Tuesday's Top 10 with NZ Mint: What a Greek exit from the euro might look like; Germany's lethal bluffing over Greece; 'Obama the Great Deceiver'; George Lucas hits back at his snooty neighbours; 'Please can we default too?'; Dilbert

Here's my Top 10 links from around the Internet at 1.30 pm in association with NZ Mint.

I welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

My must read today is #4 on why the alternatives to austerity are not great for the rest of Europe now Greece has defaulted. Better, but not great.

1. So what would actually happen if Greece did exit the Euro? - The FT.com has a useful thinkpiece on what might happen.

Anyone with Euros in a Greek bank account would see them halved in value in after one 'surprise' weekend announcement.

Pensions and government salaries would be suspended.

There would be runs on Greek banks as customers tried to get their money out before the next devaluation.

The question for Europe is whether this panic would spread to runs on banks in Portugal, Ireland, Spain and Italy. Many would argue this has already happened.

The Europeans are wondering whether they can get away with it, given they now have a 500 billion euro rescue fund set up now and the European Central Bank has deluged European banks with cash.

Shall we pull the trigger and see what happens?

Exit would occur because, without disbursements of additional loans, the government would run out of money to pay social security and public sector wages. In addition, the ECB could withhold needed funds from Greek banks, bringing them down. At this point Athens would need to pass a new currency law, redenominate all domestic contracts in a new drachma, impose exchange controls, secure the borders to limit capital flight and take steps to introduce a paper currency.

Printing and distributing new notes would be no easy feat. In 2003 the US-led coalition managed to do it in Iraq in less than three months. But that required the efforts of De La Rue, a British speciality printer, a squadron of 27 Boeing 747s and 500 armed Fijian guards to ease the process.

2. 'A Lethal game' - Ambrose Evans Pritchard writes a lot of sense at The Telegraph about the 'Grexit'. He says Greece should do it. It worked for Britain in 1992 and Argentina in 2002.

Greeks have yet to conclude that the euro itself is the cause of their catastrophe – though they are getting there. By the euro, I mean the whole structure of monetary union, made worse under current policy settings (incompetence). There can be no possible escape from this lamentable state of affairs at this late stage until they return to the drachma.

As Charles Dumas from Lombard Street Research argues, the EU doctrine of "internal devaluations" is based on a fallacy. Restoring competitiveness through wage cuts is not remotely equivalent to currency devaluation.

We were told almost religiously that Britain could not safely leave the Gold Standard in 1931 or the ERM in 1992, or that such moves would set off dangerous inflation, and were told much else besides by the shroud-waving hysterics and defenders of the status quo.

We know what actually happened. The UK had its best decade ever relative to other major powers in the 1930s, at least in modern times. Its democracy remained rock solid through the late Depression as others crumbled one by one, or ended in paralysis as in France.

3. Watch out for Ireland  - Irish voters will decide on May 31whether to approve the EU's austerity pact.

BBC reports here that the polls have the 'Yes' vote in front, but the undecideds are huge.

Politics is all important now in Europe.

This explainer, also from the BBC, is useful:

Given that the three largest parties in the Irish parliament - Fine Gael, Labour and Fianna Fail - support the treaty, logic suggests it will be passed. However, many Irish people have been left angry or jobless in the wake of the economic crash and a long series of hard-hitting budgets.

They are fed up with austerity, and the main argument from groups opposed to the treaty is that it will simply lead to more of the same. The fear is that governments will have to keep cutting pay and services to stay within EU budget limits.

Leading the charge against the treaty is Sinn Fein, and opinion polls suggest the party's popularity in Ireland is rising faster than any other. Sinn Fein's deputy leader Mary Lou McDonald said: "The recent election results in France and Greece are a massive blow against the failed policies of austerity in Ireland and across Europe.

"A 'no' vote in Ireland on 31 May will strengthen the hand of all those arguing for jobs and growth."

4. The alternatives to austerity - Europe is now desperately scrambling around for something else.

European economist Charles Wyplosz writes at VoxEu that voters are right to reject austerity, but that alternatives may not be easy either.

His charts showing how austerity doesn't work to boost growth are excellent.

It has now emerged that growth in Greece and elsewhere has been “disappointing” and that debt-to-GDP ratios do not decline much when growth is negative and deficits are “surprisingly resistant”. The problem is that even enthusiastic pro-growth economists will find it hard to come up with policy suggestions that can turn the situation around reasonably soon. Structural reforms are what are badly needed, but their effects are too slow for prompt relief.

Figure 1 shows the relationship between budget stabilisation efforts, measured on the horizontal axis as the change in the cyclically adjusted primary balance ratio to GDP, and the change in the actual budget balance ratio. The 45 degree line is the effort-equals-effect threshold – i.e. the austerity efforts (horizontal axis) are matched by actual improvement in the primary deficit to GDP ratio (vertical axis).

• The squares correspond to those countries where real GDP overall growth over the period was less 2.5%; in these countries, with one exception (Hungary, which stabilised earlier) the outcome is worse than the effort.
• The diamonds represents countries that grew faster; in these, the outcome was at least as good as the effort.

Plainly it is a bad idea to tighten fiscal policy where growth is feeble (or negative).

The results from budget consolidation efforts are even more disappointing when looking at the evolution of the gross public debt. For the same countries and over the same period, Figure 2 displays on the vertical axis the change in the debt-to-GDP ratio while the horizontal axis measures the fiscal consolidation effort exactly as in Figure 1.

The message from this chart is damning: with three exceptions (Estonia, Hungary, and Sweden), debt-to-GDP ratios rose everywhere in the EU, even in countries that were reducing their cyclically-adjusted primary deficits. For those countries where GDP growth was less than 2.5% over the two years, the debt ratios often increased much more (even though in one case, Ireland, this was a one-off bank bailout). For these countries, it even seems that the debt increases faster where the effort is stronger.

Here's his conclusion:

The madness of holding governments to infeasible debt reductions within a couple of years or so must be replaced by the realisation that this objective will take decades, not years, to be reached.

Some countries will have to default, partly at least, entirely for Greece. Inevitably, the costs will be borne by everyone – bondholders, banks and their governments, and the Eurosystem.

EIB and Commission money will help a little if they are promptly disbursed. Germany must also conclude that playing the locomotive is in its deep interest and that a little bit of inflation is much more preferable than letting the euro disappear. After all, average German inflation over the roughly 50 years before the euro (1950-98) was 2.7%.

Sticking to austerity is bound to lead to more Greek-style elections. This is after all the lesson from German history – voters who suffered and despaired and felt mistreated by foreign powers ended up voting for Hitler.

5. I agree with this - Yves Smith over at Naked Capitalism writes that Barack Obama is the Great Deceiver.

The Republican alternative may be even uglier, but it pays not to forget what Obama has said and done in the last four years.

My wife fancies the pants off Obama. Another reason not to like him, besides his pandering to Wall St and an inability to do what FDR did.

Obama may get a second term, but he's not a great president, at least not yet, and I doubt ever.

Here's Yves:

Obama didn’t make compromises necessary to lead effectively. He entered office with majorities in both houses and a country eager for a new direction. He has repudiated or retraded every pledge he made. He promised transformational leadership, and instead emulated Wall Street, devising complex programs that to sell average Americans short and reap his funders handsome rewards in the process. Rather than elevate his fellow citizens, Obama’s transactional focus and neoliberal philosophy have kicked the struggling middle class down the road greased by the right.

The ugly facts about how Obama has governed are beyond dispute. Numerous writers have set forth well documented bills of particulars against him, including “‘Lucy’ Obama and His ‘Charlie Brown’ Progressives” to “21 reasons why I will not vote for Obama in 2012” or “Obama’s Scandal List” (304 items long in 2009). And that’s before you get to the even longer list of despairing or outraged assessments on specific policy beats, such as this blog’s criticism of his coddling of the financial services industry, his failure to address festering problems in the housing market, his long-standing commitment to cutting Social Security and Medicare, and his refusal to address widening income inequality.

6. That'll teach them - Film-maker George Lucas has given up battling his snooty NIMBY neighbours over plans to build a sprawling movie studio complex in countryside near San Francisco.

So, instead, he's going to use the land to build low-income housing.

Ha.

Here's SFGate with the story:

In the letter withdrawing the plan, Lucas said he no longer believed he could maintain a constructive relationship with the neighbors and castigated Marin for being "a bedroom community" that is better suited for subdivisions instead of business. The letter said he would build the studio in another more welcoming community and "find a developer (for Grady Ranch) who will be interested in low-income housing since it is scarce in Marin."

Neighbors and local conservationists have insisted low-income housing could never be built in such a remote, rural, environmentally sensitive location, but Peters believes a good project can work. Housing prices in Marin are among the highest in the Bay Area.

7. What the Greeks are saying - FTAlphaville reports on what the Greek President told the feuding political parties there yesterday. It seems the banking system may collapse and a bond payment is due tonight:

I have been informed by both the Prime Minister and the Governor of the Bank of Greece and the Finance Minister about the country’s cash position and the risk of collapse of the banking system if there are continued withdrawals of deposits from banks due to the insecurity the political situation poses for citizens.

Also:

Something else that jumps out: there seemed to be no agreement on whether or not Greece should pay off a €436m foreign-law bond.

That bond comes due on Tuesday. (With a 30-day grace period).

8. ' Please could we default and leave too?' - Petersen Institute economist Arvind Subramanian writes at FT.com that other countries may eventually want to follow Greece, default and leave the Euro.

That might force the Germans to finally front up:

Suppose that by mid-2013 Greece’s economy is recovering, while the rest of the eurozone remains in recession. The effect on austerity-addled Spain, Portugal and even Italy would be powerful. Voters there would not fail to notice the improving condition of their hitherto scorned Greek neighbour. They would start to ask why their own governments should not follow the Greek path and voice a preference for leaving the eurozone. In other words, the Greek experience could fundamentally alter the incentives for these countries to remain in the eurozone, especially if economic conditions remained grim.

At this stage, politics in Germany would also be affected. Today, Germany grudgingly does the minimum needed to keep the eurozone intact. If exit to emulate Greece becomes an attractive proposition, Germany will be put on the spot – and the magnanimity it shows in place of its current miserliness will be the ultimate test of how much it values the eurozone. The answer might prove surprising. The German public might suddenly realise that the eurozone confers on Germany not one but two “exorbitant privileges”: low interest rates as the haven for European capital and a competitive exchange rate by being hitched to weaker partners. In that case, Germany would have to offer its partners a much more attractive deal to keep them in the eurozone.

9. Groping towards 'Grexit' - Here's the Economist's Charlemagne writing about this morning's meeting of European leaders. Not a happy bunch of campers.

EVEN in a grouping as fractious as the euro zone, tonight's falling-out was remarkable. Jean-Claude Juncker, who presides over the currency zone's finance ministers, lashed out at the many figures who have more or less openly threatened Greece with expulsion from the euro if it does not abide by its programme of economic reforms and austerity measures.

10. Totally Jon Stewart on the looming debt ceiling debate in America - This isn't over either.