11.01.2011

Greece to exit Eurozone?

The Greek referendum call is, while it lasts, effectively a plebiscite on euro membership.

Excerpt:

I say "while it lasts" because the opposition is mobilising a parliamentary manoeuvre to bring down the government, which may succeed - returning Europe to its status quo of containable trauma.

If Greeks reject the 50% controlled default on the debts they owe to the banking sector, then the arithmetic I revealed on Newsnight on the eve of the Euro summit comes into play - without a 50% haircut, and a further 130bn euro bailout, on top of 110bn, Greek debt spirals out of control and the country goes bust.

At this point, the value of the debt falls to maybe 10% of its face value and Greece has broken all the rules of euro membership.

The euro leaders will be faced with the option of a forced transfer of taxpayers' money to shore up the entire Greek economy with no surety, and no "local representatives" as currently planned. Or Greece leaves the euro.

...

Greeks - even those fiercely opposed to Pasok from the left and right - are resigned to the fact that the country faces years of painful restructuring. The real question at issue is a) under whose control and b) in whose interest?

It is for this reason that, while the Greek CP wants out of the euro, the growingly influential far left parliamentary group SYRIZA does not, and neither does the hard-right religious party LAOS. Everybody can see that an external devaluation will be chaotic, painful and cause its own kind of social unrest, just as the attempted internal devaluation is doing.

But events are moving fast. Even as the Greek centre-left toys with the concept of repudiating "odious" debt, as per Latin America in the 1990s, the debt is being concentrated into the hands of other sovereigns - the European Central Bank (ECB), the International Monetary Fund (IMF), other governments…

The reason the markets are scared is not just because of the difference between 50% and 90% default, it is because in the old scenario (AKA the one we agreed on last Thursday morning!) this sovereign-held debt was out of the reckoning. An "Oxi" vote (it means "No" and was scrawled on thousands of banners hung from balconies last Thursday) would signal default across the whole range of debt, causing new turmoil for European states.

What caused Mr Papandreou's sudden move? Even some of the MPs closest to him had no idea it was going to happen.

Many of my Twitter correspondents suggest it was the vehemence of "Oxi Day" last week, leading to clashes between parading soldiers and protesters and local Pasok politicians getting hounded off the parades.

Comment: What's Oxi Day? The scenario that makes the most sense to me is that Greece exits the Eurozone and stiffs their creditors!

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