Greek PM leaves future of the country to the people?

[Neu Leonstein]

http://ftalphaville.ft.com/blog/2011/10 ... st-greece/
http://www.bloomberg.com/video/79268468/

The Greek Prime Minister has had enough of the protests. He wants to legitimise the tough austerity measures he's putting the country through (in part, on the behest of foreign creditors). He's gambling that the people will realise the lack of alternatives, reaffirm his course of action, pull the rug out from underneith the protesters and stay in office.

However.

If the Greeks vote 'no' on the issue, I can't imagine anything other than collapse and complete mayhem following. Greece would be forced out of the euro, and probably the EU. It would not be able to run deficits, its currency would collapse, the only way to keep its banks working (as in, ATMs keep functioning) would be to print money. I'd imagine something approaching hyperinflation would be a potential outcome.

What do you think? Is this gamble worth it? And more generally, do you think issues like this should be put to a referendum, where the reality as seen by experts is drastically different from the popular discourse?

[Red Indus]

It seems that the Greeks have the very correct standpoint of sovereignty. But if they can vote on it, maybe they still have that sovereignty anyway.

[Mr Bananagrabber]

I'm gonna preface this with the fact that I'm completely (blissfully) ignorant of everything about the sovereign debt crisis, so I'm gonna apologise in advance for dumb questions/statements.


So I'm assuming that the EU isn't orchestrating bailouts for Greece out of the goodness of their hearts. I'm guessing that their financial institutions are holding shitloads of Greek debt and they're concerned about contagion and whatnot to the point that they find it less costly to contribute to bailouts than to just let them default/exit the euro. So my question would be: If Greece votes not to engage in the austerity measures the bailouts are conditioned upon, is the risk to the rest of the eurozone great enough that they'll just go through with the bailout anyway?

[Neu Leonstein]

So I'm assuming that the EU isn't orchestrating bailouts for Greece out of the goodness of their hearts. I'm guessing that their financial institutions are holding shitloads of Greek debt and they're concerned about contagion and whatnot to the point that they find it less costly to contribute to bailouts than to just let them default/exit the euro. So my question would be: If Greece votes not to engage in the austerity measures the bailouts are conditioned upon, is the risk to the rest of the eurozone great enough that they'll just go through with the bailout anyway?

I don't think so, at this point. People generally understand that even though much of the euro area is screwed, Greece is screwed on a whole different level. There was never really any doubt that Greek was going to default, and do so in a big way. The hope was that they'd do it in an orderly fashion. EU leaders kinda finally got this at the summit, and so the package is actually at least two separate actions: one to keep Greece ticking over, the other to help out the rest of the euro zone. No EFSF "leverage" option would be helping Greece much.

If Greece were to now reject this and fall apart, the rest of the EU now has the structures in place to deal with it. It's true that banks will take big hits - but a straight-up default would be preferable for some of them since they may have hedged with CDS. And the EU money no longer spent on Greece would be available for bank recapitalisations.

I mean, it would still be a giant fuck-up for everyone, but by now I think it'd hurt Greece much more than the euro area. People realise that Portugal (let alone Spain or Italy) would not in their wildest dreams considering such a course of action, and that's why I think the contagion effect would be limited.

[Tubbsalot]

Bollocks.

[Red Indus]

What about instituting people's democracy a la Muammar Gaddhafi?

[West Failure]

This is why I think referendums are a really bad idea in a representative democracy. The Greek people may well make the wrong decision for the country, and the rest of Europe, because of the intensity of feelings involved. Poliicians are elected to make those decisions dispassionately. Sadly politicians often use offering the public referendums on hot topics as a short cut to popularity only to get bitten in the arse later on.

[Mr Bananagrabber]

So I'm assuming that the EU isn't orchestrating bailouts for Greece out of the goodness of their hearts. I'm guessing that their financial institutions are holding shitloads of Greek debt and they're concerned about contagion and whatnot to the point that they find it less costly to contribute to bailouts than to just let them default/exit the euro. So my question would be: If Greece votes not to engage in the austerity measures the bailouts are conditioned upon, is the risk to the rest of the eurozone great enough that they'll just go through with the bailout anyway?

I don't think so, at this point. People generally understand that even though much of the euro area is screwed, Greece is screwed on a whole different level. There was never really any doubt that Greek was going to default, and do so in a big way. The hope was that they'd do it in an orderly fashion. EU leaders kinda finally got this at the summit, and so the package is actually at least two separate actions: one to keep Greece ticking over, the other to help out the rest of the euro zone. No EFSF "leverage" option would be helping Greece much.

If Greece were to now reject this and fall apart, the rest of the EU now has the structures in place to deal with it. It's true that banks will take big hits - but a straight-up default would be preferable for some of them since they may have hedged with CDS. And the EU money no longer spent on Greece would be available for bank recapitalisations.

I mean, it would still be a giant fuck-up for everyone, but by now I think it'd hurt Greece much more than the euro area. People realise that Portugal (let alone Spain or Italy) would not in their wildest dreams considering such a course of action, and that's why I think the contagion effect would be limited.

Okay. Next question. Given that, what's the cost to the rest of the eurozone of just kicking Greece out? Also is there grounds for that? There's something in the Maastricht Treaty about the size of budget deficits isn't there...

[Neu Leonstein]

Okay. Next question. Given that, what's the cost to the rest of the eurozone of just kicking Greece out? Also is there grounds for that? There's something in the Maastricht Treaty about the size of budget deficits isn't there...

There is no mechanism in the treaties for ejecting anyone from the euro or the EU. Legally, it can only be done voluntarily. In reality, I assume the rejection of the proposal would bring some more negotiations. If those fail, the tranche doesn't get paid out and Greece fails to make its payments. Before that happens, backroom talks about Greece's exit will be ongoing as some increasingly outraged Finns and Bavarians get a lot of airtime to set the stage in the public's mind. Them whoever is in charge of Greece will announce their leaving, and then move out of the country if they know what's good for them.

[Lordieth]

Greece will default. It's not a matter of 'if', but 'when'. We should be focussing on protecting the institutions that hold the majority of Greek debt and just let them default.

[Red Indus]

I think there should be some executions in the government. Help clear the air.

[Lordieth]

The stupid thing is the referendum doesn't really change anything. A rather transparent attempt by the greek government to justify the actions they already plan to take, because either way the referendum doesn't change the course of action. Well done for needlessly spooking the markets though.

[Red Indus]

The stupid thing is the referendum doesn't really change anything. A rather transparent attempt by the greek government to justify the actions they already plan to take, because either way the referendum doesn't change the course of action. Well done for needlessly spooking the markets though.

I think it's a good thing to put a bit of spook in the market. Helps keep people on their toes.

[Bhangbhangdukh]

This is why I think referendums are a really bad idea in a representative democracy. The Greek people may well make the wrong decision for the country, and the rest of Europe, because of the intensity of feelings involved. Poliicians are elected to make those decisions dispassionately. Sadly politicians often use offering the public referendums on hot topics as a short cut to popularity only to get bitten in the arse later on.

I'd be more impressed with "professional politicians acting dispassionately" if they did, most of the time they either push their own intense agendas, or those of the people who have slipped a "donation" into their hand in a plain brown envelope.

And since those politicians were elected to represent their voters views, by voters basing their decision on "the intensity of their feelings", what makes you think the politicians are dispassionate in the first place.

"representative democracy" - the people you elect are supposed to represent you, not rule you...

If you want unrepresentative government, hold a lottery for a Great Tyrant...

[Tybra]

This first time i heard this i was simply bashing my head against a wall. Having a referendum shows that the current government doesn't really know what to do. This means a lack of leadership and trust. If there's one thing that's still keeping the greek economy running it's that trust, which because of merely proposing this referendum is now shot.

Merkzoy will not be amused, be sure of that. They probably had to make some large gambles and concessions in their own nations to enable a summit that was actually capable of restoring some vital trust. This is not a blunder they cannot afford, Germany already has its debt 'miscalculation' and France is on the verge of loosing it's AAA status.

Regardless of the outcome of the referendum Greece's role is over,most likely next series of plans will no longer involve Greece and be more focused on the financial sector as a whole. Greece will be more isolated and , hopefully, it will implode without causing a domino effect.

[-St George]

Greece would be forced out of the euro, and probably the EU.

The Euro? Yes. The EU? A member nation can leave, but it can't be expelled.

Either way, should Greece collapse and default, the UK can absorb it into the Empire, thus cancelling any residual debt (new country ftw) it has.

[Hydesland]

I'm thinking there is a small chance of Greece just becoming completely centrally planned for a while, with no anchored currency to rely on (given they leave the Euro in a chaotic fashion and bring back the Drachma, I imagine it's very difficult for a country to suddenly accept a new currency, I don't know enough about this though, what are some good case studies?) markets will simply not function properly, at least not to the satisfaction of the Greeks, who will riot and cause mayhem more and more. Small probability though, in my mind.

However there is also a possibility of a relief effect, if people understand that having your own currency and monetary policy is clearly ideal and that the Euro was clearly holding Greece back in this situation then I'm not sure people will be too quick to lose faith in the Drachma and so I'm not so sure about your hyperinflation hypothesis. Almost certainly there would be assistance by the IMF and a reluctant Eurozone, and the Euro will most likely still be use by individuals for a year at least, creating a duel currency situation, which again I think reduces the chance of hyperinflation.

[Bhangbhangdukh]

Greece would be forced out of the euro, and probably the EU.

The Euro? Yes. The EU? A member nation can leave, but it can't be expelled.

Either way, should Greece collapse and default, the UK can absorb it into the Empire, thus cancelling any residual debt (new country ftw) it has.

Then Liz could appoint Philip "Prince of Greece"

Irony...

[Sremski okrug]

Greece should obviously leave the EU and join a political union with Serbia/

[Unslavery]

I think it's beautiful. The troika thought they could shit all over Greek democracy and Papandreou has totally fucked their shit up.

[Kemal Ataturks left sock]

Doesn't the Greek constitution say you can't have referendums on fiscal matters?

[Unslavery]

Doesn't the Greek constitution say you can't have referendums on fiscal matters?

Doesn't the Lisbon Treaty say:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

[Baltenstein]

I call bluff. Papandreou wants to scare the Troika into agreeing to less harsh austerity measures, and his own rebelling parliament members into going back in line. Not a particulary wise move, but then again, hardly anything he does is.

[Kemal Ataturks left sock]

Doesn't the Lisbon Treaty say:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

Irrelevant, if the Greek constitution says they can't have this referendum then so be it, the Lisbon Treaty doesn't come into it.

[Unslavery]

Doesn't the Lisbon Treaty say:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

Irrelevant, if the Greek constitution says they can't have this referendum then so be it, the Lisbon Treaty doesn't come into it.

You could argue that it is a referendum on the European Union's flagrant violation of the Lisbon Treaty, rather than on a fiscal matter.