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Banking

Bond Outlook by bridport & cie, November 2 2011

As panic gives way to reflection on Papandreou’s referendum call, there may be good results from this after all, such as a more decisive rescue and federalisation with democratic underpinning.

It would have been nice to write that the Brussels agreement on the euro, although inadequate as a long-term solution, was giving a few months’ grace for the establishment of a new federal structure for Europe. Instead, Papandreou threw a spanner into the works, turning hope into panic. As we write, the panic seems to have subsided somewhat, as the possibility of his actually winning the referendum emerges. His tactics may be domestically motivated, or an attempt to save his own premiership, but a positive result would give legitimacy to the austerity programme, and leave some semblance of sovereignty for Greece. He is, in a sense, playing high-stakes poker, and realises that he has a strong hand versus his euro zone colleagues, to try and improve the terms of the bailout deal.

 

The referendum will very likely be framed to combine acceptance of the bail-out and its conditions with continued membership of the EMS. The Greek Government will paint a picture of Greece outside the euro zone as being so bleak that the people will reluctantly vote “yes”. It might work, it might not.

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