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Greek gamble pulls Euro to the brink

The decision by the Greek Prime Minister, George Papandreou, to submit the Greek austerity measures to referendum could be seen as a reassertion of democratic control over the relationship between Greece and the rest of the Eurozone. In a way it is a laudable expression of the democratic rights of the Hellenic Republic.

In practice, the two or three months of uncertainty that will result, before any referendum can take place, look like being a Greek revenge upon the rest of the Eurozone. The fact is that the markets will most likely deliver a verdict long before the Greek people are able to. It is an astonishingly high stakes gamble for the Greek government, and it is a gamble that could drag other countries beyond the point of no return, and they too fight to restore liquidity and in some cases, solvency.

It may well be that Mr. Papandreou can win a referendum, but he may also face the collapse of his PSOK party, as certain defections today seem to hint. The breakdown of the Greek government at this critical time would render the terms of the rescue plan currently under discussion rather academic, and even as it stands, the terms are not as stiff as the markets would like.

The problem now is time. The Spanish government is facing a comprehensive defeat in the general election scheduled for 20th November, so new ministers will be coming into office in Madrid. The Italian government is on the brink of a major change, as Silvio Berlusconi finally runs out of road in his legal and political battles. In France, President Sarkozy faces an uphill battle to gain re-election in May 2012. Even the German government is facing a trouncing in a run of local elections, that will limit their options even before the Federal election in 2013. The fact is that the window of opportunity for a deal to be agreed and to stick is going to be be lost as the political calender increases uncertainty.

The risk is now that Greece becomes a side show as the crisis spreads to Portugal, Spain and Italy. The markets certainly see the risk, and the next few days will see both the EU finance ministers and the ECB attempting to bolster the markets as far as they can. In fact they will be trying to make the best of a very bad job.

The Euro which only yesterday seemed to be on the brink of muddling through, is now facing a further cycle of uncertainty and pressure. The risk of a chaotic end-game has increased. The telephone wires across the continent are going to be hot tonight as very worried European leaders seek to consult.

If Mr. Papandreou loses his gamble, Greece will leave the Eurozone- and they may not be the last country to do so.   


Lord Blagger said…
It's called democracy.

They weren't asked about the debt in the first place. That was secret, like most of the debt in the UK. All Bernie Maddoff'ed off the books.

If you haven't had a direct say in the debt, then you have no responsibility for paying it back.

It's time governments realized that democracy means giving the electorate the control, rather than acting as dictators.
"The risk is now that Greece becomes a side show as the crisis spreads to Portugal, Spain and Italy. The markets certainly see the risk"

So why don't the all-powerful markets act in a responsible, grown-up manner for once and decide not to spread the crisis to countries that have nothing to do with Greece?

Presumably the answer is that there's still money to be made out of ruining innocent people.
Anonymous said…
Greece out of EU and Euro!
Cicero said…
Lord Blagger: The Greek government and its predecessors since 1975 have all been democratically elected. As such the Greek government already has a mandate. So calling only the second referendum in nearly 40 years is not the normal run of Greek democracy. If the Greek government had the mandate to borrow, it equally has the mandate to repay, (or in this case not repay).

Lavengro, emotive language: as we know, markets are simply a price setting mechanism, and as such they have no morality or ethics beyond the integrity of the mechanism itself. The point is that if we choose moral goals then we must still function within the economic system. I believe that we can achieve ethical outcomes within the market system, but we must be aware of the unintended consequences when we make our market choices, whether individually or socially. I believe that we should direct our market power towards those who follow socially responsible policies- and personally I try to do this by, for example, avoiding goods that are produced in countries with questionable human rights records.
But while the ratings agencies are indeed a price-setting mechanism, the prices they set are designed to enable their chums in the banks to make money.

We know all about that in Spain:
Anonymous said…
Democracy has proved itself a better form of government than any other when the electorate hopefully elects the most educated people to lead them. A referendum however must assume that the issues, the correct questions and consequnces as are understood and the risk of the outcome being simply a protest vote must be very high. Not sure this is democracy at its best and the huge number of employees about to lose jobs will act in their best interest
Lord Blagger said…
The Greek government and its predecessors since 1975 have all been democratically elected. As such the Greek government already has a mandate.


I disagree. They have a mandate to do what they said in their manifesto.

They don't have a mandate to ignore their manifesto.

They don't have a mandate to do things that were not made clear in their manifesto.

In the case of the Greeks, there is no mandate for the current mess.

On the question of a protest vote, what's the problem with that?

There is a far larger problem with a small minority - cabinet members - forcing their views on the majority.

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