Break Up Of The Austro-Hungarian Empire

[Guest tbatst2000]

Just read an interesting piece in the weekend FT on this one. The Austro-Hungarian empire had a single currency, the Krone, which was replaced by new national currencies at the end of WW1. The governments of the various countries involved did this initially by overprinting existing bank notes with the new currency name. In the peripheral, economically weaker, countries, the overprinted notes were suddenly worth a great deal less than the original notes which were smuggled out of the country in large quantities and spent in Hungary. The final result being hyperinflation in Hungary due to the massively increased money supply... Now, the parallel isn't exact due to the prevalence of electronic money, but there's a definite similarity here. Where is all the cash that's being withdrawn from Greek banks going? Either euro bank notes under the mattress or non-Greek Euro accounts I would assume. If the Euro breaks apart incrementally, it seems quite likely that large quantities of Euros could end up moving towards the centre and causing exactly what the Germans fear most.

[Police]

If the Euro breaks apart incrementally, it seems quite likely that large quantities of Euros could end up moving towards the centre and causing exactly what the Germans fear most.

Large amounts have been moving since 2007. I would think we are close to the 400 Billion mark by now.

http://voxeu.org/index.php?q=node/6768

[Guest tbatst2000]

Personally, I would institute currency controls at the same time as the devaluation. Isn't that what Iceland did and is now normal practice in such situations?

Funnily enough, that's what mrs tbatst2000 said and we then spent some time trying to figure out exactly how that would work in a zone with no border checks and a fully intgegrated banking system. Kind of like having to put exchange controls in place between, say, Yorkshire and Lancashire. I think you're absolutely right that they'd try, I'm just not sure how it could work in practise...

[Police]

Funnily enough, that's what mrs tbatst2000 said and we then spent some time trying to figure out exactly how that would work in a zone with no border checks and a fully intgegrated banking system. Kind of like having to put exchange controls in place between, say, Yorkshire and Lancashire. I think you're absolutely right that they'd try, I'm just not sure how it could work in practise...

It's not a fully integrated banking system. You still have national central banks with their own internal systems. There is a inter-euro system that sits on top of that. The ECB is just the policy unit - the actual mechanics are handled by the italian, french and german central banks. They can flick the switch in an instance and let a currency float.

[Guest tbatst2000]

It's not a fully integrated banking system. You still have national central banks with their own internal systems. There is a inter-euro system that sits on top of that. The ECB is just the policy unit - the actual mechanics are handled by the italian, french and german central banks. They can flick the switch in an instance and let a currency float.

Many european banks have branches across multiple Eurozone countries allowing prople to access their accounts in multiple places. Selectively unpicking that lot in a hurry would be non-trivial. And stopping people taking large quantities of physical cash over the border would ne next to impossible.

[Police]

Many european banks have branches across multiple Eurozone countries allowing prople to access their accounts in multiple places. Selectively unpicking that lot in a hurry would be non-trivial. And stopping people taking large quantities of physical cash over the border would ne next to impossible.

Not really. Each country prints and issues its own notes against its own national balance sheet. Taking it across a border isn't going to change the issuer. As for multiple branches - it's not where you are as a bank that matters - but who you yourself bank with. Each country has a balance at the ECB. Cross country transfer are handled through these. Obviously, with the ongoing bank runs from the peripheries - some countries "capital key" on the ECB is looking threadbare - especially with the debt monetisation that occurred to allow it to happen.

[ShedDweller]

Many european banks have branches across multiple Eurozone countries allowing prople to access their accounts in multiple places. Selectively unpicking that lot in a hurry would be non-trivial. And stopping people taking large quantities of physical cash over the border would ne next to impossible.

Greece has always had currency controls .. all overseas financial transactions have had to be routed through the ministry of finance. As many people will point out this is totally against European law and as I understand it Greece has been told repeatedly to stop doing it but ignores the EU as it is a sovereign state. How they came to be allowed into the Euro when they still had capital controls I have no idea ..

There is also a €10000 limit on the amount of cash you can take out of the country without making a declaration, Obviously this is ignored but people have been jailed for failing to make a declaration ..

The Austrohungarian experience is not quite the same as the potential problems in the Euro. What I understood was that the Czechoslovaks stamped all of their cash instantly and very very quickly got it all out of circulation. the Imperial currency ceased to be legal tender. You could argue that was very unfair .. (which it was). All of the Versailles reparation obligations then fell upon Hungary and Austria and not on the whole Empire .. There are historians who suggest that this was a big aggravating factor in the second world war .. Czechoslovakia in the First Republic was comparatively wealthy .. a kind of Mittle European Switzerland .. It was the most industrially advanced part of the Austro-Hungarian empire and they had no national debt .. having dumped it all on Austria and Hungary. During the 20's and 30's they bought a large amount of assets in Germany with their hard currency .. Certainly in 1933 if you had asked the Sudetenland Germans if they wanted to be a part of Germany they would have laughed at you ..

So basically Hungary was stiffed because it DIDN'T change it's currency .. and if (and i think it's unlikely but possible) the Euro does break up then it is more likely that Germany will pull out. The banks will open on a non trading day and you will will have that time to change to new DM .. What happens to the rest of the Euro without Germany is anyones guess ..

[Guest tbatst2000]

So basically Hungary was stiffed because it DIDN'T change it's currency .. and if (and i think it's unlikely but possible) the Euro does break up then it is more likely that Germany will pull out. The banks will open on a non trading day and you will will have that time to change to new DM .. What happens to the rest of the Euro without Germany is anyones guess ..

Yes, I think that's the implication - the talk of a small Euro block emerging from the wreckage is incorrect, Germany (and maybe Holland, Austria and Finland) will have to either go back to their old currencies or create something entirely new. Either way, the Euro dies entirely. The bit that I hadn't considered was the inflationary aspect of not doing that. I thought the Germans were against Greece etc leaving the Euro only because they didn't want to have to bail German/French banks out (and the ECB).

[Guest tbatst2000]

Not really. Each country prints and issues its own notes against its own national balance sheet. Taking it across a border isn't going to change the issuer. As for multiple branches - it's not where you are as a bank that matters - but who you yourself bank with. Each country has a balance at the ECB. Cross country transfer are handled through these. Obviously, with the ongoing bank runs from the peripheries - some countries "capital key" on the ECB is looking threadbare - especially with the debt monetisation that occurred to allow it to happen.

All of that may technically be accurate, but you need to consider how it would actually be implemented in a hurry. Instructing German shops not to accept Euro notes not printed in Germany? Somehow I doubt it... Unpicking all of the cross border electronic banking links overnight in such as way as to not leave Germans also unable to access to their cash, also unlikely. When the sh1t hits the fan in a financial crisis, as was seen with NR and the Icelandic banks, people can move way faster than regulators, governments etc.

[Police]

All of that may technically be accurate, but you need to consider how it would actually be implemented in a hurry. Instructing German shops not to accept Euro notes not printed in Germany? Somehow I doubt it... Unpicking all of the cross border electronic banking links overnight in such as way as to not leave Germans also unable to access to their cash, also unlikely. When the sh1t hits the fan in a financial crisis, as was seen with NR and the Icelandic banks, people can move way faster than regulators, governments etc.

I think you are over complicating it. There are the 17 national central banks and the ECB. National banks deal with their own NCB and the ECB provides the linkage between the national central banks. Any cross border activity would have to go through the ECB - but otherwise each national banking system would work as before. Bank notes are different matter of course but there is a country designation on each note / coin.

Edited November 27, 2011 by Police

[Tabletop]

Simplify this for me.

The Euro breaks up and each country re-issues it's own currency.

What would be the position in the following circumstances:

1. Irish Company with Euros 100M deposited in German bank. Would this be converted to New DM or New Punt ?

2. Irish Citizen (rich) with Euros 1M on deposit with British bank on the Isle of Man? Converted to New Punt, Sterling, Nothing?

3. Hedge fund with Euros 50M on deposit in London with various banks (banks British, European and North American domiciled). Converted to what ????

[ShedDweller]

Simplify this for me.

The Euro breaks up and each country re-issues it's own currency.

What would be the position in the following circumstances:

1. Irish Company with Euros 100M deposited in German bank. Would this be converted to New DM or New Punt ?

2. Irish Citizen (rich) with Euros 1M on deposit with British bank on the Isle of Man? Converted to New Punt, Sterling, Nothing?

3. Hedge fund with Euros 50M on deposit in London with various banks (banks British, European and North American domiciled). Converted to what ????

Which is why I think it's very unlikely .. (because I don't think anyone has the the answer to that ..)

[Police]

Which is why I think it's very unlikely .. (because I don't think anyone has the the answer to that ..)

This might shed some light. Skip past the old fellow to....41:18

[matroskin]

Simplify this for me.

No problem, I'll take a stab

The Euro breaks up and each country re-issues it's own currency.

What would be the position in the following circumstances:

1. Irish Company with Euros 100M deposited in German bank. Would this be converted to New DM or New Punt ?

New DM, but deposit is likely to be temporarily frozen or withdrawals are likely to be limited.

2. Irish Citizen (rich) with Euros 1M on deposit with British bank on the Isle of Man? Converted to New Punt, Sterling, Nothing?

Depends on deposit contract verbiage, but likely stay in Euro (if Euro is still alive and issued/backed by ECB). If Euro dies, this is likely to be treated as force majeure and depositor gets nothing.

3. Hedge fund with Euros 50M on deposit in London with various banks (banks British, European and North American domiciled). Converted to what ????

Same as above except maybe deposit share with European banks, which is likely to be converted to new national currency but temporarily frozen/withdrawals limited.

Just read an interesting piece in the weekend FT on this one. The Austro-Hungarian empire had a single currency, the Krone, which was replaced by new national currencies at the end of WW1. The governments of the various countries involved did this initially by overprinting existing bank notes with the new currency name. In the peripheral, economically weaker, countries, the overprinted notes were suddenly worth a great deal less than the original notes which were smuggled out of the country in large quantities and spent in Hungary. The final result being hyperinflation in Hungary due to the massively increased money supply... Now, the parallel isn't exact due to the prevalence of electronic money, but there's a definite similarity here. Where is all the cash that's being withdrawn from Greek banks going? Either euro bank notes under the mattress or non-Greek Euro accounts I would assume. If the Euro breaks apart incrementally, it seems quite likely that large quantities of Euros could end up moving towards the centre and causing exactly what the Germans fear most.

The same happened at the collapse of Soviet Union in 1990s when soviet rouble currency cash was dumped on Russia contributing to 300%+ annual hyperinflation (it wasn't the only reason for Russian hyperinflation though).

That's why I am inclined to believe that if 1-2 EZ countries leave the Euro, Germany would not want to be left holding the bag and promptly introduce DM with limits on conversion and withdrawals.

[indirectapproach]

Wasn't the Russian inflation rate +2000% (two thousand per cent) briefly in 1992?

http://www.tradingeconomics.com/russia/inflation-cpi

[Police]

1. Irish Company with Euros 100M deposited in German bank. Would this be converted to New DM or New Punt ?

2. Irish Citizen (rich) with Euros 1M on deposit with British bank on the Isle of Man? Converted to New Punt, Sterling, Nothing?

3. Hedge fund with Euros 50M on deposit in London with various banks (banks British, European and North American domiciled). Converted to what ????

I think what currency you eventually get depends entirely on the NCB that the legal entity that is your bank - deposits with. Irish NCB - Punts. Greek NCB - Drachma's.

Edited November 27, 2011 by Police

[Tabletop]

I think what currency you eventually get depends entirely on the NCB that the legal entity that is your bank - deposits with. Irish NCB - Punts. Greek NCB - Drachma's.

British Bank?

[Guest tbatst2000]

The same happened at the collapse of Soviet Union in 1990s when soviet rouble currency cash was dumped on Russia contributing to 300%+ annual hyperinflation (it wasn't the only reason for Russian hyperinflation though).

That's why I am inclined to believe that if 1-2 EZ countries leave the Euro, Germany would not want to be left holding the bag and promptly introduce DM with limits on conversion and withdrawals.

Which is what I'm inclined to think too - there can be no 'shrunken' Eurozone (well, maybe if just Greece left it would be ok), it's pretty much all or nothing. When it does go, it'll go spectacularly all at once.

[Police]

British Bank?

Well I imagine they will work with another financial institution within the eurosystem - a correspondent bank.

Edited November 27, 2011 by Police

[Mrs Bear]

Just read an interesting piece in the weekend FT on this one. The Austro-Hungarian empire had a single currency, the Krone, which was replaced by new national currencies at the end of WW1. The governments of the various countries involved did this initially by overprinting existing bank notes with the new currency name. In the peripheral, economically weaker, countries, the overprinted notes were suddenly worth a great deal less than the original notes which were smuggled out of the country in large quantities and spent in Hungary. The final result being hyperinflation in Hungary due to the massively increased money supply... Now, the parallel isn't exact due to the prevalence of electronic money, but there's a definite similarity here. Where is all the cash that's being withdrawn from Greek banks going? Either euro bank notes under the mattress or non-Greek Euro accounts I would assume. If the Euro breaks apart incrementally, it seems quite likely that large quantities of Euros could end up moving towards the centre and causing exactly what the Germans fear most.

From what I've read, quite a bit's going into London property.

[matroskin]

From what I've read, quite a bit's going into London property.

And into Swiss bank accounts and home safes

http://www.globalpost.com/dispatch/news/regions/europe/111122/where-greeks-hide-their-savings

[R K]

German property is 20% undervalued according to the Economist.

They need a housing boom to absorb the savings they exported to the Piigies and that must have already flooded back into domestic German banks.

[Peter Hun]

Funnily enough, that's what mrs tbatst2000 said and we then spent some time trying to figure out exactly how that would work in a zone with no border checks and a fully intgegrated banking system. Kind of like having to put exchange controls in place between, say, Yorkshire and Lancashire. I think you're absolutely right that they'd try, I'm just not sure how it could work in practise...

In Iceland they closed down the banks. Eventually they re-opened but the currency restrictions restrict all electronic transfer and cash is limited to something like 100euro per day abroad. Of course the Krona is basically unconvertible outside of Iceland so taking notes is pointless.

Argentina has introduced a a similar system (a few days after being reelected). You have to prove where the money came from, that you paid tax, what its for and its limited to a small amount per day.

Again you could smuggle notes out but the conversion rate abroad is worse than the black market rate.

[Peter Hun]

There is also a €10000 limit on the amount of cash you can take out of the country without making a declaration, Obviously this is ignored but people have been jailed for failing to make a declaration ..

The figure above which you have to declare when leaving the UK is 5000 euro. However, if the police suspect its from the proceeds of crime, can seize any amount over £1000 ANYWHERE in the UK.

y .. and if (and i think it's unlikely but possible) the Euro does break up then it is more likely that Germany will pull out. The banks will open on a non trading day and you will will have that time to change to new DM .. What happens to the rest of the Euro without Germany is anyones guess ..

Correct, ( see the other thread link), but Germany is already setting up a new Eurozone of 8-10 countries and will present the idea on 9th Dec

Edited November 28, 2011 by Peter Hun

[ShedDweller]

The figure above which you have to declare when leaving the UK is 5000 euro. However, if the police suspect its from the proceeds of crime, can seize any amount over £1000 ANYWHERE in the UK.

I have no idea where you got that from ..

According to directgov it's €10,000 but only if you are coming or going from outside the EU .. Greece wants a declaration for any transfer within the EU ..

http://www.direct.gov.uk/en/TravelAndTransport/Foreigntravel/BringinggoodsorcashintotheUK/DG_173289