Photo: Wikimedia Commons
David Zervos of Jefferies sends out a must-read on the latest in Greece——————————–
The last time we had a referendum in Greece was 1974 when the monarchy was abolished and Third Hellenic Republic was established. Since 1829 there have only been 8 referendums in Greece, which ironically enough is very close to the number of defaults since that time at 5. Needless to say Greeks do not call referendums very often. To be sure, the Greek people, the Greek political elite and frankly the entire world do not have a great explanation for why Papandreou has gone for this very aggressive action at this time. One can however speculate which is what I will attempt do now. Here are a few bullet points on why I think this is being done right now:
· It is a basically another Greek blackmail scheme. The Greeks, led by Papandreou’s father, executed a blackmail scheme back in 1985 when they withheld a vote for Spanish and Portuguese membership in the EEC. Ultimately they received 30b in EU funds for a yes vote. This type of action is very typical of Greek political leaders – like father, like son.
· The protests at the parades on October 28th were extremely upsetting to the Greek political elite. To see broad based negativity on the bailout plans was very surprising, especially at such important and nationally sensitive events.
· Papandreou is actually doing the right thing for the Greek people. This is critical decision for the country. The people should decide if they want to take the medicine and stay in the EU, or reset the debt clock and go out on their own. This is no different than the British deciding to leave the ERM in the early 90s (although there was not really a referendum for that in the U.K., which probably is associated with the fact that they have a monarchy and the Greeks do not, in any case, I digress).
· There are huge costs to the EU project associated with the Greeks choosing to leave. The idea that any country in the EU is contemplating a referendum on exit will have EMU leaders quaking in their boots. In the end, Papandreou knows this and he is playing an aggressive card as we head into the Cannes G20 meetings where the Americans and Chinese are going to be driving EU policy more than Germany or France. This move could pay off very nicely for the Greeks with better bailout terms. Alternatively, the downside of exit is probably not as bad as staying in the zone under all of the agreed austerity conditions. In that sense it is a free option for Papandreou and the Greeks.
· From what I see Papandreou just showed the north who is boss in this situation – “It’s our debt, but it’s your problem” should have been the title of his announcement.
Bravo to Papandreou. He is peeling back the layers of the rotten onion that is EMU and exposing the Italian, French and Belgian situations for what they really are! I stand by the idea that the end game here is a Greek exit – and today’s action gets us one step closer. Further, the turmoil in Italy and France gets us one step closer to a Eurobond that has Germany wrapping whatever remains of a tattered EMU. The EMU end game is German fiscal dilution and exit for the weakest links. In addition, this move by Greece may very well change the stakes at the FOMC meeting tomorrow. Ben has his bazookas loaded, he just needs a reason to say “Go ahead, make my day.” Good luck trading