OPINIONS

It's George and The Dragon as Greece fronts up to the G20

Jason Gaywood
Consultant, HiFX
http://www.hifx.co.uk

Post date: Thursday, 3rd November 2011

He shouldn't even have been there. However, in the wake of George Papandreou's shocking decision to snub the olive branch offered by his richer neighbours, he has been forced to attend an emergency meeting ahead of the G20 meeting in Cannes this week. 

By putting the EU rescue package to a referendum, he has effectively threatened the very fabric of the Euro and the EU itself. His actions have angered many leaders - not only in Europe where Sarkozy is said to be incandescent with rage but across the globe with China and The US both making their concern and displeasure clear.

Despite calls for Papandreau to reverse his decision or even to resign, he has been resolute in his position. His belief is that a referendum will give a clear mandate for adoption of the package and the punitive austerity measures contained therein. Without such a mandate, his argument is that his people will not accept the necessary hardship that will follow. 

This stance is well beyond high stakes poker and well into Russian roulette territory. Even if he survives a confidence vote tomorrow, there is much to suggest that any public vote would result in a resounding 'no'.

To add to his woes, Papandreou's finance minister has split ranks and publicly denounced the referendum. In the event that Papandreou succumbs to a vote of no confidence, the situation becomes even more complicated - the Greek government would fall and the resultant elections would further delay any decision on the rescue deal.

Either way, the continued uncertainty could in itself spell disaster the rescue package. China has said it won't be investing in the European Financial Stability Fund (EFSF) until the situation is clarified. Without this investment, the whole deal will be in grave jeopardy.

In the meantime, the IMF has also said it won't release the necessary funds for Greece to meet it's financial obligations until after the result of the planned referendum are known. If by then, Athens is already in 'full and unruly' default - the nightmare scenario that the rescue package was engineered to prevent - Greece would be bankrupt and as such be forced to exit the Euro.

The consequences of this are unthinkable as there won't be enough money to pay back the creditors leading to systemic failure. Other national economies, notably Italy, would follow suit and the single currency experiment would end in absolute disaster - not just for Europe but for the entire global economy.

Papandreou will hope for the sake of his career, his country, the Eurozone and the rest of the world, that any vote will result in a 'yes' from the Greek people. Otherwise, history will show that this is one George that didn't slay his dragon.

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