Great stuff here from BNP Paribas on the top story of the day, the Greek referendum.There’s a ton of confusion and questions out there on the news, so this is super-helpful:
What is the timetable of events?
The Greek parliament will have a vote of confidence on Friday. If the government wins, there will be a vote on the methodology of the Referendum in early December, followed by the referendum itself early next year. If the vote of confidence is not passed on Friday, Mr. Papandreou will have to resign immediately, and early elections will be held (in which case there will be no referendum).
Why has the PM decided to hold a referendum now?
Greek people have been increasingly angry about the severe austerity measures proposed by the government. Therefore, rather than imposing the bailout plan, Papandreou would rather have the people of Greece backing the bailout package (and hence, indirectly, austerity measures).
Does Greece’s constitution allow for a referendum on fiscal measures?
No. According to the constitution, the President can proclaim a referendum on crucial national matters, except fiscal ones. First, a proposal for a referendum and a vote on the referendum must be passed in Parliament (voted by 2/5ths and 3/5ths respectively).
If people vote ‘no’ in the referendum, what happens to the Summit plan?
We cannot rule out the event that Greek citizens irrationally vote ‘no’ in the referendum. If this is the case, the Summit plan will have to be re-negotiated with the newly elected government. If no agreement can be reached, Greece will default. This once again increases the tail risk of Greece leaving the Eurozone, and a potential break-up of the union as a whole, with bank runs throughout Europe. This marks a step back after recent progress made ahead of the EU summit.
What are the economic repercussions of holding the referendum?
At the very least, the referendum is likely to delay deadlines for the implementation of the second bailout package. The uncertainty surrounding the vote is likely to have a negative impact on markets, which will further hamper confidence and lending, and hence growth prospects in the Eurozone.