November 1st, 2011
04:09 PM GMT
London (CNN) – The Greek government’s call for a referendum on its aid package is effectively a high-risk game of chicken with its people - and the eurozone peers who have kept the country afloat, analysts say.
Last night’s surprise move by Greek Prime Minister George Papandreou to seek the people’s voice on the unpopular rescue package plunged European markets deep in the red on open Tuesday, as they scrambled to understand the sudden lurch away from last week’s acceptance of the triple-pronged euro crisis response plan.
The European rescue plan - despite a lack of detail - was the substantive response markets had been seeking for months. But Papandreou’s move has thrown the plans into disarray.
Eurozone crisis fears are again sweeping the world - but this time, with more urgency than ever.
Greece, the country which triggered the crisis with its original bailout in May last year, has until now essentially played ball with the Troika - made up of the European Union, International Monetary Fund and European Central Bank - as it implemented harsh austerity measures in return for rescue funds. Now, it’s gone off track.
Stephen Gallo, head of market analysis at Schneider Foreign Exchange, calls Papandreou’s move “like shock therapy. This is a massive game of chicken. Greece has bargaining chips …if Greece leaves the euro that is it.”
As Greece seeks to assert some sovereignty from the Troika, Gallo notes, it risks bringing down the entire European project.
The move faces down European leaders who have already risked their political futures to keep Greece afloat, and the project alive. Earlier today German Chancellor Angela Merkel and French President Nicolas Sarkozy leader held an emergency call on the issue, after which they declared the immediate implementation of Europe’s crisis plan. These, the subsequent communiqué said, “are necessary now more than ever.”
A referendum would also force the Greek people - including those who have been tearing up the streets with their protests against the austerity measures - to face their harsh reality, Elisabeth Afseth, of Evolution Securities, says. “It’s easy to say ‘we don’t like [the austerity measures]’ but they don’t have an alternative,” Afseth notes. But Papandreou’s move, she adds, is “a very, very risky strategy.”
Should the rescue package be voted down via a referendum, the Greek people risk the unknown but almost certainly economically devastating consequences of messy default and potential exit from the eurozone. With polls showing 60% of Greeks opposed to the debt deal - but 70% of Greeks wanting to stay in the euro - the test will be which of the worst options will be picked.
But first, Papandreou must win a confidence vote in the government. While this morning he could have considered this a given, his position has became more fragile by the hour.
Lawmaker Milena Apostolaki has defected, leaving him with a majority of only two in Parliament. Greece's opposition leader Antonis Samaras has called for snap elections.
If the confidence vote fails, an election will likely follow and the referendum shelved, according to Royal Bank of Scotland analysts.
If it doesn’t, a referendum could take place early next year, with volatility likely to rule the markets as politicians’ comments are scrutinized as to what could follow a "no" vote, they add.
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