By Peter Krauth, Resource Specialist, Money Morning
Greece and its “troika” of creditors – the European Central Bank (ECB), the European Commission, and the International Monetary Fund (IMF) – have finally agreed on terms for its latest bailout, worth about €86 billion ($95 billion).
Athens will pay a heavy price in sovereignty, becoming a “debt colony” of sorts. The terms require Greece to surrender policymaking power over huge swathes of its economy and, indeed, its entire society, to the troika.
There’s little wonder outspoken former Finance Minister Yanis Varoufakis says it’s not going to work.
This is clearly a bad deal for Greece – and it should worry anyone who believes in the age-old principle that a nation’s own people should be firmly in control of its destiny.
But it’s nothing compared to the alternative that Greece was preparing in case negotiations failed and no bailout was forthcoming.
That contingency plan, with all of its “bail-ins” and draconian measures, is truly terrifying.
And it gets even scarier when you realize that we’ve actually seen glimpses of how governments will reflexively grab their people’s wealth to save their own skins.
So, more than ever, I’m convinced that we need to prepare a “financial survival kit” as global debt hits record levels.
I’m going to show you how to do that today…
As Greeks Suffered, Syriza Kept “All Options on the Table”
As Greece and its creditors played hardball with each other, the average Greek citizen was shut out of the stock market and barred from his own bank accounts, in most cases limited to just €60 in withdrawals each day. In many places, lines exploded and machines simply ran out of cash.
That was far from the worst of it…
Greeks were absolutely forbidden from sending money out of the country without government approval. Simple things that required sending money out of the country like, say, buying a song on iTunes, just stopped working, as did services like PayPal and cloud storage.
Naturally, Greek tourists overseas were left high and dry. The New York Post reported honeymooners Valasia Limnioti and Konstantinos Patronis were on a “dream trip” to New York when they found their Greek-issued debit and credit cards declined and useless.
Fortunately for the couple, two local Greek Orthodox congregations stepped in to help. Their own politicians wouldn’t help, and their relatives certainly couldn’t – unless they could prove to the government’s satisfaction that they were sending the funds “on an emergency basis.”
Supermarket shelves ran empty, too. At least drug companies promised to keep Greece supplied with critical medical supplies – despite being owed billions by the government.
We know now that, as this tragedy unfolded across Greece, Greek politicians were already deep into backroom subterfuge.
Details have recently emerged about dramatic plans certain Syriza party members were pushing their government to approve in case bailout talks failed…
Greece’s Terrifying “Plan B”
Hardliner and former Greek Energy Minister Panagiotis Lafazanis told RealNews Daily that he’d pressed his government to access Bank of Greece reserves. He said the goal was to allow the payment of pensions and civil servant wages should Greece exit the euro.
The Financial Times reported that Lafazanis wanted the central bank’s governor, Yannis Stournaras, to be arrested if he tried to block the move to tap the nation’s funds – something Lafazanis has denied.
And daily newspaper I Kathimerini reported former Finance Minister Yanis Varoufakis had said a small Syriza team prepared plans to secretly copy online tax codes in order to issue new PIN numbers to citizens.
The idea was to create a parallel banking system so taxpayers could transact with the state. That system was to have been nominated in euros, but could easily have been switched into drachmas overnight, according to Varoufakis.
He denied this, yet the Kathimerini report said the plan dated back to before Tsipras was even elected this past January.
Other reports tell of government ministers helping to devise plans for a return to the drachma in case the bailout path didn’t bear fruit…
Syriza’s “Plan B” gets even worse. There was a bail-in option…
Bloomberg reported that the ECB had prepared sensitivity analysis to determine just what impact cutting Emergency Liquidity Assistance (ELA) to Greek bank collateral would have on depositors.
A 60% ELA haircut was the point at which depositors would begin having their accounts “tapped” to “bail-in” and save the banks.
A 75% haircut implied as much as a 27% haircut on deposits.
Clearly, the Greek government wasn’t the only one drawing up a “Plan B” in case a Grexit materialized.
But the size of the seizures would have been eye-watering – and disastrous for account holders and savers.
This Bail-In Would Dwarf Cyprus’ 2013 Cash Grab
All of this has come to light in the aftermath of the August 2015 Greek bailout.
During Cyprus’ “bail-in,” the haircut depositors got was on amounts over the €100,000 ($110,000) insured deposit limit. The terms of the latest bailout mean Greeks wouldn’t have that protection.
Indeed, it’s likely to be a lot more severe for Greek depositors. The Financial Times reported that “the plans, which call for a ‘haircut’ of at least 30 percent on deposits above €8,000 ($8,860), sketch out an increasingly likely scenario for at least one bank.”
These haircuts would be triggered at a time of upheaval for Greek banks. The FT report quoted a source as saying, “It (the haircut) would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout program.”
Meanwhile, Greeks have endured a five-week shutdown of their stock exchange. The Athens Stock Exchange General Index closed in late June near 800, only to reopen 17% lower on Aug. 3 at 668.
And worse, capital controls remain in place at Greek banks. Weekly cash withdrawals are limited to €420 per customer. Bans on moving money out of Greece remain severely restrictive.
Even when the current bailout clears every last hurdle and is implemented, the can will only have been kicked a bit farther ahead.
Odds are good a sovereign debt crisis will return to Greece, bringing about a return to the drachma and the raiding of taxpayers’ accounts to bail in the banks.
As Tim Geithner said, there will be another financial crisis. He ought to know. The former U.S. Treasury secretary was as close as it gets to the epicenter of the last one.
I’m willing to bet it’s going to be at least an order of magnitude worse the next time around.
So how can you prepare?
Take These Steps Before the Next Crisis
There are a few significant steps you can take to at least minimize your possible risk exposure in the next crisis.
Here are three things you need to do:
1) Own and invest in hard assets like gold, silver, energy, and real estate. You can buy physical precious metals, buy physically backed ETFs (Money Morning Members have access to several easy ways to buy metal), own quality resource equities, as well as your own home, income-producing properties, and land.
2) Hold assets internationally. This is largely the same as above, but in another country. Consider opening a foreign bank account. It’s not easy for Americans, thanks to the Foreign Account Tax Compliance Act (FATCA). But holding something outside your country of residence makes it vastly tougher for a desperate government to grab.
3) Hold plenty of cash. “Cash is king,” despite the risks of inflation. Hold it as bank balance, but watch FDIC deposit insurance limits, and consider diversifying into other currencies. Be sure, however, to hold some physical cash as well, as this could be crucial during a “bank holiday.”
The next crisis is a matter of when, not if.
It’s time to ensure your financial survival kit is fully stocked.