Free Markets, Free People

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.


Twitter: @McQandO

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19 Responses to Beware of Greeks holding referendums

  • Forgive me if some of this is Greek to me….
    but under the plan Greece is SUPPOSED to default on its bonds…which were purchased by people with the understanding they would be honored…
    so I’m confused.

    • Actually a “default” did not occur so there were no CDS events. If the CDSs were triggered, then folks who bought Greek bonds and insured them with CDSs would be collecting what they should contractually get. And we cannot have that happening, mon dieux!

  • Greece is too big to fail. The European leaders can’t allow anyone to leave the Euro. It’s a kind of mutual suicide pact. If Greece leaves they’ve set a precedent making it more likely for others to follow.
    What we will see is a series of band aids that continue to not address the main problem. You can’t have monetary union without political union. And I don’t think most European citizens would go for political union of the kind that would be needed.

  • I thought you might go for “Beware of Greeks bearing debt.”

  • Rumor is that the referendum is off.

  • With Greece it is not a matter of if, but when.

    Better to do it now than do it after Europe flushes how many millions down the drain?

    The Greeks deserve what’s coming for them.  And sad to say…….we kind of do also  🙁

  • “Live free or die” or at least go bankrupt.

    I’m rooting for the Greeks voting “no.”  That will release them from bondage (literally!) to the European Union political machine.  They will then have to stand on their own two feet and fact the world on their own, all with a very low FICO score.

    One prediction – for those from a strong currency country (Japan, Switzerland, maybe the US), a vacation in the Greek Islands next summer will seem very, very cheap.

    The EU as an anti-democratic layer of government, can pack sand.  We’ve had currency meltdowns before and survived them, think of this crisis like a painful surgery.

    •  “a vacation in the Greek Islands next summer will seem very, very cheap.”

      That depends on how friendly the natives are next summer.

  • What if the Greeks just decide, on their own how to deal with the debt?  For instance, they could offer to pay 50% of the debt by issuing new long term bonds in their place, and simply say, take it or leave it.
    Of course they could no longer borrow, but they would reduce a lot of their costs. And then they would really be forced to live within their means.
    If they did that I don’t see what the other Euro’s could do about it.

  • 8 months from now I wonder if NATO will agree to a bombing campaign to help the Greek rebels.

    • The Greeks just happen to be changing out the entire general staff of their entire military now, as well as firing a bunch of other officers. Claimed to be a planned change, but really, does anyone actually change the entire military command all at once during a crisis and claim it to be a run-of-the-mill HR exercise?

      • Just a coincidence (as in Coincides with turmoil) I’m sure.   I hope they remembered enough history to replace appropriate brigade and battalion commanders too.

  • Ah, what the heck, with Israel proving they have both nuclear devices, and the means to deliver them (Jericho test launch), it’s looking like Nuclear Summer is going to replace Arab Spring over Tehran.
    And if that doesn’t change the game, world wide, nothing will.  Athens will look like a Greece fire in the fry pan in comparison (I’m bad, soooo soooo bad).

    • and no, I don’t believe the Israeli’s would commit that kind of genocide, they’ll hit strategic targets, not civilian areas (unless Tehran has decided that elementary schools and mosques should have nuclear labs in the basement).

  • In 2011, the United States Government took in $2.17 trillion but blew through $3.82 trillion – and that’s before Entitlement Armageddon shows up down the road. If you’re spending $4 trillion but only raising $2 trillion, you need to be cutting government in half or you’re not serious. Washington is not serious. Indeed, it’s far more frivolous than Athens.