In chaotic Greece, polls find that a majority of Greeks support keeping the currency, yet voters continue to support parties that oppose the bailout on which it depends. A last ditch effort to create a ‘government of national unity’ and stave off another round of elections offers little hope to resolve the policy issues before the country and at the moment, polls suggest that a new round of elections will give the anti-bailout parties enough seats to form a government.Optimists (and there still are a handful in Greece) hope that as voters realize that rejecting the bailout conditions means leaving the euro, sentiment will swing back toward the pro-bailout parties. Had they won another 2 out of the 300 seats in the last election, a national unity coalition of the two big pro-bailout parties would be in power now.Amid all this confusion, however, Reuters reports that banks are preparing themselves for a Greek return to the drachma. Some of these preparations are rather banal—adding drachmas to computerized databases should not be particularly difficult, especially since some systems still include the currency as a holdover from the pre-euro days.Other changes, however, are less trivial. Nobody can predict what the government would look like at the time of a euro exit or what its policies might be. Nonetheless, some steps seem particularly likely, most notably the imposition of foreign exchange controls:
The problem may be bigger for euro zone banks which need cash for individuals or companies doing business in Greece. They face the problem of what exchange rate to use, depending on the laws Athens might draw up for trade it its currency.If Greece forced an exchange rate of, say, one euro to one new drachma, this could impose huge losses on foreign banks because such a rate would not hold on the markets.Controls on the movement of capital could be a nightmare for banks with loans in Greece, potentially making it illegal for companies to repay debt in euros.Even if it were not illegal, companies might no longer be able to repay foreign creditors because their cash had been converted overnight into drachmas – a currency that would rapidly lose its value due to the dire state of the Greek economy. That would, in turn, make it tough for any lender to get its money back, whatever contract it might have.
Anticipating these problems, many banks are already scouring legal records to ensure that they will be prepared for the lengthy court challenges that will inevitably arise should Greece leave the Euro. Though few are willing to take more drastic steps for fear of provoking a panic, they will be prepared to do so as quickly as possible should things turn sour.At this point, no banker with interests in Greece can afford to ignore the prospect of a Greek exit. Rich Greeks have been moving their money out of the country for some time now; increasingly, that looks like the right move for anybody who can.