Louis Proyect: The Unrepentant Marxist

July 14, 2015

Convert to the drachma–piece of cake. Right…

Filed under: Greece — louisproyect @ 5:40 pm

One of the things that’s been nagging away at the back of my mind in this ongoing discussion about leaving the Eurozone is what that means in terms of following through. I think that the average person on the left who considers this to be a sine qua non for Greece moving forward has no idea of what’s involved. It is not just printing new currency and delivering it to the banks. It is also a mammoth undertaking from the IT standpoint. Think in terms of what it would take to reverse engineer something like this:

NY Times, March 9 1998
A Year Before the Millennium Bug, There’s the Euro Problem
By ANDREW ROSS SORKIN

LONDON, March 8— Amid the rush to reprogram the world’s computers so that they will function after Jan. 1, 2000, a little-known computer problem looms as large with a deadline that is even earlier.

On Jan. 1, 1999, the European Monetary Union will introduce the euro, a new currency that could have serious consequences for the computer systems of financial institutions and just about any company that deals in foreign currencies and exchange rates.

Compared with the much-publicized year 2000 problem, which can set computer clocks back to 1900 instead of recognizing 2000, the euro poses a greater number of technological problems.

Exchange-rate and tax software will need to be upgraded, financial statements redesigned, automated teller machines revamped and historical data converted — and that is just scratching the surface.

”The magnitude of the problem the euro poses is unbelievable,” said Nick Jones, research director of the Gartner Group Europe, part of the Gartner Group Inc., a technology advisory and research firm. ”In terms of cost to fix, it is comparable with the year 2000.”

The Gartner Group estimates that it will cost European corporations, many of which have operations worldwide, $150 billion to $400 billion to upgrade their systems. Add to that the expenses in fixing the millennium bug, and that cost almost doubles. Mr. Jones said the cost of fixing each line of code is estimated at $1.10, with billions of lines of code having to be changed.

As someone who worked in IT for 44 years and on some very large scale projects such as developing a completely new system from top to bottom for Goldman-Sachs, this is a huge project that would require banks and any other large-scale corporations in Greece to manage. And that does not get into the problems that the civil service would have to deal with. Pension systems, the tax system, et al would have to be reprogrammed.

I now realize that when people were demanding that Syriza conduct a two-tier operation, one that sought an end to austerity within the Eurozone, and another on a parallel track that would switch over to the drachma, they had no idea what this would entail. Frankly, I don’t think that Greece is capable of converting to the drachma today even if the government voted for it. Billions of dollars would be required to do such a conversion and the cash-starved government agencies would even have less money for such a project than private corporations.

I have heard what seems like dozens of leftists complaining about Alexis Tsipras’s failure to deliver a contingency plan. These are people who almost certainly have never sat in cubicle and programmed a financial system in COBOL as I did for twenty years before I moved over to UNIX based systems at Columbia University.

My good friend Liza Featherstone complained on Facebook this morning: “Seriously every dude is a Greece expert now. How’d you all get so smart so fast?” Boy, was she ever right.

* * * *

Journal of Information Systems, Vol. 13, No. 2, Fall 1999
pp. 105–116

The Impact of the Euro on Information Systems
Daniel E. O’Leary, University of Southern California

Accounting Information System Requirements Brought About by the Euro The introduction of the euro will have a wide range of changes in requirements for accounting information systems (e.g., Dekker [1997] and others).

1. Legacy systems will require multiple updates. Unlike present day relational database systems, many legacy systems redundantly store data items (e.g., currency figures). In these systems, all instances of each redundantly stored currency data item will need to be updated to the same euro figure.

2. Systems must do triangulation. All those systems using processes related to currency exchanges, will have to be updated to reflect changes in the way conversion is done, using triangulation, rather than traditional inversion conversion.

3. Multiple currencies. Since both euro and local currencies can be used during the transition period, systems will need to allow recording and display of both home currency and the euro for each transaction. Inventories of both currencies will need to be kept as long as both are used. The existence of multiple currencies potentially exposes a company to the risk that payments are made in the wrong amounts of a currency. For example, as in Table 3, a bill for 302,706 euros incorrectly might be paid as 4,211,213 euros if clerks use the wrong currency amount.

4. Minor payment differences. Systems will need to be changed to accommodate minor differences in payments. Since customers can pay their bills in either euros or the home country currency, triangulation rounding can create a situation where there are differences in the equivalent between what is billed and what is paid when different currencies are involved. Few systems have been built to accommodate differences in payments and what is billed. Further, few systems currently accommodate billing in one currency and payment in another (Software Echo 1997). In addition, such differences will carry forward to the general ledger, which will also have to accommodate minor differences.

5. Restatement of financial reports. Firms must restate previous financial statements in euros, which raises other questions including the following: Who determines whether historical numbers will need to be restated? How much of the historical data will be restated? Will firms have the restated historical numbers attested to?

6. Inconsistent use of decimals. In some monetary systems, e.g., Belgium and Italy, decimal places are not used. As a result, systems designed for these currencies will need to be updated to accommodate the euro’s decimal places.

7. Number of decimal places. Not only is the existence of decimal places an issue, but also the number of decimal places is an issue. In order to assure that rounding is done at the appropriate level, six decimal places are required to accommodate the euro.

8. Input validation will need to accommodate multiple currencies. Input validation will need to change to accommodate the existence of a new currency and multiple currencies. Reconciliation tests will need to allow for and accommodate differences due to rounding.

9. Internal documents. Typically, most of a firm’s documents, input, and output will need to be changed to accommodate the multiple currencies.

10. Reporting capabilities. Reporting capabilities will need to be examined closely. For example, reports are often based on currency values exceeding some “threshold” amount. In some cases firms will need to change the bases of those thresholds to accommodate the euro. In addition, reports will often need to have the ability to display two or three currencies simultaneously.

11. Currency fonts will need updating. Finally, currency fonts will need to be updated to include the new symbol for the euro. Apparently, Microsoft has announced that it will accommodate the euro symbol in its 32 bit applications, but not in legacy applications, such as Windows 3.1 (http://www.microsoft.com/windows/euro.asp).

full: https://msbfile03.usc.edu/digitalmeasures/doleary/intellcont/Impact%20of%20Euro-1.pdf

 

21 Comments »

  1. Oh it probably isn’t possible NOW, which is a great tragedy. Should there have been plans for it much earlier? I’m still convinced this was necessary.

    It seems clear is that by lack of preparation for a Grexit the Tsipras government boxed itself in. Yes, to switch a currency without having total economic chaos (and months of IOUs, no real currency, etc.) you have to prepare months in advance and be willing to nationalize the banks, prepare plates of the new currency, and get ready to switch over all your electronic transactions into new currency (of course, news of preparing plates for a new currency would have gotten out and pissed off the German government, but so be it).

    By not having a serious Grexit plan in place the Tsipras government boxed itself in. Yes, I know that even Varafoukis was not for leaving the euro, and the lead backers of “no” all said a “no” vote didn’t necessarily mean leaving the currency union, but it would’ve been better to have lost the “anti-austerity within the eurozone” struggle by being honest (saying Greece leaving the zone might be the best available option) than to ignore the results of the referendum.

    It’s pretty clear that both lack of preparation and bad strategy constrained the degrees of freedom the Tsipras government now has. The ECM refusing to give more emergency aid to the banks gave the Toika tremendous leverage, as it’s difficult to bargain hard when your banks are closed and folks are beginning to panic about the economy.

    And yes, an *unprepared* Grexit would most likely mean that the banks collapse and economic chaos ensues (50% unemployment, I bet).

    But at least to me this is an awful cave that will prolong the unnecessary suffering of the Greek working class, one which could have and should have been avoided.

    Comment by jschulman — July 14, 2015 @ 6:05 pm

  2. Jason, have you ever designed or programmed a large-scale system? It wouldn’t take months, it would take years.

    Comment by louisproyect — July 14, 2015 @ 6:30 pm

  3. According to Varoufakis, he had proposed a contingency plan that along with the OXI referendum provided some semblance of leverage to further negotiate with, and avoided a Grexit. From the interview in New Statesman:

    -He [Varoufakis] said he spent the past month warning the Greek cabinet that the ECB would close Greece’s banks to force a deal. When they did, he was prepared to do three things: issue euro-denominated IOUs; apply a “haircut” to the bonds Greek issued to the ECB in 2012, reducing Greece’s debt; and seize control of the Bank of Greece from the ECB. None of the moves would constitute a Grexit but they would have threatened it.
    As the crowds were celebrating on Sunday night in Syntagma Square, Syriza’s six-strong inner cabinet held a critical vote. By four votes to two, Varoufakis failed to win support for his plan, and couldn’t convince Tsipras. He had wanted to enact his “triptych” of measures earlier in the week, when the ECB first forced Greek banks to shut.
    “That very night the government decided that the will of the people, this resounding ‘No’, should not be what energised the energetic approach [his plan]. Instead it should lead to major concessions to the other side: the meeting of the council of political leaders, with our Prime Minister accepting the premise that whatever happens, whatever the other side does, we will never respond in any way that challenges them. And essentially that means folding. … You cease to negotiate.”

    Comment by Rick — July 14, 2015 @ 6:58 pm

  4. The creditors were able to develop a Grexit plan. Schaeuble even presented a Grexit plan as an alternative to deal and many think that his whole plan was to force a Grexit. Of course introducing the drachma would be complicated but might be better in the longer term than three more years of debt slavery. Here is a brief sketch of the steps: http://money.cnn.com/2015/07/07/news/economy/greece-drachma-currency-cash/
    Here is my discussion of the German alternatives. Tsipras chose a fire sale of remaining Greek assets with only one quarter of funds used for investments.
    http://www.digitaljournal.com/news/politics/op-ed-the-alternative-german-grexit-plan/article/438281

    Comment by ken — July 14, 2015 @ 7:28 pm

  5. If so, what was the point of Syriza forming a government in the first place? The behavior of the rest of the EU was entirely predictable. Why tell people you are going to make their lives better when you know (or should have known) that there was a very high probability that nothing would change, or even get worse as appears to be what is happening. This is an unmitigated disaster for the left. They should have waited for a moment when something better was possible, if ever in Greece alone.

    Comment by dedelste — July 14, 2015 @ 7:40 pm

  6. Here is a brief sketch of the steps: http://money.cnn.com/2015/07/07/news/economy/greece-drachma-currency-cash/

    Not a word about the massive job required to retool computer systems.

    Comment by louisproyect — July 14, 2015 @ 8:18 pm

  7. If so, what was the point of Syriza forming a government in the first place?

    —-

    I think they underestimated the bestiality of the Germans and their tools in Poland and elsewhere.

    Comment by louisproyect — July 14, 2015 @ 8:19 pm

  8. There is also a political reason why Syriza could not replace the euro with the drachma. There is strong support within Greece for remaining in the EU and retaining the euro. 70% of all referendum voters support keeping the euro, this is probably why the cabinet rejected Varoufakis’ proposals. Any movement towards the drachma after Syriza took office but before negotiations with the Troika could have probably resulted in the fall of the government.

    Syriza has failed in its effort to resist EU austerity because of the lack of strong left support in other EU countries, left support sufficiently strong to compel the EU to bend. Conversely, the left has done much better in South America because of its continental strength.

    Like Louis says, Syriza underestimated the “bestiality” of Germany and its EU allies, particularly Slovakia and Finland. They were willing to destroy the Greek economy to get what they wanted, an example of the horrors that will confront any country in the EU that adopts a left course. They were willing to subject Greece to an economic collapse, something unprecedented in Europe in the post World War II era, one in which many people would starve, go without health care and struggle to survive, even more so than they do now.

    But has Syriza set back the left in Europe for decades, as asserted by purple? Maybe, but there is also the possibility that people in Europe have been awakened by the cruel, brazen behavior of the EU, especially Germany.

    Comment by Richard Estes — July 15, 2015 @ 2:27 am

  9. Here is another link about converting to the drachma by an Australian economist
    http://bilbo.economicoutlook.net/blog/?p=31313

    Comment by ken — July 15, 2015 @ 2:50 am

  10. An IT specialist probably knows about as much about economics as the average economist knows about IT. That is the problem with the link in #9. It is an article that doesn’t have the word computer in it. There is some idiot comment about how the ATM’s will work (I used to program one in Kansas City 35 years ago) but this is not the problem. It is instead going through billions of lines of code to make sure there are no glitches, like using a different decimal displacement for a drachma, etc.

    Comment by louisproyect — July 15, 2015 @ 3:00 am

  11. Doesn’t the expert card apply to you to? We all have as much a right to comment as you, maybe not on the website you own, but in a general sense.

    By the way since when do Marxists worry about programming problems banks will have? Quite frankly fuck the banks. The government legislates, the central bank prints and the banks fuck everyone, and if they can’t figure out how to, they can go fuck themselves. That’s how I see it though I don’t think leaving the EU will do anything for workers, nor will changing the currency.

    The movement should go in the opposite direction, using the united EU system as a bridge to try and unite all workers in the EU against austerity. That’s too Marxist for most leftists to do today though. They’d rather play virtual Risk on their blogs and advise banks and capitalist governments instead of getting their hands dirty.

    Comment by Sam Broody — July 15, 2015 @ 3:27 am

  12. Someone else linked me to Bill Mitchell’s comment and I said “This is economic malpractice. He doesn’t know anything about the IT transition to the Euro and how difficult it was. If he did he wouldn’t say ignorant things like this.”

    Comment by Nathan Tankus — July 15, 2015 @ 12:12 pm

  13. A Grexit and return to a drachma may have technical difficulties and even more political problems I should think but it is probably superior to three years of debt slavery and austerity supervised by the Troika that may in the end lead to default and a Grexit in any event as some predict. In 1999 alone the euro replaced twelve different currencies in 12 countries. As recently as 2015 in January Lithuania adopted the euro:http://www.arabnews.com/economy/news/683081
    “The transition to the new currency was smooth and successful,” Lithuanian central bank governor Vitas Vasiliauskas said, as the country became the 19th member of the euro zone.” Of course Vasilauskas does not mention the word “computer” so he can be ignored. Personally I do not see why the Greeks need return to the drachma. They could adopt their own ruble as many former soviet republics have done, or they could adopt their own dollar, as there are many different dollars. Ecuador replaced its currency by the U S dollar. Some countries even operate without a national currency.

    Comment by ken — July 15, 2015 @ 3:34 pm

  14. Personally I do not see why the Greeks need return to the drachma.

    You mean “Politically I do not see why the Greeks need return to the drachma.”

    Comment by louisproyect — July 15, 2015 @ 4:57 pm

  15. I do not understand what the legal justification was for closing the banks. If a Greek citizen had say some money in a checking account on what grounds could he be prevented from accessing his account? The Greek government was having trouble paying its bills not Greeks with checking accounts.

    Comment by Curt Kastens — July 15, 2015 @ 4:58 pm

  16. “have you ever designed or programmed a large-scale system? ”

    I used to develop using cognos products and it took me around 2 years to write, test and develop a TM1 pay model solution!

    However, I think you are overplaying the problems, though i accept that they are problems the Greeks don’t want to have to deal with.

    .I think the main issue for the Greeks are fishing, agricultural rights and investments (see common agricultural policy). Greece does also benefit from being in the EU as well as being royally screwed by it.

    The problem is they would have been better never joining but now they are in they have much to lose!

    Comment by Simon Provertier — July 15, 2015 @ 5:16 pm

  17. –I think they underestimated the bestiality of the Germans and their tools in Poland and elsewhere.–

    Then they are terrible analysts and negotiators. Germany has been clear for ages about what they want to implement, basically a Hartz for Europe, where wages curve beneath productivity, resulting in massive trade surpluses. Germany wants to scale their model up to the EZ and be ‘competitive’ in the world economy. The socials democrats in France and elsewhere basically agree with Germany and so offer token resistance. Even at this late date Tsipras is claiming to have changed the conversation, etc, when there’s no proof of that at all. The IMF’s tact is just US interests trying to undermine Germany and has zero to do with helping Greece..

    Comment by purple — July 16, 2015 @ 12:09 am

  18. It’s not impossible to design parallel currencies, it happened in California a few years ago. There are many other recent examples. You don’t have to go through millions of lines of code. Is there something about IT work that drains the imagination ?

    Comment by purple — July 16, 2015 @ 12:13 am

  19. California’s use of IOU’s has less than zero relationship to what I wrote.

    Comment by louisproyect — July 16, 2015 @ 12:20 am

  20. Many people seem to forget that Syriza has been in power for …. less than 6 months!

    Comment by Τρουθδιγγερ (@truthdigger) — July 18, 2015 @ 8:51 am

  21. […] July 14th I wrote an article titled “Convert to the drachma–piece of cake. Right…” that was a first take on the difficulties in implementing a Grexit from an IT standpoint. Since […]

    Pingback by Once again on the IT challenges in converting to the drachma | Louis Proyect: The Unrepentant Marxist — July 22, 2015 @ 6:48 pm


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