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May 20, 2012

Referendum coming on whether Greece stays in the eurozone

Remember when Papandreou wanted a referendum vote on the austerity program, and the leadership throughout Europe (and much of Greece) hated the idea? It would have been smarter to take care of the matter a year ago under Papandreou than the half-crazed situation of today, because it is coming whether anyone wants it or not.

With the coming vote, questions abound: will Tsipras have an edge that will result in Syriza having a solid majority? Does that mean an almost certain ejection from the euro, since he is declaring he would tear up the austerity treaties? Tsipras is apparently betting the EU wouldn't dare eject Greece, but there are not that many experts who agree with him, though there are some who see it as the only way for the EU to control any part of what could happen next, which is a spread of default into Spain and even Italy. Are German citizens and leadership willing to finance Greece indefinitely?

There is no actual legal mechanism for removing a member state from the EU, but simply stopping all Greek access to the European Central Bank would effectively mean the end. Already many Greek banks have been cut off during the recent scramble of bank runs which has seen Greeks withdrawing over €1 Billion euros from accounts, preparing for .... what?

Could Greece go the way of the Argentina model... or Cuba?

If the Drachma returns (and as has been pointed out, the only currency-printing presses in Greece are in museums) there will be an instant slide of devaluation. What would a Drachma be worth, if you can even get any? It is predicted the Greek banks would be immediately nationalized and would issue Coupons against future currency. The question becomes whether Greece could go the way of Argentina and it's 1999-2002 default, or the way of Cuba, which means a complete slide into third world pauperization and centralization of whatever powers are left. Since Greece imports nearly all its medicine, oil, natural gas, and 40% of it's food, the devaluation would equal a skyrocketing price for essential items, and the black market and bartering could become the "real" economy while the official one limps along.

New Democracy and PASOK are hoping Greeks will look over the edge into an abyss and will pull back to the austerity program both parties have bet the future of the country on.

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