Great analysis of Greek situation - recommended

Brilliant Moves by Papandreou; EMU Mentions Eurozone Exit Possibility First Time Ever; Who the Hell is Merkozy to Dictate Terms of a Greek Referendum?

Mish’s Global Economic Analysis

2 November, 2011

As the days progress, the strategy of George Papandreou has become increasingly clear. He does not like the terms forced on him by Eurozone bureaucrats especially French president Nicolas Sarkozy and German Chancellor Angela Merkel.

Not only is he fed up with Eurocrats, he is fed up with Greek protests as well as pressure from political opposition.

I talked about this previously in my post In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Who the Hell is "Merkozy" to Dictate Terms of a Greek Referendum?

The reaction to Papandreou's referendum proposal was swift and severe, not only in the markets, but also at the emergency meeting Cannes between Merkel, Sarkozy, and Papandreou.

Sarkozy and Merkel proclaimed the Referendum was about an exit from the Eurozone.

Really? I ask again, Really?

Who the hell is "Merkozy" to dictate terms of a Greek referendum?

That said, I appreciate the fact that Merkozy now accept the simple fact that an exit from the Eurozone is possible.

This is a major step in the right direction, even if it constitutes effective blackmail on Greece.

Blackmail by IMF, Merkozy

The IMF upped the ante saying Greece will not get the next tranche of money until after the referendum. Hmmm. It seems the IMF and EMU should have thought about that before the last release of funds.

By the way, this helps explain the timing of Papandreou's announcement.

Papandreou's Timing Perfect

Papandreou cleverly waited until he had the funds and anti-Papandreou sentiment was extreme before announcing his referendum ploy.

What transpired immediately following his announcement was a series of on-off-on referendum announcements culminating with Papandreou convincing his cabinet to go along with the idea (please see Greek Referendum Off or On? Who is in Control? Anyone?)

That was an incredibly gutsy but also exceptionally well-timed move by Papandreou.

Yes or No, But to What?

With the above backdrop, please consider Greece to Decide Euro Membership in December Vote as EU Cuts Aid Payments

European leaders cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area.

Crisis talks ended in the French resort of Cannes late yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance and warning Greece it will surrender all European aid if it votes against a bailout package agreed upon only last week.

“The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?,” Merkel told reporters. Sarkozy said Prime Minister George Papandreou’s government won’t get a “single cent” of aid if voters reject the plan.

The Greek premier declined to say how the referendum will be worded, saying it “is not the moment” to give the exact language, only that “the question is not just about a program but do we want to be in the eurozone.” More than seven in 10 voters said they favored Greece remaining in the euro, a poll last week of 1,009 people published in To Vima newspaper showed.

“Markets will remain very nervous, but with the hope that this hard stance will get to more clarity on Greece’s situation soon,” Marco Annunziata, chief economist at GE Capital in San Francisco, said by phone. “The EU is casting this as a stark choice on Greece’s part rather than reopening discussions on the bailout package.”

Who Has the Upper Hand?

Quite frankly that Bloomberg headline is nothing but bullsheet until Papandreou relents. But why should he?

Who is it that has the upper hand?

I encourage Papandreou to go "All In". He has nothing to lose. He will not win the next election and he is tired of playing puppet to Merkozy.

Bear in mind Greece desperately needs reforms. However, the manner in which the IMF, EMU, and Merkozy have forced various issues is in a manner that helps only Greek and French banks, and not Greece at all.

Most Greeks would agree with that assessment, whether it is truer or not. That is the likely reason Papandreou's cabinet went along with the referendum idea, after initially rejecting it.

In short, this was a brilliant series of perfectly timed maneuvers that shoves the ball smack back into the face of of the arrogant Merkozy coalition.

Stuff the Ball Down Merkozy's Thoat Until they Puke

Papandreou's next move should be to stuff the ball down the throats of Merkozy so hard that both of them puke.

All he has to do to accomplish that would be to go ahead and word the referendum how he wants. In short, the referendum needs to include a proposal to stay in the Eurozone, as well as a proposal to reject the terms of the EFSF as presented.

Look at the beauty of this setup from the point of view of Papandreou.

Assuming the proposal to stay in the Eurozone passes but approval of the terms of the EFSF does not, Merkel and Sarkozy will have to do one of two things:

1. Kick Greece out of the European Monetary Union

2. Renegotiate terms of the EFSF

Either way, Papandreou wins.

Explanation of My Position

Please do not read any more into this than exists. The facts of the matter are French, German, and other European banks made stupid loans to Greece, Portugal, Spain, Ireland, etc.

Banks that make stupid lending decisions (and not taxpayers) should pay the price for those actions.

Greece desperately needs reforms, particularly in the public union area. I support those reforms.

However, I do not support the bailing out of banks. Unfortunately, all this alleged "help" to Greece is nothing more than an obvious attempt to bail out banks at the expense of Greece and European taxpayers in general.

Game Over Berlusconi? 

Italian Anti-Crisis Bill Fails

Greece Govt Bond 1Year Yield

Zero Hedge,

Europe's core, call it Germany, is now caught in a war of reverse attrition on three fronts: with Greece, with Italy, and as of today, with France. 

And unfortunately for the European monetary union, Europe, call it Germany, is losing. 

While the focus continues to be on G-Pap for the second day in a row following his shocking referendum announcement, the real diversion remains Italy, where the government is in as much of a state of chaos as that in Athens, and whose bonds, while not yet trading at Greek levels  (remember when the Greek 1 year hit 100% two months ago? Today it is at 225%... and tomorrow the two year will be at 100%), are far, far greater in amount, and the only thing preventing their collapse so far has been the ECB, whose monetizing assistance has been contingent on Italy passing and enforcing austerity measures to deal with its runaway debt to GDP of over 120%. 

Unfortunately, when BTPs open for trading in 7 hours, the ECB bid may not be there, or any bid for that matter, because as the WSJ reports, "Italian Prime Minister Silvio Berlusconi on Wednesday failed to issue growth-boosting measures demanded by European Union authorities ahead of the Group of 20 summit, raising further doubts about the government's willingness to pass economic reforms aimed at restoring investor confidence in the country." 

Now that the ejection of Greece is virtually certain, perhaps it would be a prudent idea for what little remains of the healthy European core to kick out all the stragglers before everything becomes infected, and before French bonds trade at yields indicative of a sub-IG credit, thus ending the myth of any European union for good?G

Greeks scream bloody murder!

From Max Keiser