Greek Tragedy Could Take Another Twist
Greek Prime Minister George Papandreou is gambling his political life and legacy on a no confidence vote on Friday, which could be crucial to the future of Greece.
As things currently stand, after several desertions by its own MPs over Papandreou's call for a referendum on the latest euro zone bailout deal, his government has a majority of just two, and several analysts believe that it is likely that the no confidence vote will fail.
"It could be either the last act of a desperate man or the attempt of a leader who was found wanting to reject the responsibility foisted on him," Yiannis Koutelidakis, economist at Fathom Financial Consulting, wrote in a research note. "The Greeks have a word for it: euthinophobia, the fear of responsibility and duty."
On Wednesday, Papandreou is meeting French President Nicolas Sarkozy, German Chancellor Angela Merkel and representatives of the troika composed of the International Monetary Fund (IMF) the European Central Bank (ECB) and the European Commission, which is backing Greece's bailout, ahead of the G20 meeting.
There is even a danger that the IMF will not pay its next tranche of aid to the stricken Mediterranean country.
If the vote fails, the government will face early elections, and the uncertainty over Greece's future will prevail until after Christmas at least.
If it succeeds, the Greeks will be able to vote on the latest European Financial Stability (EFSF) package, and by extension the unpopular austerity measures imposed as part of the Greek government's attempts to meet its conditions. Signs are that they would vote against it. This could lead to losing the support of the troika.
Recent polls by Greek To Vima newspaper, which is associated with Papandreou's PASOK party, suggest that the majority of Greeks do not agree with last Thursday's euro zone deal, but still want to stay as part of the euro zone.
"An election would be a much cleaner solution to the markets. It would stop the idea that they need to renegotiate the package with Brussels, which could go on for months and months," Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets, told CNBC Wednesday.
"The tolerance in Europe would not be there. Without the package, Greece would be broke and in recession and much worse off."
Greece is the world's thirty-second largest economy, smaller than much of the euro zone and emerging economies such as Thailand. Yet the effects of it defaulting on its hefty debt pile – which would be increasingly likely if it lost the support of the troika - would be felt around the world, starting in the euro zone.
Markets around the world suffered yesterday after Papandreou announced that he would call a referendum.
"Markets thought it was more likely that there would be a general election than a referendum in Greece yesterday," John M. Hydeskov, chief analyst at Danske Markets, told CNBC Wednesday.
"We are going to have several weeks of heightened uncertainty and this is not the right time to add risk."
The Greek cabinet will back Papandreou's plans for a referendum, which were met with consternation internationally.
Japanese Finance Minister Jun Azumi told reporters Wednesday: "Greece’s abrupt announcement on holding a referendum, which was not included in (the earlier agreed deal), has confused people."
Sarkozy said: "This announcement took the whole of Europe by surprise. The plan ... is the only way to solve Greece's debt problem."
A spokesman for the Spanish government said the referendum was "bad news for Spain and bad news for Europe."