I know I am late to the party on this one, but it’s been a busy Monday. In case you missed the news from earlier today, Greece is calling for a referendum on the Greek austerity measures. This isn’t big news. It’s huge news. First the details from the Guardian:
Unveiling his referendum plan, Papandreou said: “Citizens are the source of our strength and citizens will be called on to say ‘yes’ or ‘no’ to the agreement. It is not for others to decide but the Greek people to decide … we have faith in the people. We believe in democratic participation. We are not afraid of it.
“The people will be asked whether they want to adopt [the deal] or reject [the deal]. This vote of confidence will be a foundation stone on which we will build a new structure, a new Greece.”
The Greek finance minister, Evangelos Venizelos, said the popular vote – the second to be held since democracy was restored to the country after the collapse of military rule in 1974 – would ultimately boil down to two choices. “Do Greeks want to remain in Europe, with the euro, in a country that belongs to the developed world, or do they want to return to the 60s? Do they think it is good to owe €100bn to the banks or do they not think it is good to live with such debt?”
“We trust citizens, we believe in their judgment, we believe in their decision,” he told ruling Socialist party deputies. “In a few weeks the (EU) agreement will be a new loan contract… we must spell out if we are accepting it or if we are rejecting it.”
The Guardian says 60% of citizens currently reject the austerity measures. The vote would likely take place by the end of the year which essentially means the market could be in turmoil until this occurs. And even worse, when it does finally occur, if Greece actually rejects the austerity measures it could very well result in a disorderly default and defection. This is a stunning turn of events. It’s been a risk I’ve often highlighted, but I would have never expected it to come from the Greek leaders themselves. I thought it would arise via social unrest. But Greek leaders are clearly waking up to their reality. The latest budget data showed continued deterioration. The austerity is simply not working and their people are increasingly unhappy.
Interestingly, this could develop into a bargaining chip for Greece. If their leaders are wise they have realized by now that Greece needs to be part of a sovereign monetary system. If the other EU nations see defection as a real risk, this could catapult the situation into its ultimate culmination – some form of fiscal union. On the other hand, it could all come crumbling down if that 60% figure is accurate and the rest of Europe doesn’t manage to keep Greece from defaulting.
Buckle up. This bumpy ride is far from over….