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Greece’s Plan B: Bringing Back the Drachma

Greece is drawing up plans to re-introduce its national currency should ongoing negotiations over a new bailout agreement fail, sources close to the left-wing Syriza party reported this week.

“We are a left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” according to a senior Greek official interviewed by The Daily Telegraph.

“We will shut down the banks and nationalise them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU,” the source added.

It is generally understood that such actions would lead Athens to bring back the drachma, which was replaced by the euro in 2002. The national currency had been in use since 1832.

The Greek government, which owes the International Monetary Fund €458 million by April 9, is determined to keep public services running, including covering payments for salaries and social security. The ruling Syriza party appears ready to enter into pre-default arrears with its creditors in order to force the troika to ease some of its demands.

It is unclear how going into arrears would affect Athens’ international standing. No developed nation has ever defaulted to the IMF or any other Bretton Woods institution. A default would put Greece in the same company as Sudan, Peru, Somalia, Zambia, Yugoslavia and a host of other developing nations that have failed to meet their  IMF loan obligations.

However, contradictory statements from Greece’s deputy finance minister Dimitris Mardas suggested Athens was ready to repay its loan tranche in time.

“We strive to be able to pay our obligations on time,” Mardas told Greece’s Skai TV on Friday. “We are ready to pay on April 9.”

Greece and its Eurozone partners have been locked in a months-long battle over a new bailout agreement since the ruling Syriza party assumed power in January. Both sides had agreed on a general framework for a new agreement, but Greece failed to provide convincing evidence it was going to introduce much needed reforms demanded by the IMF, European Central Bank and European Union. As a result, the troika has frozen bailout aid until Syriza puts forward satisfactory reforms.

Greece’s economy has contracted by 25 percent since 2008. With a debt burden of €316 billion, the economy is on the verge of collapse. The troika of lenders has provided Athens with €240 billion in bailout funds to protect Greece’s place in the currency union.

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