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The british MP John Redwood recently claimed in the Daily Mail that

It’s unlikely, but what you could have is a situation whereby Greece had to leave the eurozone and their euros were compulsorily converted to drachmas.

‘If they decided even Greek-issued euros held overseas had the same value, it could mean that the euros carried home by UK holidaymakers were suddenly worth a lot less than when they acquired them.’

I'm having serious trouble that this would even be legally possible, my understanding was that all Euro notes are equivalent, no matter which country issued them.

Would it be even possible under the current EU laws and regulation to forcibly convert Euro notes isssued by Greece to drachmas? Are any plans to do something like that known?

Mad Scientist
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    This question was inspired [by this earlier question about identifying greek Euro notes](http://skeptics.stackexchange.com/questions/7069/is-it-possible-to-identify-where-euro-banknotes-are-from) – Mad Scientist Nov 25 '11 at 14:11
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    Sounds like typical Brit-anti-European FUD. – vartec Nov 25 '11 at 14:16
  • Have a look at this article: http://sovins.wordpress.com/2011/11/06/how-does-one-leave-the-eurozone/#more-431 (which blog post I wrote, with reference to an excellent paper by one of the most prominent law firms involved in the crisis). The paper cited is not quite an answer to your question, but it's a superb starting point by luminaries on the topic. – Brian M. Hunt Nov 25 '11 at 16:51
  • I Thought it was Greek debt (treasury notes) that would be converted to Drachma not Cash Euros. – Chad Nov 28 '11 at 19:57
  • @Chad you are almost certainly correct. Domestic bank holdings would likely be converted as well. Here's another astute legal opinion: http://www.edwardswildman.com/newsstand/detail.aspx?news=2405 – Brian M. Hunt Dec 14 '11 at 20:50
  • @BrianM.Hunt - Hmm I guess I just figured most people had pulled their money out of greek banks... I know I would have. – Chad Dec 15 '11 at 14:40
  • not as easy as you think, Chad. Many transnational companies have Greek holdings, thus have part of their investment in Greece and it may not be possible to easily distinguish what part of their Euro reserves are booked on Greek property as compared to property in other Euro countries, as those funds can and do now flow freely between them. – jwenting Dec 16 '11 at 06:06

2 Answers2

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Euros are not property of national central banks, they belong to the European Central Bank, but they are issued by individual banks (and printed in several places, not necessarily in the same country where they are issued).

Each euro note has a serial number. Its first character is a letter identifying the issuing state (Greek euro notes have "Y"). See http://en.wikipedia.org/wiki/Euro_banknotes#Serial_number.

Therefore, it is technically feasible to recognise the "Greek" euros (Greek coins are even easier to single out because one of the faces is always nation-specific). Those euros do not only circulate in Greece, therefore anybody physically owning euros, and not just foreign tourists coming back from a holiday in Greece, would be affected.

Nevertheless, this is not the way it works when a country opts out from a currency union: in those cases a new currency is created (or revived, like the drachma) and an initial official exchange rate is established by the government. Bank deposits denominated in euros in Greek banks may or may not be forcibly converted according to this exchange rate. See http://en.wikipedia.org/wiki/Argentine_economic_crisis_%281999%E2%80%932002%29#End_of_convertibility for a recent example of a similar process.

Assigning a special value to the Greek notes would be a breach of the European treaties and the other countries would have no reason to accept nor implement such a decision. Those treaties do not comprise any mechanism to get out of the Eurozone, so the conditions would have to be negotiated or imposed unilaterally. Exit strategies implying distinct values for euro notes issued by distinct Eurozone countries are extremely unlikely because they would raise countless legal, diplomatic and practical problems; creating a new drachma and replacing euros with it is much more straightforward.

Bottom line: this British MP does not seem to have a very clear understanding of how the Euro works (which, BTW, is pretty typical of most British politicians).

Mauro Vanetti
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Greece could not print new drachma discretely, so they may use at first a different technique, like putting a stamp on banknotes, identifying them as "Greek" and no longer valid in the rest of the Eurozone.

A stamp was used to differentiate banknotes when the Austro-Hungarian krone broke into individual currencies. Although at that time, government were worried about money flooding in the country, whereas Greece is worried that money will run to Germany/France.

Converting banknotes issued by Greece as "Greek" would be a weird solution, and likely to get a lot of Europeans mad.

'As for people such as shopkeepers rejecting Greek euro notes elsewhere in Europe, there seems little point in doing this for as long as the banks across the eurozone are obliged to take them.

'I suspect that the rules would be made up as we went along.'

  • Andrew Smith, chief economist at accountant KPMG (link)
Manu
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    Speculative. On Skeptics.SE answers must be backed up by references. – vartec Nov 25 '11 at 14:32
  • yes too speculative I suppose. – Manu Nov 25 '11 at 14:34
  • It's hard to find hard data on this, as the issue was not taken into account in the Maastricht treaty, the question is very political. – Manu Nov 25 '11 at 14:50
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    @manu References to (and some extra details of) the historic situations where similar things have happened would rescue this answer for me and merit an up vote. – matt_black Nov 25 '11 at 21:36
  • Also irrelevant, since Greece has preserved their drachma supply, they don’t need to print anything new to begin with. – Konrad Rudolph Nov 26 '11 at 21:00
  • What's your source ? – Manu Nov 28 '11 at 14:18
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    Even if there's a central storage created for them, it doesn't mean the Drachma still exist. The monetary value of the metal in the coins could be a nice source of income for the government, and for security reasons alone destroying the bulk would be advisable. – jwenting Nov 28 '11 at 14:25
  • @jwenting - I am not saying this was their plan all along but... If the government always intended to exploit the euro for its advantage then retaining its own currency for a quick return after it had plundered as much as it could from the rest of the Eurozone. But that sort of thing never happened in Europe before why would it now. – Chad Dec 15 '11 at 14:45