Saturday, November 5, 2011

Greeks Refusing Gifts

From zero hedge this short essay contemplating the chances of a Greek Referendum called for January to have the people vote yea or nay on the proposed bailout of Greek debt. Some say Greeks will vote yes simply for the pleasure o watching investors take a bath on fifty percent of their investments, while others argue that austerity tom save the banks is going over like a lead balloon and the only reform that is palatable is exit from the Euro. The fact is the markets hate uncertainty and that's all there is between now and January.




Euroskeptic think thank Open Europe once again appears on the scene with one of the first more extended reactions to what the possibility of a Greek referendum, which according to the Guardian will take place in January, means for Greece, the Eurozone, and the latest bailout (which according to Williem Buiter, who reiterates to the FT something we said 2 months ago, needs to be €3 trillion). One thing we would like to point out is that if indeed the popular vote on the future of Europe will take place in January, then kiss the year end rally goodbye as the uncertainty around the market will be insurmountable by anything the bureaucrats can throw at the concern that Europe is on fast-track to political suicide.


Interesting developments are coming out of Greece as 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.

No comments: