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Europe Stunned as Greece Calls For Referendum

UPDATE:  Amid charges from the political opposition of being a liar and blackmailer, PM Popandreou called off the Greek referendum on the EU bail out of Greece.  The Free Democracy Party leader Antonis Samaras backed the plan.  Although he denied an interest, observers say Popandreou may try to establish a unity governmment if he passes a ‘no confidence’ vote in Parliament Friday.

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Financial markets and those who run them are on fire today regarding Greek PM Popandreou’s decision to hold a referendum on whether Greece should accept Europe’s bail-out proposal, including dramatic austerity measures.

The call for a referendum, particularly if presented as a question of euro or no euro, is a risky bet. Should the referendum fail, Greece would come unmoored from the euro zone and likely default on its €350 billion ($480 billion) of debt—sending a giant shock wave that could test the resilience of other weakened euro-zone countries. But should it succeed, the Greek government would have a strong mandate to push through austerity measures and proceed with the European Union’s plan.  – Wall Street Journal

Greek citizens have been demonstrating and rioting against the EU austerity plan of spending cuts and tax increases.  The crisis could reach a new level if the PM loses a vote of confidence Friday and has to dissolve his government.

Analysts say the referendum idea was a Hail Mary pass by the increasingly isolated premier, aimed at gaining a popular mandate for his overhauls of the Greek state and economy and putting opponents on the spot.

Meanwhile, Germany, providing the lion’s share of bail-out funds,  refuses to put any more money into the pot for Greece and wants to see the political crisis is under control before the next quarterly payment to Greece from the European Financial Stabilization Facility.

Money is being supplied by the EU and the IMF under a €110 billion program agreed to last year. That aid is distributed in quarterly tranches, and the next tranche was expected to be paid imminently. But that was before the referendum call, and it is now clear that aid is contingent on resolving the political crisis.

Failure to make the next aid payment, valued at some €8 billion, would likely mean the country running out of money in December, officials said, potentially causing an unplanned default on bonds that come due that month.

A spokesman for the German Finance Ministry said Greece doesn’t need urgent bailout payments now and won’t require the next chunk of aid until mid-December.

Well, at least this is a better way for Europe to solve its problems than WW1 or WW2.

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