Greece threatens new euro zone crisis

2011-11-01 09:47

Athens - Greek Prime Minister George Papandreou has threatened the euro zone with a new crisis with his shock announcement that he will hold a referendum on the last-minute bailout deal struck only last week to try to contain the bloc's debt mountain.

Euro zone leaders agreed to hand Athens a second, €130bn bailout and a 50% write-down on its enormous debt to make it sustainable.

Papandreou, whose ruling Socialist party has suffered several defections as it pushes waves of austerity measures through parliament while protesters rally outside, said he needed wider political backing for the fiscal measures and structural reforms demanded by international lenders.

"If there was to be a referendum, we may reasonably conclude that they may not accept the austerity measures. We may conclude that it will bring the pack of cards tumbling down," Howard Wheeldon, senior strategist at BGC Partners in London, said.

Analysts said holding a referendum - likely to be held early next year and only Greece's second in almost 40 years - was baffling, given that the latest opinion poll showed a majority of Greeks took a negative view of the bailout deal.

Early reactions to the surprise move ranged from accusations that Papandreou was gambling with the country's future and predictions of default, to questions over the constitutional legality of the referendum and statements by lawmakers that a No vote would force his resignation and early elections.

Nobel prize-winning economist Christopher Pissarides caught the renewed mood of uncertainty: "It is difficult to predict what will happen to Greece if they reject it. It will be bad enough for the European Union and the euro zone in particular, but it will be far worse for Greece.

"In the scenario of a 'no' vote Greece would declare bankruptcy immediately, they would default immediately. I can't see them staying within the euro," he said.

Volatility and uncertainty

Analysts were divided over whether Greek voters would accept the deal, but agreed that a damaging month or two of market volatility lay ahead while pollsters repeatedly took the Greek voters' pulse and European leaders looked on nervously.

"This is going to bring back volatility and uncertainty in the market and essentially erase all the efforts made by the EU to make a deal," said Kathy Lien, director of currency research at GFT Forex, New Jersey.

"... with 60% against it, getting this passed will be a challenge, if passed it will provide extreme relief but given the protests and opposition it will be very difficult."

The immediate market reaction to the announcement was negative, the euro extending losses against the dollar and tumbling more than 2% to a session low.

Opposition New Democracy leader Antonis Samaras will visit President Karolos Papoulias on Tuesday to discuss developments and push for snap elections, party officials said.

"Mr Papandreou is dangerous, he tosses Greece's EU membership like a coin in the air," party spokesperson Yannis Michelakis said. "He cannot govern and instead of withdrawing honourably, he dynamites everything."

Up to the voters

Papandreou told the Greek voters it was up to them to decide the country's fate.

"We trust citizens, we believe in their judgment, we believe in their decision," he told Socialist party deputies. "In a few weeks the (EU) agreement will be a new loan contract... we must spell out if we are accepting it or if we are rejecting it."

Papandreou, grappling with Greece's worst financial crisis in 40 years, said the referendum would take place in a few weeks. Finance Minister Evangelos Venizelos told Greek TV it would probably be held early next year.

Opposition parties accused Papandreou of looking for a way out for his embattled party by dragging Greece, which has seen violent clashes between anti-austerity protesters and riot police, through a lengthy period of political instability.

"I never expected Papandreou to take such a dangerous and frivolous decision," said Dora Bakoyanni, former foreign minister and leader of the small centre-right Democratic Alliance party. "All the international media will say that Greece itself is putting the EU deal at risk."

Papandreou also said he would ask for a vote of confidence to secure support for his policy for the rest of his four-year term, which expires in 2013.

Analysts said he was likely to win that, despite dissent among his parliamentary team, and parliament officials said the confidence debate would begin on Wednesday, with a vote on Thursday or Friday.

Money running out?

Greece is due to receive an 8 billion euro tranche in mid-November, but that is likely to run out during January, around the time of the referendum, leaving the government with no funds if there was a 'no' vote.

Swinging opinion polls would leave markets fluctuating, and Greece's EU partners dangling, and could prompt a run on Greek banks by nervous savers.

A survey carried out on Saturday showed that nearly 60% of Greeks viewed last week's EU summit agreement on the new bailout package as negative or probably negative.

But David Lea of Control Risks struck a more positive note. "It's all in the question. If he can frame it as a sufficiently apple-pie issue, he stands some chance of winning," he said.

There was no early reaction from Greece's EU partners.

Germany issued a statement saying the EU was working hard to put the second Greek aid package in place by the end of the year and had no comment on the referendum. EU leaders hammered out the deal in the hope of preventing the Greek debt crisis from spreading to other euro zone countries and shaking global markets.

Questions over legality

Some parliamentarians questioned the legality of the planned plebiscite under the constitution, which does not allow referendums on economic issues, only on matters of great national importance.

The last time Greeks held a referendum was in December 1974, when they voted to abolish the monarchy shortly after the collapse of a military dictatorship.

"It's debatable whether the constitution allows such a referendum," said Fotis Kouvelis, leader of the small Democratic Left party. "The country must go to early elections. Given the situation, it's the most honourable solution."

To be binding, a referendum result requires a minimum 40% turnout on issues of "crucial national importance" and 50% on a law that has already been voted on in parliament and "regulates a serious social issue", according to legislation enacted earlier this year. It was not clear which option the government would favour.

"If the referendum answer is no, Papandreou has to resign," said Costas Panagopoulos, an analyst at polling firm Alco.

"In the meantime what will happen with the decisions the EU took last week? I cannot understand what the prime minister wants to do."

  • Ryan - 2011-11-01 10:27

    Greek idiots

      Ryan - 2011-11-01 10:29

      dont give them the second bailout package in a few weeks time, because if they hold the referendum and vote no that bailout package would have been more money down the drain

      Ray - 2011-11-01 11:20

      Beware of Greeks taking gifts!!

      Leon - 2011-11-01 11:42

      well spartan it looks like the greeks is going back to the caves while you there get a live and stop being arrogant and hopefully it will be less than 5000 years

      Francis - 2011-11-01 14:02

      Agreed. They have not choice other than to accept this deal OR leave the EU and the euro-zone and then what? The average voter in Greece is CLUELESS about the dire consequences of the mess they're in so why trust in their judgement?

      Nick - 2011-11-01 16:33

      Why is he an idiot?? The EU has been/ is nothing but a political sham - forcing the citizens of each country to accept membership... Surely it's about the will of the people. So - if the people want out, or to have no part of something like the EU - then the scum in government must LISTEN to the will of the people. Just like in the UK - both the Conservatives and Labour - have run away from holding a referendum on EU membership - because they know the majority of UK citizens do not want to be tied in to the political and economic rubbish that is the EU... Go the polls - please vote No, Greece - and send the greedy-corporate-capitalists and their scum-lackeys in sham "democratic" governments into a spin... One more nail in the coffin of the current money and banking system that has enslaved the peoples of Earth, and free thinking, for so long......!

      Ryan - 2011-11-01 20:54

      so Nick, you dont believe in paying back money that you borrow ? as it is, the Greek's will only pay back half of what they owe the world. BRAVO. now if they vote no, it will be tantamount to telling the world to F off, and they wont pay back a dime.

  • spartan888 - 2011-11-01 10:57

    Ryan, the great economist. Showing his deep insight on greek people and economy. Also the south africans liking his pathetic comments, with their deep insight into greek people and economy. The only thing you all know about the situation is what you hear on SA news sites and tv channels. This economic crisis has brought to surface a lot of underlying hatred of greeks especially by those who think greeks to be arrogant. We have a right to be arrogant, your peoples were cavemen when the greeks were mathematicians. After 5000+ years of pioneering, i think the greeks deserve a break.

      Vagav - 2011-11-01 12:04

      I think it's that kind of thinking that got the Greeks into trouble in the first place.

      Ryan - 2011-11-01 12:17

      Can't tell if really stupid or Just trolling....

      Freddie - 2011-11-01 12:21

      @spartan, Not quite 5000 years of pioneering... more like 300 years of pioneering, 2200 years ago.

      Maarten - 2011-11-01 12:53

      @Spartan, Listen you fool! They are playing at politics while the rest of the world teeters on the brink of recesion! Open your eyes man!

      Gary - 2011-11-01 14:31

      I like Greek food

      Nick - 2011-11-01 16:42

      Quite correct Spartan - and I'm not Greek. :) The Greek people themselves have done nothing wrong... Yes - they could do with a shake-up of their taxation system etc where so many rich people pay no tax, and the burden is left to the middle and lower income earners... However - Greece is just another country burdened by the greed and inherent lies/theft/corruption that is intrinsic to the banking and money systems we are enslaved with... The people across Earth shall rise - and true democracy/freedoms will come to be... The "casino" bankers and Wall Street-type traders - human cockroaches - and their puppets and lackeys in governments across the globe - will be wiped out - one way or another......

      spartan888 - 2011-11-01 18:12

      @Nick. Finally someone with something sensible to say. At least some people understand the bigger picture

      Ryan - 2011-11-01 21:01

      @ Nick and Spartan .. the Greek government borrowed money from banks and other countries and institutions. up to their noses. they need to pay that money back. what is so hard to understand ? its got nothing to do with politics, democracy, "human cockroaches", wall street. its simple economics. you borrow, you pay back. with interest. unless youre the Greek government it seems. not only has this got serious ramifications for Greece, but its causing problems for the whole world at a time when the world economy is still fragile.

  • Vagav - 2011-11-01 11:37

    Loooooooool. Epic Fail! Face-palm-head-shake-sigh....

  • johnopolo - 2011-11-01 12:19

    This is the end of the Papandreou dynasty.

  • Colin - 2011-11-01 12:22

    Don't spend money you don't have. If you do, pay it back you Greek Pricks.

  • Pierre - 2011-11-01 12:55

    €130bn bailout and a 50% write-down on its enormous debt to make it sustainable. This will not safe Greece, as per Article they spend roughly €8bn per month thus adding only 18months of Capital to their finances, the 50% write-down as a perceived gift is an eye blinder. 1) The EU only pretend helping as they fear a total collapse and breakdown of member states, as this will drastically influence on current leading EU Countries ex. England, Germany .. 2) A bankruptcy Decision is hard for anyone , but as a result the country can then Immediately start rebuilding in their future as All Debt accumulated will virtually have to be written off, thus impacting Negatively on those who did borrow them Money. It is understandable that these countries (lenders) will start crying Wolf, as they fear the same fate to be bestowed on them as a result of Enormous potential income loss in the form of Capital invested in Greece. It is quick to say yes take the cash, but in the long wrong are they not only postponing the inevitable that Greece will default .

  • Gary - 2011-11-01 13:04

    All you have to do is look at the Greek work wonder the country is shot to sh*t. They have more public holidays and shorter working days than many other country. Social commitments come before work, and if you have a few strikes and days off to attend to family matters, they spend at least half their time enjoying life rather than working. One consequence of the Greek work ethic is that over Christmas and Easter, and during July and August, Greece effectively shuts down

  • justin.pretorius - 2011-11-01 13:24

    I dont think they ever will get out of this. It is going to spread across the EU and sink it

  • goyougoodthing - 2011-11-01 13:28

    All this debt and where from? Ask yourselves how it is possible for every country to be in debt. Ask yourself how governments around the world 'borrow' money at interest, money which is simply printed by private banks and given to governments. There is no gold standard, there should not be debt based on money which is based on nothing more than the speed of the printing press. If you want to save the world, overthrow the privately owned reserve banks, they make NO SENSE>

  • Winsome - 2011-11-01 14:08

    It sounds like they want the bailout money but dont want to do anything for it - like tightening their belts for a while. Sounds very much like entitlement to me.

      Pierre - 2011-11-01 14:12

      A matter of fact the referendum is to decide if you want it as at this point they don't feel like taking it, and they shouldn't

  • nik.witch - 2011-11-01 15:03

    We won't default that's the EU's and Papandreou lies. And we don't want the EU money and IMF the state has money enough to pay salaries! The rest is just blackmail.

      spartan888 - 2011-11-01 15:06

      dont you find it funny how these south africans have such an opinion about greek economy at the same babies are being raped and people murdered everyday in SA

      Steve - 2011-11-01 16:47

      It's not the EU causing the problem..... it's the Euro... Such diverse economies cannot share a currency.... Bring back the Drachma.... let it fluctuate with the economy.... problem addressed..... (I didn't say solved) Thank god the Brits refused to adopt the Euro...... those great socialists, the labour party were keen :(

      Ryan - 2011-11-01 21:11

      who are you trying to kid Nik ??? Greece is insolvent. it can't pay its debts. it cant pay its public/government sector salaries. hence the austerity ... salary cuts, retrenchments. to try prevent contagion and a disorderly default, Greece's creditors agreed to take a 50 % haircut ... meaning the Greek government has been forgiven half of its debt that it owes. we talking billions that the creditors are out of pocket because of the dire situation in Greece. you are desperate for the EU and IMF money. without it you can't make your debt repayments for example.

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