Europe's fate in Greek hands

2011-11-01 22:13

Athens - Europe's days-old plan to solve its crippling debt crisis and restore faith in the global economy has been thrown into chaos by the Greek prime minister's stunning decision to call a referendum on the country's latest rescue package.

A "no" vote could cause a devastating disorderly debt default in Athens that would cause bank failures across Europe, new recessions in the developed world and see Greece leave the common euro union.

A top European official warned that if Athens were to go ahead with the referendum, it might not get the bailout funds it needs to avoid bankruptcy in two weeks.

The reaction in the markets was brutal, particularly in Europe, with the Athens exchange down a massive 6.8% on worries the turmoil could bring down the government.

"While it may be the democratic thing to do... what happen if Greece votes 'no', which is possible given how unpopular the bailout plan appears to be amongst Greece's voters?" said Michael Hewson, analyst at CMC Markets.

"The resulting fallout could well result in a complete meltdown of the European banking system and throw Europe into turmoil."

Months of uncertainty over the vote, which would be held early next year, would threaten the stability of larger economies like Italy, which are too expensive to rescue.

As the country's borrowing rates soared on Tuesday, Premier Silvio Berlusconi held emergency talks with his key economic ministers.

The turmoil will also hinder European leaders' efforts to implement their anti-crisis measures, such as getting countries like China to contribute to their expanded bailout fund and convincing banks to accept bigger losses on their holdings of Greek debt.

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed to hold emergency talks on Greece with the EU, the IMF and eurozone leaders on Wednesday.

A separate meeting with the Greek government is also planned ahead of the Thursday summit of leaders from the G-20 economic powers in Cannes, France.

"Germany and France jointly with their European partners are determined to guarantee the full and swift implementation of the summit's decisions, which are more necessary today than ever," a statement from Merkel's office said.


Jean-Claude Juncker, who chairs eurozone ministerial meetings, said that planning a referendum "is a dangerous decision" that could put at risk Greece's next bailout loans.

Athens runs out of money to pay pensions and salaries by mid-November and faces bond redemptions in December.

"It changes the circumstances," Juncker said in a radio interview on RTL in Luxembourg, according to his spokesperson Guy Schuller.

Greek Premier George Papandreou shocked investors, as well as his own citizens, party lawmakers and partners in the eurozone, by announcing late on Monday that a plebiscite will be held in what he called "a supreme act of democracy and of patriotism for the people to make their own decision".

A confidence vote in the Socialist government will take place at the end of this week but it is unclear whether the Socialist government will win it.

Papandreou saw his parliamentary majority cut to 2 seats on Tuesday after one lawmaker quit the ruling party, while another two called for him to resign.

At least five other Socialist lawmakers last month called for the formation of a cross-party, national unity government.

Given that Greece is heading for its fourth year of recession next year, investors believe Papandreou may lose the referendum vote if it ever takes place.

A victory in the referendum, on the other hand, could give the Greek government a solid mandate to pursue its austerity measures required in exchange for the bailout loans.

A recent opinion poll suggested that 60% of Greeks were against the austerity measures that have been required in return for crucial bailout loans.

However, other polls show broad support for remaining in the eurozone.


Opposition parties rounded on Papandreou, accusing him of blackmail and vowing to block the vote at all costs, and foreign European officials expressed dismay.

The Netherlands' Labour party indicated that the referendum would be a "deal-breaker" for last week's accord.

The conservative Dutch government needs Labour's support to achieve a majority in parliament in support of the deal, meaning Labour could effectively veto it.

A senior politician in Germany's ruling centre-right coalition said he was "bemused" by the announcement and made clear that a "no" vote would likely lead to a Greek bankruptcy.

"Then the other countries have to protect themselves, and Greece has to see by what means it gets out of its misery - whether they can stay in the euro, whether they leave, what they do," said Rainer Bruederle, parliamentary leader of the Free Democratic Party, a junior coalition party, on Deutschlandfunk radio.

And Swedish Foreign Minister Carl Bildt tweeted: "I truly fail to understand what Greece intends to have a referendum about. Are there any real options?"

The referendum would be the country's first since 1974, when Greeks voted to get rid of the monarchy, and is expected to be held early next year should the government get through the confidence vote.

The prospect of months of uncertainty has deflated any remnants of optimism over last week's grand European plan to contain the debt crisis.

After long and complex negotiations, eurozone leaders agreed last Thursday that private holders of Greek bonds should take a 50% loss on their holdings, reducing Greece's debt burden.

They also agreed to boost the firepower of the bailout fund to €1 trillion and to increase banks capital buffers.

Fears that the plan could come undone drove a broad retreat in global markets. Germany's DAX and France's CAC-40 both slid 5.2% but Italy's main index fared even worse, slumping by 6.7%.

The euro fell 1.5% to $1.3648 while borrowing rates jumped higher for Italy and Spain, considered the next weakest links in the crisis.

In Athens, Greeks on the street were largely negative on the referendum. Former customs worker Panagiotis Kandylas said he expected the vote to go ahead, but added that "it will come tumbling down on [Papandreou's] head".

The main opposition conservatives called for Papandreou's resignation.

"In his attempt to save himself, Mr Papandreou set a divisive, blackmailing dilemma that endangers our future and our position in Europe," New Democracy party leader Antonis Samaras said.

"I explained to the president that New Democracy is determined at all costs - at all costs - to prevent such rash experiments, and it can do that."

He did not elaborate on what he planned to do.

  • Gerry - 2011-11-01 22:24

    The Greeks plain and simply DO NOT PAY TAX!?? This is the problem why the gov. overspends and then bullsh1ts the EU by providing false information. Shame on them!!? Kick them out of the EU; they are causing trouble for the World Economy, not only Europe!??

      Spyker - 2011-11-02 09:48

      I am a bit perplexed re the EU's reaction to the (latest) "Greek Tragedy". Why do the (rest of the) EU not do what any 'creditor' will do - ie seize the assets..? If the Greeks vote 'NO', expel them from the EU, march into Greece and seize the equivalent value assets. This needs to be driven by the 'healthy' portion of the EU - eg Germany, the Netherlands, France, etc. Understandably the assets may be relatively low in value, but if it means seizing an entire island (note - I am merely speculating by way of example) - then so be it. The people on such a (hypothetical) island either leave or work for the new 'owners'. This will send a clear message to the rest of the PIIGS. The Greeks have exactly the same mentality as black people in SA - they think they can simply parasite off the principled core of Europe - ie the bona fide intellectual 'heart' of Europe, viz 'Old Europe'. As in SA, it is those with a direct lineage from 'Old Europe' that are keeping SA's economy functioning, while the majority simply parasites off the over-exploited minority.

      spartan888 - 2011-11-02 11:07

      @Spyker. Im a greek, noone is going to seize greek land. Even in these troubled economic times greece will never give up its soil to bankers or anyone else for that matter. I seriously doubt europe will have an armed conflict with greece. You ideas are ridiculous. You are ridiculous.

      John - 2011-11-05 22:46

      After this news came out I went to check the greek press. There was a previous poll that 60% of the greeks did not want the austerity measures. There is a real chance that the greeks will vote against it, and the Europeans chick them out. This is because for hundreds of years greeks with go - entrepreneurial gees - have left greece and made it in the USA, Australia, South Africa, South America. Left behind is a population with Severe Dependency Syndrome, demanding to be looked after, instead of looking after themselves. They want to believe the lie that money will come from the air. This is very important for South Africa, where we have communist false propaganda promising everything to people who think that believing false promises is ok. The ANC is repeating the false promises of Nongqawuse, her lies destroyed the Xhosa, and the ANC is destroying South Africa.

  • Smell - 2011-11-01 22:50

    This Papandreou seems to be the wrong leader at the worst possible time. Real leadership sometimes require that you guide your people to make a difficult choice. Or to make it on behalf of your people. Because the alternative might be way worse. What a coward; what an idiot.

  • pws69 - 2011-11-02 06:08

    I have no sympathy with these banks. They fail to loan money to entrepreneurs, citing risks, or so overcharge on interest because of high risk, but completely fail to do a risk assessment on a country as all they can see is the huge profits. Let them fail, let them burn. Better to refund the people the money they have in these banks directly, and cheaper too. The Greeks can all feel the pain of their stupidity in voting for free everything without thinking of the consequences of their votes. This realignment is required.

  • spartan888 - 2011-11-02 09:18

    The greeks will vote yes to the bailout. Papandreou is very clever, the greeks have been accusing him of making the wrong decisions so now he is leaving the decision in the peoples' hands. Once word spreads of how bad a no vote will be for greece, people will turn and Papandreou will lose a lot of the hatred directed towards him. Even if they vote no, the referendum is not binding

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