Greek Referendum

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The situation in Europe just keeps getting worse. The Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October fell to 47.1 down from 48.5 in September. A number below 50 suggests the sector is contracting, the pace of which is picking up.

The prospect of an economic slowdown in Europe has grave ramifications. Slowing economic growth hits tax revenues badly and pushes up debt-to-GDP ratios. This in turn puts pressure on sovereign credit ratings. The market is most concerned about France losing its AAA status. A downgrade of French debt would pose another blow to the French banking sector, which holds a sizable portion of the debt.

And following on from Greece’s decision to ask her people what they think about the whole thing, the European Financial Stability Facility (EFSF) had to pull a measly €3 billion bond auction due to lack of demand. So much for the bazooka.

Whether the Greek referendum (now slated for 4 December) will go ahead is uncertain. However we’re still trying to work out why the Greek PM called one in the first place.

Referendums should only be called very rarely. Governments are elected to govern and lead and should not throw hard decisions back to the people when things get tough. But in this situation, with the Greek people being asked to endure another decade of hardship, it makes sense to consult the people.

Is Papandreou scared he might get taken out if he accepts the terms of the bailout in the face of widespread public opposition? Is he therefore trying to push the responsibility of the decision back on the Greek people and potentially wriggle out of the obligations agreed with his masters – Merkel and Sarkozy?

Who knows? What we do know is that the eurocrats are not at all happy. Now they’re telling the Greeks to stick to the rules (designed by them) or leave the eurozone. If the referendum does go ahead, expect a campaign selling apocalypse to the Greek people if they vote no.

In the meantime, expect uncertainty and more volatility. As Murray Dawes says in his just released YouTube Stock Market Update, ‘everything is now set up perfectly to see the markets fall over in the near future’.

Here we go again.

Greg Canavan
for The Daily Reckoning Australia

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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4 Comments on "Greek Referendum"

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masalai
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This “holding my breath” as got to stop soon… Time to let it all fall where it may DOWN…

Ray
Guest

I dont agree that referendums should only be held rarely. Modern technology makes it possible and what better way is there to fight rampant fascism in the ‘free world’

Joe
Guest

Clearly the fact that Turkeys will ‘not’ vote for Christmas, the plans for the referendum have been canned (with a little assistance from Sarkozy and Merkel).

shortchanged
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Let the people have a say in running the country, Ray, what a quaint idea. They will want their vote to mean something next. As Sir Humphrey would say, “very courageous minister”

wpDiscuz
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