Thursday, May 17

Greece Can Physically Print Its Own Euros In Spite Of ECB 'Choke' Efforts

Euro printing press
As the long ago predicted Greek 'bank jog' accelerates there is much talk in the econoblogosphere of the Greek banking system being 'choked off' by the ECB.

If this is in fact the Brussels/Frankfurt plan to force Greece out of the euro there is a perhaps not insignificant obstacle to this strategy: as noted in this post last year, Greece has its own euro printing press. 

The ECB does not print any euro banknotes but actually assigns this task to local member country central banks, with the ECB instructing the local central bank how much of which denominations to print.

So what does this mean?

In opinion polls Greeks want two things: a) to default on their sovereign debt less fiscal austerity and b) stay in the Eurozone. However, European elites (read: Germany) are saying to Greece that you can't have both. But is Germany correct?

An important point to keep in mind here is that there is no legal mechanism to force Greece to drop the euro and readopt the drachma. Hence the idea of choking off the Greek banking system and forcing the Greeks to renounce the euro versus organizing some type of formal action, such as a vote to eject Greece from the euro, which would not be allowed under current EU law.

But in the event of a full-fledged run on Greece's banking system, where Greek banks literally have no cash on hand to give to depositors, it would seem reasonable and (crucially) perhaps legal for the Greek central bank to start printing euro notes even if the ECB disavows this action.

If this were to take place is there anything the ECB could do to stop the Greek central bank from printing euros? Probably not.

It's hard to imagine the situation reaching a stage where the Greek central bank openly revolts against the ECB and starts printing euros. However, Greece need only hint at playing this card for it to have the desired effect, which is to force the ECB to continue accepting Greek bank collateral on reasonable terms. In other words, the fact the Greeks can print their own euros nullifies the ECB's ability to choke the Greek banking system into submission and force a 'voluntary' abandonment of the euro.

Your move, Angela.


  1. Yes, there is a real possibility that Greece might default and then simply print their own euros. The ensuing scenario might be: First, the EU would respond with bluster while they negotiate with the Greeks. After a while the EU will be able to outlaw paper euros with Greek serial numbers and euro coins with the Greek reverse. Finally, the EU will produce entirely different euro bills that the Greeks can’t produce. The “Greek euros” would become the currency of Greece (instead of drachmas) and would circulate at a steep discount to genuine EU euros. The whole farce could last for months and will be good for a lot of laughs.

  2. Bank of Greece cannot print as many euros as it likes. ECB controls the flow of special ink and paper to the national central banks. So, printing euros in Greece is out of the question.

  3. green_cat,

    The ECB does not have complete control on the paper used in currencies. For example, Greece could contract to obtain these materials through the UK based De La Rue:

    1. Surely De La Rue would refuse to sell paper and equipment to a Greek government intent on (effectively) forging euro notes - otherwise De La Rue would never again be contracted by a legitimate government. But do the Greeks really not have reserve supplies of what they would need?

    2. I have no idea whether Greece has reserve supplies of what is needed to print euros, but I do know that De La Rue is not the only supplier. For example, see this recent headline from Fortress Paper and Landqart AG:

      VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 7, 2012) - Fortress Paper Ltd. ("Fortress Paper" or the "Corporation") (TSX:FTP), announces that its wholly-owned subsidiary, Landqart AG, a leading manufacturer of banknote and security papers, has had a material banknote order reinstated. This order was unexpectedly suspended in the fourth quarter of 2011 which negatively impacted the financial results of Landqart's operations in the first half of 2012. The Company operates its security paper products business at the Landqart Mill located in Switzerland, where it produces banknote, passport, visa and other brand protection and security papers, and at its Fortress Optical Facility located in Canada, where it manufacturers optically variable thin film material.

  4. Quote "[...]In opinion polls Greeks want two things: a) to default on their sovereign debt and b) stay in the Eurozone [...]"

    There is no poll where the Greeks (that is the majority) want to default on their sovereign debt, not a single one. If anyone presents such, it's a fake.

    The basic flaw of the argument is in the beginning, Nations, organized in Unions, do not act irrationally (that's the idea of a Union to provide rationality), and what you're describing is the manifestation of irrationality, both ways.

    1. Anon,

      Regarding Greeks wanting to default, thanks for the point. I'll correct the article to state instead that Greeks want less austerity, which while it could lead to a default is not the same thing as wanting to default.

    2. That sounds more like it. In that sense, while every individual wants to be better off (less austerity) serves the common good which in turn reflects to a level higher, the European common good, as Greek default, which in the best case, despite any preemptive measures used as rampart, is by and large uncharted, thus leading to whatever repercussion. While history doesn't repeat itself, it's thriving of analogous cases where prediction and precaution just failed, since what really happened was something simply not accounted.
      Thanks for the nice work and keep up
      R2D2 (former Anon)

  5. Imaginative and interesting post...should be emaild to Ms Legarde and the Masters of the Universe, our true World Politicians:

    Lloyd Bankfein
    Jamie Dimon
    George Soros