3 Nov 2011

Greece Must Decide- NOW!

German Chancellor Angela Merkel and French President Nicholas Sarkozy's message to Greece - be rescued, or resign from the European Union - makes explicit the choice Greece must make.
But it is unlikely to prevent that choice actually being made on December 4, the date Greek Prime Minister George Papandreou has set for a referendum on the second bailout plan for Greece that was negotiated in marathon talks between European leaders and bankers last week.
We all should have realised last week that the hammering out of a second, deeper debt recapitalisation for Greece was only half the bargain. The recap comes with even tighter controls on what Greece spends, and how much it raises in taxes. It demands, in effect, a tightening of a fiscal squeeze that is crushing the Greek economy.
There are many on the streets of Greece that think that the EU "rescue" will kill Greece, not save it.
Which brings us to the undeniable logic of what Papandreou did on Monday when he announced that Greece would hold a referendum on the new EU bailout.
The consent of the people of Greece, the birthplace of democracy, was always going to be required. And it is not assured: There is anger about the austerity programme that is accompanying the European bailouts. But a clear majority of Greeks when asked also say they wish to remain in the EU.
Papandreou will test that paradox now with the referendum. It will be nominally a vote on whether to accept the latest rescue package, but actually, as Merkel and Sarkozy have made clear, a referendum on whether Greece wants to remain in the EU, or secede, recreate the drachma, and go it alone.
The common sense decision would be to stay in the EU, and stay the course. If Greece leaves, its currency will be trashed, and its banks will collapse. It will need to go through a traumatic bankruptcy that massively devalues savings and asset values before it begins the slow climb back. The EU alternative is also very painful, but less severe.
But Greece absolutely must answer the question that its Prime Minister is asking. An EU deal with Papandreou is worthless if the PM does not have the country behind him. It would probably lead to him losing government, and, the new government would almost certainly repudiate the recapitalisation agreement that last week was being described as a breakthrough, for Greece, for Europe and the world.
All of Greece must decide, quickly, whether to stay in, or stay out. The markets should have known this last week. They do now.

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