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A Note of Caution

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As the Greek crisis escalates provoked by Greece's bipolar reaction, nearly 80 percent of the Greek population wants to stay in the EU and eurozone, but nearly the same percentage are unwilling to accept any of the conditions necessary to do so. For the first time since the crisis began in March 2010, frustrated and tired EU leaders and finance ministers (as well as the markets) are seriously looking at a possible Greek exit. Such a move would require Greece to shut its banks, mint and print new drachma ,re-denominate all deposits in drachma and then begin to re-engineer the entire economy based on a devalued currency.

Unlike previous emergency currency conversions (the creation of the Deutsche Mark in June 1948 to counter hyperinflation, the decision in 1991 after reunification of Germany to force parity of the East German Ostmark to the powerful DM, the conversion to the Real in Brazil in 1994), a return to the drachma would be the first time that a country would choose to exchange a sound and prestigious convertible currency for a weak and volatile one.

One major unanswered issue of such a scenario is time:

Transitioning in 1999 from 11 national currencies (Greece did not join until 2001) to the newly created euro was not an overnight, one weekend or one month project. The decision-making process was a decade in the making and then would take three years to move from the initial launch of the currency to great enthusiasm and fanfare in January 1999 till it officially became legal tender for twelve countries in February 2002. The UK, Denmark and Sweden had chosen to opt out of the EMU.

During the three-year-period, EMU countries had dual currencies. Euros were used as account, corporate, market and bank currency, but populations at large had until 2002 to slowly, and often reluctantly, adjust to the new money. In February 2002, when the euro become legal tender, it was still necessary to have months of grace allowing banks to finish full conversion of local bills and coins into euros and making sure that all ATMs had euros. The population, especially in smaller towns and rural areas needed time to collect all their cash savings stashed in the proverbial gardens and safe boxes, bring them to the banks and accept the freshly minted euros in return.

Europe was, and in poorer countries and regions, still is a cash economy.

Price tags, restaurant tabs and credit card transactions had to provide both euro and local currency information. The all-important tourist industry (upon which the Greek economy depends) slowly accepted travelers checks in euros, yet was still willing and often relieved to be paid in local currency. The French hated the euro as loss of prestige, the Germans as loss of stability -- all nationalities groused that the equivalencies were somewhat rigged and that prices were inflated (which subsequent studies proved to be untrue).

The EU Commission, starting in 1995, had to provide educational materials from grade school through corporate brochures and economic fora in order to made the transition clear and coherent. Losing national currencies was fraught with historical trauma that countries were losing an important symbol of their identity.

The Greeks and the Italians were among the most favorably inclined toward the euro as their currencies had very little credibility and were prone to constant volatility even within the perimeters of the EMS.

Greece is already suffering from massive capital flight. A sudden shift out of the euro risks consumer panic and bank runs as depositors will hesitate to see their hard-earned or saved euros become "new " drachmas without any guarantee of what will be the actual purchasing power of this untested retro currency.

Even if drachmas can be rapidly minted in sufficient quantities, even if markets can be kept at bay from excessive speculation and devaluation, the shift will have severe psychological and societal ramifications as parts of the population and economy will still be euro-dependent, and parts of the population will lose all confidence in the monetary system.

There may be a momentary pride in the drachma as a symbol of Greece standing up to Europe and reasserting its independence, but sadly neither investors nor markets are likely to share the sentiment.

Mr. Tsipras should be very careful what he wishes for. Short-term solutions are an illusion and time is not on his side in this game.