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Greece’s Choice: In or Out of the Eurozone

German Chancellor Angela Merkel has hard questions about the pending Greek referendum on bailout loans and austerity measures

As Greek Prime Minister George Papandreou was being cross-examined by European leaders on his stunning call for a referendum in his country on international bailout loans and the austerity measures he imposed as a condition, German and French officials said it could lead to Greece having to decide whether it wants to keep the euro or return to the drachma.
French President Nicolas Sarkozy and German Chancellor Angela Merkel pressed Papandreou hard on a decision they said caught even them by surprise, barely a week after they helped push through support for a $178 bailout to save the Greek economy. Before a G20 summit in Cannes, France, they pushed for quick implementation of more pay cuts, tax hikes, slashed pensions and layoffs to stave off bankruptcy and default. The new loan follows a first for $157 billion that backfired and created a deep recession, what critics said just piled debt on debt and will also fail, and requires bankers and investors to take a 50 percent hit on returns.
French Prime Minister Francois Fillon told his Parliament that Papandreou has to speed the timetable and that it was untenable to put off action until the referendum, which might not take place until January. “Europe cannot be waiting for weeks for the outcome of the referendum,” he said. “The Greeks must say quickly and without ambiguity whether they choose to keep their place in the Eurozone or not,” he said, referring to the union of 17 countries that use the euro as a currency. European leaders said Greece lied about its economic statistics 10 years ago to enter the Eurozone and continued to do so since then.
While Papandreou’s plans have raised a ruckus even in his own PASOK Socialist party, rival major opposition Conservative New Democracy party leader Antonis Samaras accused him of wanting to conduct a “blackmail referendum” in which Greeks would be forced to either accept the austerity measures to keep getting loans, or not be paid unless they endorse the pay cuts, tax hikes, slashed pensions and layoffs he imposed on orders of the Troika of the European Union-International Monetary Fund-European Central Bank lending Greece the money to stay alive.
Merkel showed her exasperation at the idea of a referendum that was announced without notifying her or Sarkozy. “We agreed on a plan for Greece last week. We want to put this plan into practice, but for this we need clarity,” she said at a news conference before heading to the summit. Germany’s Finance Minister even suggested that an $11 billion loan installment as part of the first bailout, scheduled to be sent this month, could be withheld until after the referendum, showing the impatience and fears EU leaders have they may be throwing bad money after good.
Papandreou’s referendum panicked markets and sent stocks plunging and EU leaders are anxious to restore calm but there will be weeks of uncertainty until Greeks decide. Six Socialist Members of Parliament asked for Papandreou to resign, but his Cabinet, as expected, supported the move despite some signs of uneasiness. “The referendum will be a clear mandate and a clear message inside and outside Greece on our European course and participation in the euro,” Papandreou told a cabinet meeting that lasted seven hours. He still faces a vote of confidence in Parliament on Nov. 4.
European Commission President Jose Manuel Barroso told Greeks to support the referendum because they had no real choice. “Without the agreement of Greece to the EU/IMF program, the conditions for Greek citizens would become much more painful, in particular for the most vulnerable. The consequences would be impossible to foresee,” he said. If the referendum is defeated, Greece faces a disorderly default that threatens banks in the country and throughout Europe who have put their money into the country.
There was anger elsewhere. Austria’s biggest newspaper Kronen Zeitung, blared a headline: “That’s enough: Greeks out!” Eurozone chief Jean-Claude Juncker said Greece would go bankrupt if the referendum is defeated, giving Greeks the uneasy choice of supporting the austerity measures they have demonstrated and rioted against. Greek government spokesman Ilias Mosialos said the referendum would take place “as soon as possible, right after the basics of the bailout deal are formulated.” The Greek press, including dailies traditionally friendly to the government, almost unanimously condemned Papandreou. Ethnos, a pro-government paper, called the referendum “suicidal.”
(Sources: Reuters, The Financial Times)

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