Responding to the riots that followed last week's proposal as well as dissent from within his own Socialist party, Prime Minister George Papandreou said: "The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted." Staging a referendum threatens to throw the euro zone further into crisis as the majority of Greeks object to the bail-out, according to a survey published last week. If Greece were to reject the plan, which requires deep spending cuts, it would risk a full-scale default and possible ejection from the euro. The country could even run out of money to pay civil servants or state pensions if the troika decided to pull the plug. European leaders and the IMF have struck a deal that would see banks take a 50pc write down on Greek loans, cutting the country's debt by up to €100bn, alongside a €130bn international rescue effort on top of the existing €110bn package. No dates have been set for the referendum, which would include a confidence vote in the government. Yields on 10-year bonds jumped to 6.18pc on Monday, while spreads over German Bonds reached 410 basis points, nearing the critical level where LCH Clearnet raises margin requirements. This, in turn, triggers further selling. However, The Greek Constitution permits referenda EXCEPT for questions involving potential revenue measures including taxation. On that basis any referendum in Greece on the aid package and accompanying revenue measures is unconstitutional.
Mario Draghi has little latitude for monetary stimulus. Germany has imposed a de facto veto on large-scale purchases of Italian and Spanish bonds, viewed by orthodox monetarists as a slippery slope towards debt monetization. Intesa Sanpaolo Giovanni Bazoli said the spreads are un stainable "not just in the medium run, but in the short run as well". He warned of a credit crunch in Italy as banks struggle to meet higher capital ratios set by EU leaders. The renewed jitters came as the OECD club of rich states slashed its euro zone growth forecast for next year from 2pc to just 0.3pc, implying an outright recession over the winter. The body called on the ECB to cut interest rates and deploy its full lending power to head off debt contagion to Italy and Spain. The OECD said the world risks a fresh crisis of equal magnitude to the Great Recession if authorities fail to act in time, with GDP contractions of up to 5pc in some big economies by early 2013. The ECB's new president The Bundestag voted last week to upgrade the EU's bail-out fund (EFSF) to around €1.2 trillion but only on condition that the ECB steps back from its support role. This pits Germany against much of the world. The US Treasury, the International Monetary Fund, and most leading economists fear the fund will fail without a central bank prop.
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Greece will hold a referendum on a new European debt deal reached last week.
"This will be the referendum: the citizen will be called upon to say a big yes or a big no to the new loan arrangement," the troubled country's prime minister George Papandreou announced to Socialist members of the Greek parliament.
"This is a supreme act of democracy and of patriotism for the people to make their own decision … We have a duty to promote the role and the responsibility of the citizen.
"We trust citizens, we believe in their judgment, we believe in their decision."
Eurozone leaders agreed last week a second, €130bn bailout for the cash-strapped country as well as a 50% write-down on its crippling debt to make it sustainable.
The referendum will be held in a few weeks, after the agreement is finalised, according to Reuters.
It will be the first referendum in Greece since 1974 when the monarchy was abolished by a landslide vote, held months after the collapse of a military dictatorship.
Papandreou “has tossed Greece’s future in Europe in the air like a coin,” Michelakis said in an e-mailed statement from ND’s Athens offices today. “He is dangerous and must go. There is a solution: elections now. It’s the safest ‘referendum’.”
Papandreou now has just a three-seat majority in parliament and won approval for his latest austerity package amid protests that left one person dead. The budget measures prompted a near- rebellion in Papandreou’s party and violence in the streets.
The New Democracy party, led by Antonis Samaras, would win 22 percent of the vote in elections, with Papandreou’s Pasok party receiving 14.7 percent, with neither receiving enough to form a majority in Parliament, according to the Kapa poll. More than 26 percent of voters said they were undecided on who to back. The margin of error is 3.09 percentage points.
Separately, the International Swaps and Derivatives Association said that the euro-area proposals for Greek bonds appear to involve “a voluntary exchange that would not be binding on all holders,” according to an e-mailed statement.
“As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts,” the statement said. “However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them.”
The ISDA statement today follows a review of whether the proposal would constitute a “credit event” for holders of credit-default swaps linked to the securities
Greek Observer 17 minutes ago 2
The Greek Constitution permits referenda EXCEPT for questions involving potential revenue measures including taxation. On that basis any referendum in Greece on the aid package and accompanying revenue measures is unconstitutional.
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