Photo: Guy Sie on Flickr
Jubilation over the short-lived hope that the EU summit would bring resolution to the eurozone crisis is probably over for good.Because every headline is just getting worse.
Here’s what’s popping the eurozone endgame bubble this afternoon:
– rumours are swirling about whether or not this Greek referendum is going to focus on the bailout alone or on the larger issue of participation in the euro currency. The first poll would probably get a “no” vote, the second a “yes.” G20 leaders have made agonized statements about it, and Germany’s Merkel and France’s Sarkozy are probably grilling Greece’s Papandreou about this right now in a closed meeting.
– Further, it looks as though Merkel and Sarkozy are giving the Greeks an ultimatum. A “no” vote to the proposed bailout plan means a disorderly default, according to a G20 official cited by Dow Jones.
– The Institute of International Finance — a representative of banks during the Greek bailout talks — has told Dow Jones that eurozone banks will probably sell government bonds in order to shore up their capital. This would counteract the purpose of the “firewall” to protect euro area countries from higher borrowing costs, because sovereigns — particularly in the PIIGS — would see less demand for their debt offerings. This would actually aggravate the pressure on struggling sovereigns, not mitigate it.
– Neither the IMF as a whole nor any non-European countries individually are likely to make definitive plans to bail out Europe so long as the EFSF expansion and the second Greek bailout is up in the air. Hopes that significant progress would be made this weekend after euro-wide approvals has now come under fire with this Greek referendum debacle.