You might have noticed a rather sickening plunge in the stock market on Tuesday, especially during the morning hours, when the Dow opened with a 250-point drop. This was largely due to Greece, where Premier George Papandreou suddenly decided to hold a referendum on the last-ditch bailout plan that was supposed to save Greece, and by extension the European Union. If you think it was bad on Wall Street, the Russian stock market actually crashed, due to unspecified “technical issues.”
Papandreou’s own parliament was apparently unaware of his plans, and got the big news at the same time everyone else started calling their brokers and sobbing into their smart phones. The finance minister had been hospitalized with stomach pains, and awoke to the kind of news that brings fresh ulcers. His reaction was described as “horror.” The last Greek referendum was held in 1974, and abolished the monarchy.
The next one could abolish Greece. Polling is somewhat mixed, with the public about 60% opposed to the bailout plan, but generally supportive of remaining within the Eurozone. The bailout plan involves dragging public debt down to 120% of GDP by writing off literally half of the government’s debt, coupled with strict “austerity” measures. The latter end of the deal is the problem.
The Greek populace has been comprehensively destroyed by socialism, and has absolutely no taste for “austerity” measures that include pension cuts, public sector wage reductions, reducing the size of the civil service, and raising the retirement age from 61 to 65. They’ve already launched violent riots over far less severe austerity programs. One of the big reasons Papandreou called for the referendum is to escape their wrath. Some observers think he’s looking for a graceful way to commit political suicide.
The referendum announcement had ministers staggering around Europe and clutching their chests. Reuters describes the reaction in Germany, which is keeping both the EU and Greece afloat, as “barely disguised fury:”
A leader in German Chancellor Angela Merkel’s center-right coalition said he was “irritated” by Papandreou’s announcement and said the euro zone would have to consider turning off the flow of money which has kept Greece afloat over the past year.
“This sounds to me like someone is trying to wriggle out of what was agreed — a strange thing to do,” said Rainer Bruederle, parliamentary floor leader for the Free Democrats and a former German economy minister.
“One can only do one thing: make the preparations for the eventuality that there is a state insolvency in Greece and if it doesn’t fulfill the agreements, then the point will have been reached where the money is turned off.”
“Turning off the money” is equivalent to pulling the plug on life support for the Greek government, if not their civilization. They’ve got an 8 billion euro infusion on the way, but it will only tide them over until the beginning of next year.
The markets have been extremely nervous about the global financial implosion that would be triggered if Greece goes down, and takes the euro with it. The notion of a common currency shared between wildly disparate nations with varying levels of irresponsible government is suddenly looking much less attractive, especially for the Germans. A great sigh of relief was heard in exchanges around the world when it looked like a solution to the intractable Greek problem was at hand… but like the supposedly dead maniac in a horror movie anti-climax, Greece is slowly sitting up and reaching for its meat cleaver.
Of course, there are local political tensions involved. Papandreou’s opponents are looking for a no-confidence vote on Friday, with New Democracy party spokesman Yannis Michelakis declaring, “Mr. Papandreou is dangerous, he tosses Greece’s EU membership like a coin in the air. He cannot govern and instead of withdrawing honorably, he dynamites everything.” Opportunistic political rhetoric, perhaps, but this referendum idea does have the wicked glint of a slowly tumbling coin about it.
Live-blogging the unfolding meltdown, the UK Guardian reported that six members of Papandreou’s own party called for his resignation, and are rumored to be on the verge of bolting from the party if he refuses, wiping out its parliamentary majority. Another Member of Parliament from his party has already resigned. An official glumly predicted, “It’s all over. The government is about to collapse.”
All of this looks very bad to the Chinese investors Europe has been trying to court, in keeping with the 21st century Western politician’s standard strategy of securing his own comfortable retirement by selling the entire planet to 22nd century China on an installment plan.
Greece today is gripped in the cognitive dissonance of a nation that spent itself into ruin, for many years beyond the point of no return, but still wants to pretend it has a choice between “austerity” and something else. When he rolled out his referendum brainstorm, Papandreou declared, “We trust citizens, we believe in their judgment, we believe in their decision.” That’s a fine sentiment for an independent citizenry, not a basket-case welfare nation looking for a bailout.
The logical connection between “independence” and “austerity” does not yet seem to have taken root among much of the Greek public. Perhaps it will crystallize if they use Papandreou’s referendum to vote down their bailout plan, go bankrupt, and get kicked out of the European Union. Maybe that would be the best thing for them in the long run, although the short run will be unpleasant.
Americans should pay close attention to the Greek meltdown. These draconian austerity measures and massive debt write-offs are designed to bring Greek public debt down to 120% of GDP. It’s about 182% right now. Meanwhile, America’s national debt just passed 100% of GDP this week, and is still climbing. Look upon the cradle of democracy, and behold your future.
Update: The Papandreou government just dismissed all of its military leadership in a shocking move that has some wondering if the government feared a military coup, or is preparing to deploy the military against its own citizens.
The UK Telegraph quotes the opposition New Democracy party angrily declaring, “Under no circumstances will these changes be accepted, at a time when the government is collapsing and has not even secured a vote of confidence.”