Greek PM announces referendum on bailout package, markets stumble

[Kuya]

After a deal was seemingly struck in Europe over a bailout for Greek debt, the Prime Minister has decided to put the fate of the deal in the hands of the Greek voter, which looks like a complete 180 from his previously adamant position on austerity in order to avoid a default.

Prime Minister George Papandreou dropped a political bombshell on Monday night by announcing that his Socialist government would hold a confidence vote and a referendum on a new European Union aid package for the country, saying that the decision on whether to adopt the deal or not would be given to voters.

The confidence vote is to take place on Friday night following three days of parliamentary debate, the Athens News Agency reported late Monday. The main conservative opposition New Democracy party indicated almost immediately that it would not join the vote of confidence.

The referendum would be held later, either in December or possibly in January as Finance Minister Evangelos Venizelos and Justice Minister Haris Kastanidis indicated yesterday.

The announcement had some effects on markets:

Greek Prime Minister George Papandreou announced a referendum on the bailout deal agreed last week, surprising his people but confounding his European partners. The move sent European stock indexes sharply lower. Both the Paris and Frankfurt bourses had lost more than 5 percent by midday.

Last week it seemed as if the Greek sovereign debt crisis had been more or less settled. Banks holding Greek bonds agreed to a 50 percent haircut — or write down of their value. In return Papandreou agreed to continue the austerity program he has initiated, shrinking the size of the public sector. This includes large scale lay-offs and clawing back of pension promises.

The euro fell 2 percent against the dollar in New York shortly after Papandreou made his announcement.

I lean more towards wanting a referendum and laissez-fairing it up, but i can understand why this might seem like a horrible idea from the perspective of disrupting markets in Europe (and elsewhere). But i suppose i simply find it hard to advocate against an expression of democracy and in favour of disregarding what the Greek people want in order to 'save the world economy'. If a libertarian is willing to see people suffer for capitalism, i suppose there's a lot i'm willing to see go wrong for the sake of democracy.

http://www.ekathimerini.com/4dcgi/_w...10/2011_412623

http://www.salon.com/2011/11/01/gree...dum/singleton/

[Elvis]

Kuya is anti-Greek.

[Kuya]

I am anti-Greek because i love Greek values so much.

edit: btw, greece and democracy; potential irony

[archibaldcrane]

I looked at the markets this morning and was like "what the fuck, I thought we were past this".

Are there estimates yet on whether the referendum will pass or fail? Failure means they drop the Euro and have a disorderly default on their debt, right?

[Kuya]

I looked at the markets this morning and was like "what the fuck, I thought we were past this".

Are there estimates yet on whether the referendum will pass or fail? Failure means they drop the Euro and have a disorderly default on their debt, right?

In financial news, stocks in Europe are plummeting today after Greek Prime Minister George Papandreou announced he would put Greece’s $179 billion bailout to a popular referendum. Most opinion polls suggest Greek voters will not accept further austerity measures and will reject the bailout package. Analysts predict a "no" vote on the referendum would force Greece to declare bankruptcy and default on its debt. A "no" vote would also likely force Greece to abandon the euro.

http://www.democracynow.org/2011/11/1/headlines#0

[Mazmaz]

Don't care as long as they keep making my greek yogurt.

[RKenshin]

This made me angry for the purely selfish reason that all my stocks were in red today from this.

But seriously, how much longer is all this going to be dragged out for?

[Correction]

The US responded by withholding all payments to UNICEF as per a 1994 Congressional Act prohibiting Democracy in Greece.

[kisada]

This made me angry for the purely selfish reason that all my stocks were in red today from this.

But seriously, how much longer is all this going to be dragged out for?

opened up big green today for me, heh.

either way i couldn't help but feel angered by reading this news. if the deal gets sunk because of the PM, things are gonna get insane.

[archibaldcrane]

In before Solanis shorted the markets two days ago and is happy to be standing on the brink of a fallen empire.

The US responded by withholding all payments to UNICEF as per a 1994 Congressional Act prohibiting Democracy in Greece.

rofl

[Kuya]

This article arguing in favour of the referendum frames the consequences this way:

If Greeks accept the bailout terms, unemployment will rise even further in Greece, public services will be cut more than they have already, the Greek economy will contract, and the standard of living of most Greeks will deteriorate further.

If Greeks reject the terms and the nation defaults, it will face far higher borrowing costs in the future. This may reduce the standard of living of most Greeks, too. But it doesn’t have to. Without the austerity measures the rest of Europe and the IMF are demanding, the Greek economy has a better chance of growing and more Greeks are likely to find jobs.

Shouldn’t Greeks be able to make this decision for themselves?

Of course, if Greek defaults on its loans, global investors (fearing that a default in Greece sets a dangerous precedent) may yank their money out of Italy. This would almost certainly bust several big European banks – and generate panic on Wall Street. That’s why Tim Geithner has been pressing Europe to bail out Greece.

http://www.salon.com/2011/11/01/gree...t_wall_street/

[Kuya]

Article explaining why Greece might exit the euro:

Greece defaults. And that almost certainly means that Greece exits the euro.

Why?

It's the growth thing again. If Greece defaults, nobody will loan them any money. That means huge cutbacks, which means the economy will tank, which means even more cutbacks, etc. The traditional way out of this spiral is a massive devaluation of your currency. But Greece doesn't have a currency. It has the euro.

So if they want their economy to grow again, they have to (a) default, (b) exit the euro and readopt the drachma, and (c) devalue the drachma. This will cause massive amounts of pain, but it will also make Greek exports super cheap, which will eventually revive their economy.

So why not just let that happen?

It's just too catastrophic to consider. German banks, of course, would collapse and have to be bailed out. Ditto for banks in other countries that have lots of exposure to Greek debt. But that's not the worst of it. If Greece exits the euro, it will become terrifyingly obvious that other weak countries might exit too. Portugal, Spain, and Italy are the obvious candidates. Investors, spooked at the thought of their money being stuck in a country that might exit the euro and devalue all its bank deposits, would start huge runs on banks in those countries. The ECB would have to intervene and provide liquidity without limit. It would be a disaster.

http://motherjones.com/kevin-drum/20...n-about-greece

[Melena]

In before Solanis shorted the markets two days ago and is happy to be standing on the brink of a fallen empire.

rofl

He's banned, might be a few days before he can gloat and promptly get banned again.

[archibaldcrane]

It's going to be very interesting to see how this plays out. However, if we're talking nightmare scenarios, the US Market isn't reacting as violently as you'd expect.

I mean, if referendum = no = no more euro for greece = bank runs and bailouts in europe, the looming referendum should be completely scaring people shitless. However, the DJIA was up over 1.5% today on better than expected earnings and jobs info. I have a hard time believing that Greece ditching the Euro is already priced into the market right now.

[Not Kuno]

They're going to drop the Euro.

[Gwynplaine]

If they go the route of returning to the Drachma only so that they can print up more money they will make their crisis larger and even worse.

[Correction]

He's banned, might be a few days before he can gloat and promptly get banned again.

I get the sense this latest ban is for longer than just a few days this time.

p.s. europe is fucked.

[Kuya]

If they go the route of returning to the Drachma only so that they can print up more money they will make their crisis larger and even worse.

Why and what crisis are they going to make worse?

[Nevex]

They should have never joined the Euro in the first place.
I say good riddance if they bail out. Serves them right for retiring workers when they're 40 freaking years old.

This is also a prime example of why democracy isn't always the best answer. You can't agree to fix things with a bunch of other countries and then out of the blue say "oh wait let me ask what our citizens think even though everyone already knows the answer".

[Melena]

If they start printing money, I can see inflation hitting post WW1 Germany where a wheelbarrow of bills can buy you a loaf of bread. From what little i've read, and people can correct me if i'm wrong, part of the issue is they have so many social programs, and people flipping there shit over any of them being cut till they can get finances in order. If that's the case, it is going to get much worse for them before it gets better.