Greece: Referendum Spikes Debt Fears

Prime Minister of Greece calls for national vote

Prime Minister of Greece calls for national vote

Greek leaders are set to hold an emergency cabinet meeting concerning the two sides emerging surrounding a bailout referendum.

Finance chief Evangelos Venizelos has broken ranks with the prime minister of Greece, who feels that the referendum about the terms of receiving bailout money will also determine Greece’s future in the eurozone.

Venizelos, however, feels that the vote must not be about whether Greece shall leave the single-currency bloc. The inclusion of Greece in the euro economy “cannot be put in doubt,” said the finance chief. He went further to say that the Greek achievement of belonging to the eurozone “cannot depend on a referendum.”

Withholding funds

Venizelos also feels that the 8 billion euro (£7 bn) bailout instalment should be given to Greece as soon as possible.

However, German Chancellor Angela Merkel and French President Nicolas Sarkozy have stated definitively that Greece will not receive its scheduled bailout tranche until the referendum has passed. China has also made it clear that it will not commit to investing in bailout fund bonds until Greece’s position in the euro zone is clear.

It seems that that position now stands with the Greek people, as Greek Prime Minister George Papandreou has said that the national vote on the bailout package is also a decision on whether the country will remain part of the single currency euro bloc.

While Greece said last month that it could run out of money within weeks, the referendum is expected to be held on 4 December. Until then, bailout money from the European Financial Stability Fund (EFSF) remains out of their reach.

Defaulting worries

European leaders have stated their fears that if the Greek people vote “no” on the bailout referendum, the country may be forced into a disorderly default that will spread the debt crisis to Italy and Spain.

However, after talks with Prime Minister Papandreou, Sarkozy stated that it was indeed “our Greek friends” who must decide for themselves whether to continue membership in the eurozone economy.

Papandreou’s surprise call for a national vote on the bailout was a disappointment to Eurozone leaders, who looked to present a definitive plan for solving the debt crisis at the upcoming G20 summit of the world’s largest economies. Among others, the United States’ administration has put pressure on eurozone leaders to settle their affairs as quickly as possible.

EU leaders, who just released their three-prong plan of attack from Brussels last week, can see their plans for a stable eurozone unravelling because of Papandreou’s referendum.

However, widespread anger in Greece about the austerity measures demanded by eurozone leaders makes calling for a national vote understandable. As part of the new bailout agreement, Greece has been forced to make huge cuts to pay while raise taxes.

The fear now is that the Greek people, angered by austerity, will vote against the bailout deal, which will put efforts to resolve the eurozone debt crisis in jeopardy.

It may also ultimately hurt the Greek people, as Angela Merkel and others have said that should Greece not accept the bailout and the austerity measures that come with it, they will be out of the eurozone.

Leave your comment

  • (not published)