Notes From Underground: The Greek Parliament Shows Its Confidence … Will the Markets Do the Same?

In a widely predicted outcome, the Greek Parliament voted 155-144 to sustain the government of George Papandreou and allow for next week’s vote on the new austerity budget–and the release of another round of bailout funds. The global equity markets and the EURO sustained a second day of rally as investors were willing buyers of risk in the HOPE of a respite from the turmoil of European sovereign debt. Tomorrow’s Financial Times has an article about Greek citizens cashing in their EUROS for GOLD.

I bring this to your attention not to make a further case for GOLD but rather to enlighten readers as to the fear that Greeks have about a continued run on their banks and the possibility of the implementation of EXCHANGE CONTROLS. European law is unclear about a nation imposing exchange controls during times of an existential threat. Article 56 of the EC treaty made exchange controls illegal “… all restrictions on the movement of capital between Member States….’

However, Article 59 of the same treaty allows for measures to be taken to safeguard the European Union if the transfer “of capital threaten the stability of economic and monetary union.”  The source for this information is Mann on the Legal Aspect of Money, page 653. The Greek citizenry is aware of the failings of the EU and are using the most ubiquitous form of safety to protect themselves from the POSSIBILITY OF DEFAULT AND CONFISCATION. The IMF should just transfer its GOLD to Greece in its next payment and accept euros in return.

Greek banks have been hemorrhaging euros as Greeks have been moving funds to other EU locals just in case of a DEFAULT and the reissuing of DRACHMAS. Better to have a strong currency in times of need and now it appears that GOLD is the ultimate safe haven. Better to have the “BARBAROUS RELIC” as that money trail is tougher to follow, especially in a nation-state so fraught with tax avoidance and corruption as Greece.

I would also urge the readers of NOTES FROM UNDERGROUND to read Alfonso Prat-Gay’s piece in Wednesday’s FT, “Latin Lessons for a Euro zone Recovery.” Mr.Prat-Gay ws the President of the Bank of Argentina 2002-2004 and offers advice how to alleviate some of the pain of Greece’s debt stress while avoiding a default–makes for interesting reading from a reliable source.

Tomorrow the FEDERAL RESERVE will release its FOMC statement and then 90 minutes later Chairman Bernanke will entertain questions at his second news conference. It is necessary to listen for any hint that the FED has renewed concerns about the recent weakness in the economy and, more importantly, to be attentive to any hints of concern about the Greek crisis and its potential for contagion. Also, it is important to know if the FED is pointing at the Japanese earthquake as being the main problem for the slowdown in second quarter growth.

If Japan is to blame, the FED will stick to its higher growth targets for the second half of the year and the equities should find reason to rally as the bonds and notes sell off in a correction of the recent drop in long rates. Again, Greece and Japan can have an impact so be attentive to Bernanke raising both issues during the press conference.

 

 

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