Greece may hold referendum on Eurozone membership

[J]

Reuters link

Greece may hold referendum on euro zone membership: report
Mon Sep 19, 2011 8:57pm EDT

(Reuters) - Greece may hold a voter referendum on euro zone membership as a way to strengthen the government's hand in dealing with the debt crisis within the euro zone or by exiting the single currency, the Kathimerini English language newspaper reported on its website on Tuesday.

Prime Minister George Papandreou is considering calling for the referendum as pressure has mounted from all sides with Greece's foreign creditors pushing for quicker budget cuts, while large-scale citizen street protests against austerity are held almost daily, the newspaper said, citing unnamed sources.

A bill to be submitted in parliament, paving the way for a referendum, is to be discussed in the coming days, the newspaper added.

For the newspaper website, see: http://www.ekathimerini.com

Papandreou had earlier resisted any referendum, but now thinks such a vote could bring a fresh mandate for his Socialist government to continue with an austerity drive backed by Greece's international lenders, the newspaper said.

The cabinet is reportedly split, with several ministers calling for drastic action including early elections at an emergency meeting on Sunday, the newspaper said, while others want to avoid a referendum or new polls.

(Writing by Ed Layne in Singapore; Editing by Yoko Nishikawa)

I don't see the referendum going through right now since the conditions being placed upon Greece for various Eurozone sponsored loan & bailout packages aren't onerous enough yet. That can change in the future. It's something to keep an eye on.

[Thanas]

If they want to leave, they have my blessing. I do not like it as it would impact me personally, but vox populi etc.

But it will not change their problems with their debt, as that will still be valued in Euro. The only thing it will help with is debt held by Greek citizens as those can then be screwed over by hyperinflation of the drachme.

[Starglider]

I liked this quote from the BBC story covering Germany legalising the EFSF;

It would be terrible to let Greece fail so I am glad the vote went through parliament.

There will always be people moaning and groaning about these decisions. People need to look at the bigger picture.

People forget what the EU has achieved. My daughter lives in London, and I sometimes transfer money over to her. It's so much simpler and cheaper than in the past.

Some may complain about helping the southern states in the EU. But isn't this part of the EU project? We are helping the poorer states in Europe.

And in a way we are just helping our own banks to recover the money that they have lent out to these countries.

There is the fear that people may loose money if Greek debts are written off. But we need to get the markets under control. And to do this we need to create confidence in European politics.

I think it would be a good thing if this crisis means the EU centralises financial powers. We need to enforce stricter tax and spend rules - there should be no excuses for countries spending more than they tax.

Ah, Germany's most reliable voting block guaranteeing that the country can, will and should happily write blank cheques to all the peripheral countries. After all the banks must not take losses and we can't let people lose confidence in our politicians and we must give more power to Brussels and we must control the markets and the EU's greatest achievement is making it easier to send money to London.

Well at least he got the last one right.

[D.Turtle]

It seems that this crisis is moving closer and closer to a decision point that leads to the European project set back by decades or leads to rapid integration and closer cooperation in order to get the crisis under control.

[Colonel Olrik]

Ah, Germany's most reliable voting block guaranteeing that the country can, will and should happily write blank cheques to all the peripheral countries. After all the banks must not take losses and we can't let people lose confidence in our politicians and we must give more power to Brussels and we must control the markets and the EU's greatest achievement is making it easier to send money to London.

Well at least he got the last one right.

Its amazing that in the same sentence you accuse him of wishing to write blank checks and of wanting more control of the countries finances and markets. And you're also misrepresenting his example. But hey, you still get the money transfer to London.

By the way, from another quote

Your average German is extremely worried about the economy and many are simply not spending money. My son is seven, and in his school year only one family went on holiday abroad this year. This is unusual.

Bullshit. Maybe the average German from wherever crap town he's from. Unemployment in Germany is at the lowest point since reunification and if anything the Germans are full of themselves in that kind of arrogance that is cyclical in the countries of Europe. And None of my friends is cutting his holidays.

[Starglider]

Its amazing that in the same sentence you accuse him of wishing to write blank checks and of wanting more control of the countries finances and markets.

Why? They're completely compatible and this is in no way controversial; German officials have been trying to attach controls and conditions to every tranche of every bailout. The movement towards Eurobonds hinges entirely on German decisions and if they go ahead (explicitly or implicitly via layers of diversionary financial engineering) the implementation process will be directed by Germans. The easiest way to get control is simply to buy it; propping up governments on condition that they obey directives, nationalising banks so that you can control their capital and investment priorities, moving markets by massive purchasing and monetisation. The second part can hardly be called an 'accusation' anyway, that's exactly what he said, assuming the reporting is accurate.

But hey, you still get the money transfer to London.

I have been getting a little professional insight into how this works over the last year - not on the level of the traders and quants of course, but enough to be an eye-opener for me personally - and yes, we are getting quite a bit of money transfer to London through various direct and indirect means. Which is good of course.

Bullshit. Maybe the average German from wherever crap town he's from. Unemployment in Germany is at the lowest point since reunification and if anything the Germans are full of themselves in that kind of arrogance that is cyclical in the countries of Europe. And None of my friends is cutting his holidays.

Yes absolutely, Germany has plenty of money, I don't know where they found these hopelessly pessimistic doomers. How selfish of them to even consider hording their wealth when other countries are not so fortunate, you must all do your duty to Europe and pour 20% of GDP into the EFSF immediately. I'm completely sure it will help needy Greeks get productive jobs and won't get skimmed by US, French and British banks and that the whole leveraged circular mess won't explode horribly in two years time.

[Thanas]

Considering how much money German banks hold in the UK and how much they have invested there you better hope the German Banks will do well.

[Starglider]

Considering how much money German banks hold in the UK and how much they have invested there you better hope the German Banks will do well.

If there are mass German bank failures the flight to safety capital flow into gilts and the sterling in general (still 4th in global FX volume much as euro fans like to pretend it's marginal) will far outweigh the cutoff in direct investment from German banks. However I expect nothing of the sort. Politicians across Europe have shown that they will bail out indefinitely, whatever the cost. When they can't borrow any more money they will simply start printing it (or rather, will continue to print it in less and less hidden ways).

[Thanas]

Considering how much money German banks hold in the UK and how much they have invested there you better hope the German Banks will do well.

If there are mass German bank failures the flight to safety capital flow into gilts and the sterling in general (still 4th in global FX volume much as euro fans like to pretend it's marginal) will far outweigh the cutoff in direct investment from German banks.

If German banks go under they will most definitely take the pound with it, considering the close links to the UK economy. What makes you think the UK currency will still be strong then?

[Colonel Olrik]

Bullshit. Maybe the average German from wherever crap town he's from. Unemployment in Germany is at the lowest point since reunification and if anything the Germans are full of themselves in that kind of arrogance that is cyclical in the countries of Europe. And None of my friends is cutting his holidays.

Yes absolutely, Germany has plenty of money, I don't know where they found these hopelessly pessimistic doomers. How selfish of them to even consider hording their wealth when other countries are not so fortunate, you must all do your duty to Europe and pour 20% of GDP into the EFSF immediately. I'm completely sure it will help needy Greeks get productive jobs and won't get skimmed by US, French and British banks and that the whole leveraged circular mess won't explode horribly in two years time.

Germany is not an island and doesn't do well when it closes on itself. The Euro and the EU have given it a bigger economical clout in the last decade, and has helped the export market significantly. As you recognise, loan money or give aways as you may call them come with conditions that Germany favours. I'd be even be willing to pay a special tax to pay for the crisis, as I have a well paid job and a good life and apart from moral reasons, which I do have, my "happiness" is related to social stability in Europe - confrontations and desperate people = bad times for the better off. But I agree with you, chances are good the money goes to the banks and nothing changes and counting with the politicians to prevent it is..well.

[Starglider]

If German banks go under they will most definitely take the pound with it, considering the close links to the UK economy.

Really? Please explain this chain of events with appropriate figures, which entities you think will be taken down and why. Now if you'd said 'if the euro area goes down, it will take the sterling with it' that would be quite credible, due to a general rush for hard assets, but the (purely hypothetical) case of the major German banks failing without any of the rest of the Eurozone imploding would not 'take down' the sterling.

What makes you think the UK currency will still be strong then?

Currency 'strength' is determined by supply and demand. We saw the result of even minor flight out of euros in the unprecedented Swiss Franc moves and central bank peg. A general loss of confidence in the banks of any country will cause capital flight and the currencies of other countries to appreciate. Usually the dollar benefits the most from people dumping euros, but in this case the German relationship with the UK would increase the amount of capital moving to sterling instruments and hence strengthen the sterling. Of course this doesn't mean the UK economy will be strong - possibly quite the opposite - but it would be nice for the City.

[Thanas]

If the German banks fail, the Eurozone has failed, ergo the Euro will have failed. That is the chain of events.

BTW, I am still waiting for evidence for that "Germany wants to destroy UK finance" claim of yours in that other thread.

[Starglider]

I'd be even be willing to pay a special tax to pay for the crisis, as I have a well paid job and a good life and apart from moral reasons, which I do have, my "happiness" is related to social stability in Europe - confrontations and desperate people = bad times for the better off. But I agree with you, chances are good the money goes to the banks and nothing changes and counting with the politicians to prevent it is..well.

Thanks for demonstrating my earlier point, and that viewpoint is understandable but really quite sad. The EU has serious, growing structural problems. The debt spiral cannot be resolved by more debt and at this point even Germany cannot tax enough to prevent the euro area as a whole sliding futher towards bankrupcy. The proposed direction for the EFSF is to build it up into a massive financial superweapon, the same toxic obfuscated leveraged CDO crap that blew up in 2008 but on a sovereign scale. The phrase 'euro area suicide pact' is being bandied about here to describe the EFSF leveraging plans. You want safety and security in the short term and you think you can simply buy it. That will work for a while, at escalating financial and human cost, but it will make the eventual breakdown much more severe. Personally given the option of buying a few more years safety and then pitching into the abyss, or going through a couple of bad years now so that we can reset things into a condition where another long growth period is possible, I'd much rather take the later.

[Starglider]

If the German banks fail, the Eurozone has failed, ergo the Euro will have failed. That is the chain of events.

Facile and moving the goal posts; the UK certainly does not need German banks, but it can't completely escape the much more serious problem of euro area implosion.

BTW, I am still waiting for evidence for that "Germany wants to destroy UK finance" claim of yours in that other thread.

Firstly, if you can expect to escape from your throwaway arguments with content-free one liners, any higher standard of proof that I choose to give you will be completely at my discretion.

Secondly, this is blatantly obvious to anyone with any exposure to commercial banking; national champions directly compete with each other and as the second biggest financial center in Europe, Germany coverts the cashflow and prestige of the London finance industry. It is basic national interest to do so even before you get into all the bashing of 'Anglo-Saxon economics' and resentment at the UK having influence over the euro zone without being it. It would frankly be very surprising if the German finance industry didn't want to hinder their biggest competitor as much as possible.

[Colonel Olrik]

Thanks for demonstrating my earlier point, and that viewpoint is understandable but really quite sad. The EU has serious, growing structural problems. The debt spiral cannot be resolved by more debt and at this point even Germany cannot tax enough to prevent the euro area as a whole sliding futher towards bankrupcy. The proposed direction for the EFSF is to build it up into a massive financial superweapon, the same toxic obfuscated leveraged CDO crap that blew up in 2008 but on a sovereign scale. The phrase 'euro area suicide pact' is being bandied about here to describe the EFSF leveraging plans. You want safety and security in the short term and you think you can simply buy it. That will work for a while, at escalating financial and human cost, but it will make the eventual breakdown much more severe. Personally given the option of buying a few more years safety and then pitching into the abyss, or going through a couple of bad years now so that we can reset things into a condition where another long growth period is possible, I'd much rather take the later.

I don't see it as clear cut as you're saying. For two years bankers and economists have been yelling and pushing in opposite directions, when they're not crapping in their pants or begging us to save them that is (to promptly stab their saviours in the back, that'll teach them). Greece is insignificant, Ireland is doing better, Italy is still a power house (ok, the usual half) and the installed corruption in Portugal, Spain, etc is significantly inferior to the disfunctional state of Greece. These countries are tightening their belts and going through changes in order to improve their situation and it seems to me that there's a way between just passing checks to everybody and hurricane-destroying everything to start over again from 20 years ago.

[Thanas]

^Well said.


@Starglider: How is that changing the goalposts? Because there is no way the banks will fail otherwise.

[Stark]

I'm not sure why the EU even wants Greece as a member. Is it idealism? What's the motive for shovelling money (which seriously, you'll never get back) into a hole? Is the expectation that Greece will eventually 'recover' and stop being a corrupt, worthless basketcase? Is it a fear that you have to take whatever unlikely chance there is to recover money?

[D.Turtle]

I'm not sure why the EU even wants Greece as a member. Is it idealism? What's the motive for shovelling money (which seriously, you'll never get back) into a hole? Is the expectation that Greece will eventually 'recover' and stop being a corrupt, worthless basketcase?

From the public political side it is mostly that the EU as a project is not allowed to fail or make major steps back. For decades German policy was one of more and more integration. Kicking Greece out of the Euro would set back that path of increased integration. The current plan seems to be to shovel money as to buy enough time for the various reforms that increase integration of the EU/Euro zone country to go through and have effect. In effect, the attempt is to use this crisis as a way to push forward the European project by decades, after it has stalled for the last ten years or so.

Of course then there are other people - mostly outside the EU/Euro-zone - who view the whole thing as just Germany and/or France trying to save their banks, no matter the cost.

[Stark]

But why should 'integration' mean 'integration, even those dogshit countries with literally nothing to add but problems'? Sure, I can see the idealism of a unified Europe, but if the choice was between a unified economically viable half of Europe, and throwing years of growth down a hole to save a country run by criminals, why choose this option?

Can you talk about what EU reforms are being worked on that are expected to fix any of these issues? If there was a plan (ie 'buy time at massive cost to evil countries like Germany to fix a problem') that's a lot less retarded than 'MUST HAVE GREECE IN EU FOR... SOME... REASON, BURN ALL MONEY'. Is this expected to be like dealing with the integration of East Germany, a mid-term burden that's ultimately worth it?

[Starglider]

For two years bankers and economists have been yelling and pushing in opposite directions, when they're not crapping in their pants or begging us to save them that is (to promptly stab their saviours in the back, that'll teach them).

Bankers will do and say whatever will make them more money, just as politicians will do and say whatever it takes to get them re-elected. Any sentiment or morality play is purely for show.

Greece is insignificant, Ireland is doing better, Italy is still a power house (ok, the usual half) and the installed corruption in Portugal, Spain, etc is significantly inferior to the disfunctional state of Greece. These countries are tightening their belts and going through changes in order to improve their situation and it seems to me that there's a way between just passing checks to everybody and hurricane-destroying everything to start over again from 20 years ago.

The prevalence of this is attitude is why I can be pretty sure there will be bailouts, bailouts and more bailouts well past the limit of sanity until the eurozone implodes. Zero Hedge had a good post recently on the fallacy of exactly this kind of normalcy bias and how bankers and politcians exploit it;

Denial. Denial is safe. Comforting. Religiously and relentlessly abused by politicians who don't want nor can face reality. A word synonymous with "muddle through." Ah yes, that "muddle through" which so many C-grade economists and pundits believe is the long-term status quo for the US and the world just because it worked for Japan for the past three decades, or, said otherwise, "just because." Well, too bad. As the following absolutely must read report, which comes not from some trader of dubious credibility interviewed by BBC, nor even from an impassioned executive from a doomed Italian bank, but from consultancy powerhouse Boston Consulting Group confirms, the "muddle through" is dead. And now it is time to face the facts. What facts? The facts which state that between household, corporate and government debt, the developed world has $20 trillion in debt over and above the sustainable threshold by the definition of "stable" debt to GDP of 180%. The facts according to which all attempts to eliminate the excess debt have failed, and for now even the Fed's relentless pursuit of inflating our way out this insurmountable debt load have been for nothing. The facts which state that the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world's financial asset holders: the middle-and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path. But not before the biggest episode of "transitory" pain, misery and suffering in the history of mankind. Good luck, politicians and holders of financial assets, you will need it because after Denial comes Anger, and only long after does Acceptance finally arrive.

(excerpts from BCG report follow)

You believe things will be ok because they were ok and they seem kind of ok and this sounds alarmist and fringe and wouldn't it be nice to just ignore it. You have no answer to the fact that all recent first world economic prosperity was based on a trend of rising public and private debt that cannot be sustained. When politicians say 'we can fix everything by just borrowing another 10% of GDP for the bailout fund', you will vote for them, and again, and again until you are all past 200% public-debt-to-GDP and massive inflation becomes the only escape from default.

[Stark]

Starglider, what's the 30% hit he talks about? Is that an American or EU proposal? Is it political, or activist?

I'm curious, because I've always been curious about the difference between handling change or crisis in the modern world compared to throughout history.

[Thanas]

Secondly, this is blatantly obvious to anyone with any exposure to commercial banking; national champions directly compete with each other and as the second biggest financial center in Europe, Germany coverts the cashflow and prestige of the London finance industry. It is basic national interest to do so even before you get into all the bashing of 'Anglo-Saxon economics' and resentment at the UK having influence over the euro zone without being it. It would frankly be very surprising if the German finance industry didn't want to hinder their biggest competitor as much as possible.

And I am sure the best way to do so is by hitting them with a tax...which everyone pays? Lay off the conspiracy, dude.

[K. A. Pital]

Some stuff to ponder on from Krug:
http://streetlightblog.blogspot.com/201 ... -part.html
http://streetlightblog.blogspot.com/201 ... olicy.html

I'm not thinking Krug is always right (or even right in the general thrust of his arguments), but some of the observations deserve mentioning.

[Starglider]

Starglider, what's the 30% hit he talks about? Is that an American or EU proposal? Is it political, or activist?

Did you read the post or the original report (it's conveniently embedded as a PDF)? It's a fairly serious estimate of the amount of gross wealth transfer that would have to occur to avoid cascading bank and sovereign defaults in developed countries, assuming inflation stays low. Of course inflating away the debt with massive money printing is also a wealth transfer, but the winners, losers and knock-on effects are different. Personally I think that we will mostly see printing rather than confiscation, which overwhelmingly harms the cash savings of the middle class and the poor via food/commodity inflation, rather than the hard assets of the wealthy. The mix will vary between countries though.

Zero Hedge has a lot of decent stuff on it, it covers the whole bearish spectrum from bank press releases to conspiracy crazies though, so you have to sift through for posts based on decent source material as opposed to people's rants and random market calls. When I first started reading it it seemed like a fringe doomer blog, but practical personal experience with some of the crazy stuff they cover has changed my viewpoint.

[bobalot]

<snip>

Ah, Germany's most reliable voting block guaranteeing that the country can, will and should happily write blank cheques to all the peripheral countries. After all the banks must not take losses and we can't let people lose confidence in our politicians and we must give more power to Brussels and we must control the markets and the EU's greatest achievement is making it easier to send money to London.

Well at least he got the last one right.

The banks are taking losses. There is already an agreed 21% "haircut" (partial default) and there is talk of increasing that up to 50%.