Greek bombshell disarms eurozone bazooka
The damage is done. Measure the impact of the Greek bombshell not on Greek politics but on what it has done to Italian, Spanish and French borrowing costs: Share prices have basically crashed, and government borrowing costs spiked.
Remember that the European Central Bank (ECB) is in the market buying Italian debt today (on the day an Italian becomes European Central Bank president). Despite this, BTPs (get used to that acronym – it means Italian government bonds) bond yields have spiked up to above 6.3 per cent. The ECB is offering almost free money to traders that buy Italian debt, yet still costs rise to the point of no return.
And there’s more. In Ireland opposition politicians are beginning to question whether they should be repaying the odious debt inflicted upon their nation by AngloIrish bank. Part of that payment is due tomorrow. In Portugal there is also talk of renegotiating their bailout. Of course the Greek situation is conditioning politics in the other programme nations.
This is the nightmare scenario. Greece is irrelevant to the eurozone’s fiscal arithmetic. Its entire deficit is an accounting adjustment on Germany’s market for bonds. But if Greece begins to set an example for other countries, then the euro is in a very difficult spot. Even if tomorrow’s Italian bond auction goes well, then just imagine how the shock news from Athens was received by the Chinese, Japanese, and Gulf nations who have been hosting the road-shows of the euro’s bailout fund – the EFSF.
As I explained from Brussels last week, the half-bazooka announced by the EU needs the help of China, Japan and the likes of the IMF. Would you commit your nation’s collective savings in these circumstances?
I say this even as I believe the Greek referendum is highly unlikely to occur. That is the mood music I get from Greece. Bond traders are scratching around at the constitution, which seems to suggest that there should not be referenda on fiscal matters. Article 44 here. Parliament and the Greek President would also have to agree to the idea of a referendum. I’m not a Greek constitutional expert, but as there hasn’t been a referendum in Greece since 1974, there aren’t many that are. All previous referenda have been about constitutional change.
To quote a leading Greek businessmen: “Nobody I’ve talked to knows exactly why these announcements were made yesterday by the PM”. Indeed it is rather telling that it is not just the markets that were shocked by last night’s announcement. Greece’s own finance minister was apparently not informed about the referendum plan, though he knew about the confidence vote due on Friday at midnight. He checked into hospital this morning.
The government’s PASOK MPs were not permitted to comment after Papandreou’s speech yesterday. But they did this morning: One has resigned and one has called for a government of national unity. A government health minister has been quoted as saying the referendum “is not going to happen”. Six Pasok officials have called for Papandreou’s resignation.
It does seem that George Papandreou has made this decision alone. There is an intriguing debate as to whether he informed Chancellor Merkel at the EU Summit last week. Accounts of that summit from Athens suggest he did, but that it might have been lost in translation.
And then to something far more straightforward – Papandreou’s government looks unlikely to survive much longer. A majority of one is no majority at all. The opposition has signalled that it will not proceed with a referendum.
But whether or not we get it the damage is done: The euro-rescue facility has been severely undermined.
Follow Faisal Islam on Twitter: @faisalislam
There are 6 comments on this post
the same civil unrest will happen here when the proles realise that its all down to fractional reserve banking and can be proved to be the banks fault.
Referenda on “social matters” is explictly required by Article 44 to be subjected to a 3/5ths vote of the Greek Parliament- fiscal matters are explictly removed from this requirement. Consult a barrister before you post legal opinions.
Perhaps George Papandreou & his Greek electors have lost patience and are (at last) calling the Franco-German bluff?
If Merkel & Sarkozy really want to save the Euro AND themselves, they’ll now have to come up with something that does not lay all the blame and pain on the Greek people. And Quick!
Sarkozy’s correct: Greece should never have been encouraged to join the Euro, because Greece fell short of the Maastricht Treaty’s criteria by a very wide margin. Nor did Greece meet the implicit cultural & wealth criteria either: they all knew that. Nor should they have agreed to allow all Eurozone States to submit national statistics unaudited: that was always barmy.
They only have their own national carelessness to blame for this crisis that is entirely of their own making.
They now have to offer the Greek people some deal that they WILL vote for. Perhaps a more extended pay-back and real economic support would do the trick? The richer countries of the Eurozone can afford that. It’s a much cheaper solution than allowing the collapse of their Eurozone. I suspect Papandreou knows that.
When I shop I am flooded with offers to buy at greatly reduced prices or two for the price of one etc. Either the original prices are ridiculously high or profits are being drastically reduced. If the latter then it is not surprising that growth is slow.Competition in the world markets is very difficult.
I am currently also attempting to buy British . In clothing this is almost impossible on the high street. However on the bright side At least exports are up and growth is occurring.
I thought Greece was having half its debts being written off .Perhaps two for the price of one should be adopted by the IMF.Then all our financial debt problems would be halved.
Totally ridiculous of course but so is the world financial position. Why doesn’t international banking follow the example of Canada who did not have a financial crisis.
Yes I have had a glass of wine ,but in the current situation not surprising. The financial news is almost incomprehensible.
The intrigue here is fascinating and I try hard to get my head around all the different facts of the ‘plots’ and behind the curtain goings on and then on top of this Papandreous lone shout for a knight-like charge against the odds. Not sure that I am capable , but it still seems all roads lead to Rome.
Dramatic tension ? yes, there probably would be if I completely understood the layers and characters presented.
[...] the City of London. David Cameron could expect a rocket from President Obama that would put the big bazooka to [...]