The Makings Of A Greek Tragedy

Just days after European leaders agreed on a bailout plan that would mitigate the devastating impact of a sovereign debt default by Greece, the Prime Minister of Greece shocked world leaders and market analysts by announcing he would let the people of Greece vote on a referendum on whether to accept the bailout package.

Markets tumbled in response to the gesture, even as the Prime Minister remained adamant in his stance calling the referendum the “democratic right” to choose for the Grecian people.

World leaders led by Angela Merkel, Chancellor of Germany and Nicolas Sarkozy, President of France, responded by stating that the outcome of the referendum would determine if Greece was to remain a member of the currency union or not.

The people of Greece are largely against the austerity measures provided for in the bailout plan as it would reduce income and increase taxes.

The plan involves slashing €14.32bn of government spending, and raising €14.09bn in taxes over five years.

Papandreou calling for a referendum is most likely a political gambit designed to salvage his political career by appearing to be pro-people as his government is faced with taking a very unpopular economic decision on behalf of his people.

However if Greece does not accept the proposals and measures within the bailout package, the country will default on its sovereign debt, an event that would have ripple effects on other European countries such as Spain and Italy. Berlusconi is already being pressured to resign by members of his own central-right party due to the volatile economic situation in Italy and Europe as a whole.

Berlusconi responded that to do so would be “irresponsible” in the middle of the ongoing crisis.

Latest reports coming out of the G20 summit currently underway in Cannes, France, have it that the Greek Prime
Minister is planning to scrap the referendum and markets have begun to respond positively.

Businessnews will continue to monitor the situation.