Greece and the Referendum

Papandreou's decision to ask for a public referendum vote was a cold, calculated political move that may backfire for him and for Greece.  It's nothing new, it's an old maneuver.  Everything his government has tried over the past two years, hasn't worked.  The people don't want the austerity measures, the international financiers are not happy with the results of his actions, the opposition is crucifying him every day, so he pulled the oldest trick in the book - if you are being criticized for a problem, then make those who criticize you part of the process and thus part of the problem.

The EU powers, Germany, France,... are worried about the outcome of this.  Can you imagine if Portugal and Spain followed the example of Greece and had a referendum every 3 months to decide if they will accept a new monetary solution offered to them?  Chaos!

Nothing wrong with referendums, but you can't have it both ways.  If you believe that when the populous elects you in general elections, they provide you with the mandate of leading the country and representing them, than that's the only referendum you need.  If you are not sure, then you need to have a referendum vote early on, not after your actions have led the country and its people to the abyss, and after you've turned EU and the international community upside down trying to find a solution for you, and have agreed to the solution they finally come up with.

German people were NOT happy about bailing out Greece, they have been saying that for the last 2 years.  They claim Greeks are lazy, they don't want to work and always complain.  So, what should Merkel do?  Have a referendum to see if Germans wanted to bail out Greece?  No, as a leader she did what she know was good for the country and the country's leading position in EU, knowing that Germans would not like that and she might pay for her actions in the next elections.  That's what leaders that are interested in the good of their country (and not always in political benefit) do!

What will happen now?  What if indeed the Greek people reject the "deal" the international economic community has put together and Papandreou accepted at 4:00 last Saturday?  Is it back to the Drachma, with all Greek debt (~ 500 bn) in Euros?  The Drachma will have to be devalued by 50% or more, the minute it is established, in order to increase the economic viability of Greece.  So now, they will owe the equivalent of 1 trillion euros (in Drachmas).  How do they get out of that one?

The whole world is watching.  Somehow, Greece has managed to be the center of the storm, and in the headlines many times in the past few years. A glimpse of their past, where their actions influenced humanity?  I doubt it.

Should Greece Fail?

A day hasn't gone by, in the last 2-3 months, that we don't see dozens of articles about Greece's economic fate, the first, second, third loan bail-out, the revolt of the people in the streets, etc.  Really, though, why are these Greek people in the street whining?  Why do they think that the Eurozone or the IMF "owes" it to them to lend them the money they need?  Or, are they right?  The general thinking is that massive overspending on social programs; years of capitulation to union labor’s unreasonable demands; mind bending corruption at every level; and tax evasion on a grand scale is what had brought Greece to its knees.  No-one can argue with all that, but the problem is much deeper than that.  For example, why were the Greeks given all that money to spend (borrowed money) in the first place?  Who helped them make all those investments in "junk" bonds, that made money for the "consultants", and why?    BTW, parenthetically, Greece is NOT the only country that is in dire economic conditions, for the same exact reasons.  Many other European countries, and the USA, are right there besides Greece. The culprit is called "deficit spending"!   That's how they all got in trouble.

Back in 1967, Greenspan - a great economists before he became part of the establishment, said, "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.It stands as a protector of property rights".  And, that was only about 5 years before USA abandoned the gold standard, a sad day in its economic history.

Anyway, back to Greece.  It should NOT have adopted the euro, ten or so years ago.  Once they did that, control over their economy was handed over to the European regulators and they lost the freedom to deflate their currency, when needed, to increase tourism and improve their economic picture.  Having said that, talk about dropping the euro now and moving back to drachma, is just that, talk - it doesn't make much sense.  Their debt would still be in expensive euros, the drachma would de-valuate the day after they adopted it, based on their economic state, and thus their real debt would double overnight.

Plus, the European leaders would not allow that to happen, because it would signal that other countries in economic trouble could do the same thing.  So, what is going to happen?  Or, what should happen?  Should Greece refuse the new aid package, that would force new austerity measures, and just go bankrupt?

The Europen Union will NOT allow that to happen.  Once again, if they allowed Greece to default, that would signal that everyone in economic trouble could just default and face no consequences.

So, what will happen?  It's not very clear, I guess we'll have to wait and see.