Beware of Greeks holding referendums
Well it looks like the much touted Euro economic package for Greece may be coming apart more quickly than expected, thanks to the bombshell announcement by Greek PM George Papandreou. Papandreou has decided, apparently without consulting anyone else, that the package should be put up for a vote. As the Wall Street Journal points out, a no vote could be disastrous:
A "yes" vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.
A "no" vote, however, could bring down the government and cut off international funding for Greece, leaving the country facing a financial meltdown.
Of course the country is already facing a financial meltdown, austerity measures have sparked violent protests for months and the purpose of the package agreed upon by European leaders was designed to help avert a meltdown and save both the Greek economy (as much of it as can be saved), while propping up the Euro.
As you might imagine, the surprise announcement was not favorably met by other European leaders. In fact, it wasn’t met favorably by a lot of Greek leaders who apparently had no idea that a referendum was in the offing.
Jean-Claude Juncker, who chairs meetings of euro zone finance ministers, refused to rule out a Greek debt default.
"The Greek prime minister has taken this decision without talking it through with his European colleagues," he said in Luxembourg.
Asked whether a Greeks "no" vote would mean bankruptcy for Greece, Juncker responded: "I cannot exclude that this would be the case, but it depends on how exactly the question is formulated and on what exactly the Greeks people will vote on."
I think most understand that no matter how the “question is formulated”, a vote against the plan would most likely send Greece spiraling down the drain and the fear is it would take the Euro with it
Markets, which had calmed down after the plan was announced, have had the expected reaction to the Papandreou referendum plan. They’ve headed down:
Greek Premier George Papandreou said he will put the nation’s bailout deal through a referendum, potentially undoing a long-awaited agreement struck last week and sending European stocks down 3.3 percent. The region’s bank shares fell 6.4 percent.
"European leaders feel as if they’ve been blindsided by Papandreou," said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.
He said the move underscored the current risk in Europe and threw a wrench into the region’s stability plan.
The Dow dropped 2% on the news.
While our attention is on the Palinization of Herman Cain, we need to really keep an eye on this impending crisis. If Greece has a referendum and the vote is “no”, what Cain did or didn’t do in the 1990s isn’t really going to matter much. We’ll have another financial tsunami headed our way and we’d better begin to batten down the hatches.