The world is referendum crazy today, as everyone’s wondering what the heck happens now that Greek PM George Papandreou has put reforms on hold to let it all go to a vote.
From Eurobank Equities, here are 5 key points:
a. In a surprise move yesterday the Greek PM announced a referendum on the new EU aid package for Greece. In addition, the PM announced a vote of confidence to be held on Friday night following a 3-day debate in Parliament in an attempt to secure support for the govt’s policy.
b. The PM’s initiative was an unexpected move which entails high political risk, given that if the EU deal gets rejected at the referendum the obvious option will be snap elections. Note that, according to a weekend opinion poll, 60% of Greece citizens regard the recent deal as negative and seem to oppose its terms.
c. The decision to call a referendum on the aid package means that Greece is entering a prolonged period of political instability given that the referendum is likely to be held in January (as the FinMin implied). The form of the referendum (and the exact question asked) remains to be seen, but could have wider repercussions especially if the EU deal gets rejected.
d. The initial reaction from the opposition parties has been critical, and most of the opposition leaders are calling for snap elections.
e. Next step is the vote of confidence on Friday night. We believe the risk of a “no” is low but one cannot exclude this. Were this to happen, snap elections would take place in a month.
Of course, the situation is “fluid” as they say.