay JPY11.67b (~$94m) in yenJuly 14:

loans Governing Council monetary policy meeting of theJuly 16:

ECB in Frankfurt Greece needs to pay ~EU71m in interest on the 3-yrJuly 17:

bond it sold in 2014 Greece needs to refinance EU1b in t-bills

Greece needs to repay ~EU3.5b in bond redemptions;July 20:bonds held by the ECB

Moodys due to review Greeces sovereign debtJuly 31: : Greece needs to service ~EU600m in interestAugust

payments, including a ~EU80m payment to the EuropeanFinancial Stability Facility

: Interest on IMF loans totaling ~EU175m; paymentAugust 1due by August 5

Governing Council of the ECB non-monetary policyAugust 5:meeting in Frankfurt Greece to sell 26-week bills

Greece needs to refinance EU1b in t-billsAugust 7: Greece needs to refinance EU1.4b in t-billsAugust 14: Greece needs to repay ~EU3.2b in bondAugust 20:

redemptions; bonds held by the ECB

NOTE: Sums cited on payments due to the IMF are onlyapproximate, as they depend on the exchange rate between theFunds Special Drawing Rights and the euro; list of debtrepayments is indicative as some small bond redemptions arenot included.

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GREECE IN SIX CHARTS PAUL SMITH, BLOOMBERG BRIEF EDITOR

July 6, 2015 Bloomberg Brief Greece 7

GREECE IN SIX CHARTS PAUL SMITH, BLOOMBERG BRIEF EDITOR

Link to article.

PRINTING THE DRACHMA MATTHEW CAMPBELL AND ALEX WEBB, BLOOMBERG NEWS

In Deep

The International Monetary Fund is willing to countenance debt relief;the Eurogroup is not. The IMF's Chief Economist Olivier Blanchardneatly summarizes the impasse between Greece and its officialcreditors . The dotted line on the chart above shows the latesthereGDP forecasts these are likely to deteriorate.

Greek, Young and Jobless

The end of 2014 brought with it a foreboding sign: the unemploymentrate ticking up in the two groups between the ages of 20 to 29. Sincethe government's public wranglings with creditors, the jobless figuresmay have risen further, fueling the potential for civil unrest.

Whatever It Takes (Except Save Greece)

As the Greece crisis escalated, European Central Bank PresidentMario Draghi has tried to stay politically neutral; without a surge incontagion which seems or a resolution between Greeceremoteand its creditors, Draghi is unlikely to ride to the rescue.

Withdrawals Preempt Capital Controls

The imposition of capital controls was well signaled and many tooknotice, converting their bank deposits to cash. The capital controlscould be a first step to a new currency. (Click here for details on thecash used in this chart.)calculation

Why Devaluation Would Be Very Painful

Greece is a relatively closed economy. This means a sharp devaluationwould immediately make all Greeks worse off as the cost of importssoars. "Devaluation would lift competitiveness but, with a relativelysmall exporting sector, the Greek economy would not be in a goodplace to benefit from that," said Jamie Murray, chief EMEA economistat Bloomberg Intelligence. "It will take time for resources to shift towardmore outward-looking activities."

The Root of the Problem: Imbalances

Target2, a transfer payment system for euro-area central banks,illustrates the large imbalances within the region. According to anarticle by Paul De Grauwe and Yuemei Ji back in 2012, Target2"claims are just a repackaging of risks that Germany took byaccumulating large current account surpluses." In the event of abreak-up of the euro area, "Germany would lose massively."

July 6, 2015 Bloomberg Brief Greece 8

PRINTING THE DRACHMA MATTHEW CAMPBELL AND ALEX WEBB, BLOOMBERG NEWS

The Messy Future of a Post-Euro GreeceIntroducing a new currency is no small

feat. Recent cases East Germanysadoption of the deutsche mark, theCzech-Slovak divorce of 1993, and thecreation of the euro itself benefitedfrom years of careful planning and broadpopular support. If Greece were toabandon the euro, it would have neither.

Historical precedent suggests thiswould be hugely challenging, saidRichard Portes, a professor of economicsat London Business School. Thesituation in Greece is perhaps even worsebecause its not clear that they have theadministrative capacity to move quickly toa new currency.

Greeces government said it intends tokeep the euro. While a poll commissionedthis week by Bloomberg found the votetoo close to call, it showed that 81 percentof Greeks want their country to remain inthe euro zone.

Many economists, though, say thatwould be difficult after the no vote even if in the long run the country mightbenefit from such a shift. The Greekbanking system is dependent on supportfrom the European Central Bank, whichmight be withdrawn in that event. Thatcould force Greece to create its ownmeans of exchange a new drachma to keep its economy running.

Countries switching currencies mustgrapple with two major questions: how tointroduce new notes and coins, and whatto do with bank accounts, debts, andfinancial instruments denominated in theold currency.

The former is relatively straightforward.The Greek central bank owns a press inthe Athens suburb of Holargos that printseuro notes. That plant printed Greecespre-euro drachma, and could make a newdrachma, too.

A currency is a national business card,so you want to make it right, said RalfWintergerst, head of banknote productionat Giesecke & Devrient GmbH, a Munichcompany that has printed banknotessince the days of Germanys Reichsmarkin the 1920s.

Wintergerst says introducing a new

National Business Card

currency typically takes at least sixmonths, and sometimes as long as twoyears. Artists must draw the notes,security experts then add anti-counterfeitmeasures such as watermarks andspecial inks, and bank officials need toplan how much of each denomination isneeded and get the money to banks.

The most challenging thing was toestablish efficient distribution and makesure the new currency was availableeverywhere, said Boris Raguz, head ofthe Treasury Directory at Croatias centralbank, who in 1993 oversaw theintroduction of the countrys currency, thekuna, after the breakup of Yugoslavia.

Greater difficulties arise when banksstart issuing that money. Because of thetime required to distribute new notes andcoins, the two currencies have to existside by side for some time. While Greekbanks might move card transactions tothe new drachma immediately, shopscould accept both or perhaps onlyeuros if merchants doubted the value ofthe new drachma.

When will the conversion happen? Atwhat rate? said Antonio Fatas, aprofessor of economics at Inseadbusiness school near Paris. Thats thebig question.

The two currencies would likely start ata one-to-one exchange rate, which mightbe fixed for a period of time. The eurowas created in 1999, but it existed onlyvirtually for three years, used forelectronic transactions at a rate fixedagainst the francs, marks, and othercurrencies it replaced. Then on Jan. 1,2002, euro bills and coins were

Difficult Distribution

introduced, though the old currencieswere also accepted for about two moremonths.

Greece would be more complicatedbecause the transition would have tohappen fast, with little planning. Andunlike most other currencies that havebeen abandoned, Greeces currentcurrency the euro will remain incirculation across Europe no matter what.That means any new currency might havelittle appeal to Greeks, who would expectits value to fall once the market wasallowed to set the exchange rate.

As soon as anyone got new drachmasstuffed in their pockets, they would dowhatever it takes to get rid of them, saidJacob Kirkegaard, a senior fellow at thePeterson Institute for InternationalEconomics in Washington.

Another complication, according toKirkegaard, is that Greeces manyimporters might demand to be paid ineuros, rather than depreciating drachmasthat would do little to meet theirinternational costs.

Ludek Niedermayer, who headed therisk management department at theCzech central bank when the Czechkoruna was introduced in February 1993,said that at the time his country andSlovakia were relatively isolated, havingemerged from communism less than fouryears earlier. Greece, he noted, is farmore integrated into the Europeaneconomy, making it harder to switch.

The key is trust in the new currency,Niedermayer said. Thats something theCzechs and Slovaks both had, and whichthe Greeks will surely lack.

If you introduce a currency that no onewants, its a very bad start, Niedermayersaid. I would advise Greeks to stopthinking about leaving the euro at all. Itwouldnt be a happy ending for them.There isnt any alternative that would beequal to having the euro.

Little Planning

Trust Is Key

QUICKTAKE

July 6, 2015 Bloomberg Brief Greece 9

QUICKTAKE

The Euro's Existential CrisisBY IAN WISHART, BLOOMBERG NEWS

Hey euro! For a while there, you lookedlike a goner. During those debt crisis daysin 2012 when Greece was imploding andSpains banks were teetering and theGermans were asking why they had topick up the bill, there was a seriouswobble. Common European currency?Remind us, please, what Europeansactually have in common. And now thatGreece is on the brink again andeconomic growth in the countries sharingthe euro is still sluggish, theres areminder of how many problems itcaused. The question is being raisedonce more: Can the worlds mostambitious financial experiment survive?

Greeks voted against further austeritydemanded by the countrys creditors in aJuly 5 referendum held after aid talkscollapsed and the country imposed capitalcontrols. While officially the Greeks weredeciding whether to accept the pensioncuts and tax increases demanded inreturn for an extension of its euro-areabailout, the ballot was seen by many asan in-out vote on the countrys place inthe common currency. Euro-zone leaderswill meet July 7 to decide what happensnext. Although Greece represents just 1.8percent of the output of the bloc, a Greekexit from the euro would discredit theinsistence of political leaders that thecommon currency is irreversible.Separately from the crisis in Greece,countries like France and Italy have alsopushed the European Union to relaxbudget rules or give them more leeway toboost spending to help saggingeconomies. The 19-nation currency blocis forecast to expand just 1.5 percent in2015, about half the pace of the U.S.Euro-zone unemployment has held closeto a record 12 percent for three years,with just under a quarter of young workersunable to find a job. The slump has fueleda surge in support for anti-EU andanti-establishment political parties acrossthe continent. The ECB cut a key interestrate below zero in June 2014 and beganbuying government bonds in March,which has helped growth recoversomewhat. The prospect for morestimulus sent government bond yields inthe euro zone (excluding Greece) to

record lows in early 2015.The EU was set up in 1958, as the

continents leaders vowed to makeanother war between them all butimpossible. The euro came 41 years later,when a group of 11 countries jettisonedmarks, francs and lire and turned controlof interest rates over to a new centralbank. The common currencys scaleprovided better access to world marketsand exchange-rate stability. It did not,however, impose uniform financialdiscipline; to avoid surrendering nationalsovereignty, politicians largelysidestepped a unified approach to bankregulation and government spending.While there were some rules, they wereflouted. The crisis that brought the euro toits knees came during the global rout in2009, when Greece acknowledged itsbudget deficit would be twice as wide asforecast. Investors started dumpingassets of the most indebted nations andborrowing costs soared. The shared euromade it impossible to devalue individualcurrencies of weaker countries, limitingoptions for recovery. Politicians lurchedthrough bailouts for Greece, Ireland,Portugal and Cyprus plus a rescue ofbanks in Spain. The panic fueled fears of

a euro breakup as fragile banks exposedthe common currencys flaws. Thefirestorm abated in July 2012, when ECBPresident Mario Draghi pledged to dowhatever it takes to preserve thecommon currency.

Euro-area leaders say that even ifGreece falls out of the euro area, thecommon currency will survive. Newsystems have been put in place tocentralize bank supervision and buildfirewalls between troubled debtors andtaxpayers. They still may not have gonefar enough. Proposals for a deeper union including more oversight of nationalbudgets and the pooling of debt havenot been realized and could sow theseeds for another crisis. The divergingfortunes among countries in the blochighlights the challenge for the ECB,which is concerned adding stimulus couldundermine efforts to make laggards reinin spending. Even though a potentialGreek exit from the euro poses lesssystemic risk now than in 2012, no onequite knows what the consequencescould be economically and politically.Existential doubts about the commoncurrency remain.

Source: Bloomberg

July 6, 2015 Bloomberg Brief Greece 10

CONTACTSBloomberg Brief Managing EditorJennifer Rossajrossa@bloomberg.net+1-212-617-8074

Economics Newsletter EditorsAlex Brittainabrittain4@bloomberg.net

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Justin Jimenezjjimenez68@bloomberg.net

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