Greek referendum call blows hole in euro zone plan

Paul Taylor, Reuters (Kathimerini), 01.11.2011

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Prime Minister George Papandreou's call for a referendum on the latest Greek bailout plan has blown a potentially fatal hole in the euro zone's strategy to overcome its sovereign debt crisis.

Whether or not a plebiscite takes place, and whatever the result, Papandreou's gamble guarantees long weeks of political uncertainty just when the 17-nation currency area was desperate for a period of calm to implement remedies agreed last week. [...]

The announcement wrongfooted them three days before France hosts a G20 summit of the world's major economies in Cannes at which Europe was hoping for a global show of support for its efforts to draw a line under the debt crisis.

Instead, European leaders will have to hold frantic crisis consultations on the summit sidelines while the leaders of the United States, China, Japan, India, Russia and Brazil are reminded of the political frailty of each step the Europeans take to try to bring the debt inferno under control.

Papandreou's referendum gambit, which prompted a revolt against his leadership in the ruling Socialist party, threw into question the basis of last week's summit agreement.

The strategy calls for a reduction in Greece's debt under a second bailout package, with tougher international supervision of its austerity program and private creditors "voluntarily" writing off 50 percent on their Greek bond holdings.

It also involves recapitalizing European banks to cope with potential losses, and scaling up the euro zone's 440-billion-euro EFSF rescue fund to insure troubled states' bonds and attract foreign investors to special purpose investment vehicles that would buy European government bonds.

"This certainly destabilizes the situation and endangers all the decisions taken on October 26," said Janis Emmanouilidis, a German-Greek researcher at the European Policy Center think-tank in Brussels.

"How will it affect the talks to persuade the banks to take a voluntary haircut on their Greek debt? Some are bound to argue that it puts in question the entire compromise," he said. [...]

For the entire article see here.

The article was also published by the English edition of the Greek daily Kathimerini.


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