Will the Greece Referendum Send the Eurozone Spiralling?


Well today's certainly been interesting on both sides of The Pond.  Over here, a brokerage headed by a former senator and governor goes bankrupt amid allegations that it dipped into client funds to cover losses. Over there, the prime minister of Greece announced last night that the new bailout deal I was so cynical about last week would have to be subject to a referendum.

Global markets have reacted--well, about the way my mother did when I announced that I was going to use my MBA to enter a lucrative and stable field like journalism.  

The one thing I have not seen, in all my urgent scanning of the news analysis, is an explanation.  Is Papandreou attempting to stave off a vote of no confidence?  But this seems likely to bring down his government anyway, and now his own party members seem to be revolting over the decision to hold the referendum.  

And why was it announced so suddenly?  There are reports that even some of his closest supporters in parliament had no idea that this was coming until the announcement.  This seems a very strange way to go about things, even if capital is fleeing the country and your voters are rioting against austerity.

The best I've seen so far is Tyler Cowen's take: this is the Greek government's way of saying "no more".
In other words, the deal would make the country totally bankrupt. Greek voters already feel blackmailed. A good rule of thumb is that if a very unpopular government holds a referendum on something -- anything -- that government will lose. Seriously now, which way do you expect the Greek bus drivers to vote?
The news cycle--or at least, my twitter feed--has been filed all day with competing claims that the referendum was going to happen, only now it totally wasn't, except that it actually was.  (At last count, CNBC was reporting that the Greek PM told his cabinet he was going ahead).  

If EU economic policy were a soap opera--and apparently, it is--Greece would be the sultry, irresponsible beauty in a tumultuous love-hate relationship with rigid, authoritarian Germany.  Obviously after years of tumultuous breakups and teary reunions, this is the season finale where he finally beats the hell out of her during a screaming fight over thier impending bankruptcy, and in despair, she drives both of them, and his prize Volkswagen, off a cliff.

In other words, I don't see this ending well.  Hell, I haven't seen it ending well for a long time. Greece needs to get out of its currency union with a bunch of inflation-obsessed Germans, and out from under its obviously unsustainable pile of debt.  And unless they back down pretty soon, it seems like they're preparing to do one or both in the very near future.  

They probably won't be the only ones, either--Spanish and Italian yields have jumped.

To be sure, pundits have called seven out of the last none euro crisis.  And yet. I think at this point, we are probably in for a very rapid progression of events.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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