Quasi-drachmas being issued?

UBS Asks: Has Greece Already Been Printing 'Quasi-Drachmas'?!

The Greek state hospitals accumulated arrears to suppliers during the period from 2005 to 2010. In May-June 2010, the Greek government decided to put an end to this practice and decided to take up this outstanding debt (law 3867/2010). In the following months, all the accumulated debt of public hospitals and the healthcare system from 2005 to mid 2007 was settled on a cash basis. The amount was EUR1.5bn for the years 2005 and 2006, with an additional EUR240 million for the first half of 2007. A total of EUR5.6bn accumulated between 2007 and 2010, was settled with zero coupon bonds. This was the creation of the “Pharma-Bonds”.

These financial instruments are bonds, and have all the characteristics of Hellenic Republic Bonds: they bear international securities identification numbers (ISINs); they are negotiable on the Athens Exchange and they rank pari passu with other Greek debt. The government, in one of its press releases, notes that “bondholders who choose to discount these bonds at the banks will crystallise a 19% discount versus their original claim.”

We would argue, however, that they are more than just another bond issued by the Greek government. To be specific, they seem to us very akin to what economists call quasi-monies. These quasi-monies have appeared in a number of cases, usually put in place by government to find an escape valve out of nominal fiscal rigidities in the face of a financing issue. This especially happens in a case of a government of a monetary union that cannot print money to fund its deficit.