Trader Talk

Greek Referendum a Terrible Mistake?

The question of the morning: what on earth was Greek Prime Minister Papandreou thinking when he called for a referendum on the EU deal?

The former Greek Prime Minister, George Papandreou
Pierre Verdy | AFP | Getty Images

It's not a rhetorical question. As far as I can gather, this was his thinking:

1) the polls indicate that about 60 percent of the Greek electorate are opposed to the EU agreement; Greek politicians need to do a far better job "selling" austerity.

There seems to be special resentment that a "permanent troika" will be placed in Greece to make sure that the Greeks do not cook their books, as they have in the last decade (see my excerpt from Michael Lewis' book, Boomerang, in ).

2) the wave of strikes and work stoppages is sending the country into a spiral, so no estimates on GDP growth or contraction are reliable any longer. Something must be done to stop the spiral:

"The country has been shut down and civil unrest has been at a fever pitch," one trader wrote to me. "Now its whether they can get a unity government with popular support....or not."

3) the Greek people must be made to understand that they have a clear choice: stay in the euro, or get out (and, by implication, face chaos).

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