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Monday, October 31, 2011

Democracy is coming home...

Interesting developments coming out of Greece this evening, as Greek Prime Minister George Papandreou has called a referendum on the latest Greek bailout and austerity package. Speaking to the Greek parliament he said:
“The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted…We trust citizens, we believe in their judgment, we believe in their decision."
It’s not yet clear exactly what will be voted on, but we imagine it will have to include the entire second bailout package, including the 50% write down for Greek bondholders, as well as the austerity and fiscal conditions attached to the latest package. So a lot of important factors for the future of Greece in there. As if that wasn’t enough, it will be tied to a vote of confidence on the current Greek government.

So which way will it go?

Well, it’s tough to say off the bat. A recent poll showed that 59% of Greeks think the new package is “negative” or “probably negative” for Greece, and there’s been no hiding their displeasure with the austerity measure and economic collapse. As such, there wouldn’t be too many Greeks who would be sad to see the back of Papandreou.

On the other hand, they may be keen to see Greek bondholders take some losses finally and endure some pain (although given the Greek bank and pension fund exposure to Greek sovereign debt this could end up costing Greek taxpayers again in the end). The same poll also found that 72.5% of Greeks want to stay in the eurozone.

Clearly, there are some conflicting feelings. Have no doubt that if Greece votes down the latest package it could be bad for Greece and the eurozone. It would leave Greece with almost no funding and no government – pushing the country very quickly towards a disorderly default and disorderly exit of the eurozone. That would be painful for both the eurozone and, especially Greece, have no doubt, the financial market turmoil and unknown knock-on effects would send the whole of Europe (including the UK) into a spiral of uncertainty.

This could be big turning point in this crisis. The EU should move quickly to come up with plans to mitigate the fallout of a no vote, specifically how to handle a rudderless and broke Greece, which would probably include plans for allowing it to exit the euro. A yes vote would be far from a solution, at best it would buy some time for the Greek government and the EU to enforce some necessary reforms thanks to a fresh mandate.

As with any referendum it may come down to the phrasing of the question. Let’s hope the Greek government and the EU do a better job of communicating the issues at hand than they have done so far in this crisis.


Anonymous said...

All the EMU countries should have a referendum! Let the people vote on it!

Rollo said...

It will not make any difference: the rescue plan cannot work anyway. The can has been kicked along thus far, but the road ahead is stoney and uphill

Idris Francis said...

Your blog seems to me to hope for a Yes vote that will keep Greece in the euro and in enforced poverty for many years.

In times like these it is important to get back to basic principles, not expediency and short-term considerations. The inescaoapable fact is that Greece is very severley uncompetitive within the euro and will remain so for as long as it remains in - the "internal devaluation" needed to regain competitiveness would be far too slow and too painful and unacceptable.

200 years ago we had debtors prisons for those whose debts became unmanageable, but a more enlightened era brought bankrupty arrangements that wiped the slate clean and allowed a fresh start. Precisely the same applies to countries, is already working in Iceland and must be applied to Greece.

We must therefore hope that the vote is held and is a big No Thanks. The ripple effect across others in the same situation would then be both inevitable and beneficial

Stevlin said...

It IS important to consider the basic principles - and the most fundamental of these is that the flawed political concept of having a common currency with many disparate economies will just ensure Euro instability.
It would be preferable by far to have an orderly break up of the Euro - but the political motivation for retaining it is still overwhelming and will continue to defy common sense.
The German people will not voluntarily continue to be the main 'saviour' of the weaker Euro economy countries indefinitely - and the sooner this issue is addressed, the better for all concerned

Anonymous said...

I agree with Idris. It is essential that Greece has an independent currency allowed to float downwards, so reviving the moribund tourist industry and making inward investment attractive again with competitive labour costs.

I have known Greece since 1965, and been a householder there since 1991. All informed ex-pats out there I know take it for granted that the drackma will return within 12 months ... and cannot understand why politicians have been so slow to get real.

And you can forget fiscal union. The Greeks are unashamedly nationalistic and recognise that what the troika is peddling is just a new form of colonialisation.