Time's Up: Greece Default Turns Violent

Mike Shedlock
Posted: Jun 16, 2011 12:01 AM

The crisis in Greece took another step forward today as opposition leader have asked Greek Prime Minister George Papandreou to step down.

In response, Papandreou offered to resign. Unfortunately, Papandreou placed strings on the offer.

Party Defections Reduce Papandreou's Majority to 4 Votes

Papandreou's majority in parliament is a mere 4-5 votes out of 300. In recent days members of his socialist PASOK party have defected over austerity measures.

With a slim and potentially vanishing majority, Papandreou is not in a position to be demanding much of anything. Indeed, his offer to resign with strings attached, increases the likelihood he will be forced out with no strings attached.

Please consider Greek Prime Minister Papandreou said to be told by opposition to step down

Greek Prime Minister George Papandreou’s options narrowed as the opposition told him to resign, allies turned against him and police deployed tear gas to break up anti-government protests.

Papandreou, struggling to push through austerity measures demanded by international lenders, was told to step aside and let the president name a so-called technical government to renegotiate the terms of the nation’s rescue package, said an official in the opposition New Democracy Party.

The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation of an impending government shakeup sent Greek bonds plunging and the euro weakening today.

“When a government has so profoundly misjudged the anger, frustration and disillusionment in the population it is a matter of time until changes have to set in,” Jens Bastian, a visiting economist at St. Antony’s College, Oxford University in England, said in an interview. “But before a prime minister resigns, he first looks at his cabinet and considers a reshuffle.”

Papandreou Offers to Resign With Strings Attached

Bloomberg reports 
Papandreou Offers to Quit for Unity Cabinet

Greek Prime Minister George Papandreou offered to step aside to permit the formation of a unity government, as long as all opposition parties agreed to cuts required by an international bailout, said a person with direct knowledge of the matter.

Papandreou’s bid, coming amid mounting popular protests and defections among his allies, countered a demand by the New Democracy opposition party that he quit and allow a so-called technical government renegotiate the terms of the rescue.

Please consider 
Greeks rage on austerity, aid deal seen delayed

Tens of thousands of angry Greeks massed in front of parliament on Wednesday in a sign of rising opposition to austerity and European officials said a new rescue deal for Athens might be delayed until next month.

Rising risks to the Greek budget plans and signs of deep divisions over the role private creditors should play in a new aid package pushed the euro to a two-week low against the dollar and sent bond yields of peripheral euro states spiraling up.

Doubts about the bloc's ability to solve its debt woes also hit European banking stocks.

Greek banks fell by as much as 7 percent on growing political uncertainty and shares in top French banks tumbled after credit ratings agency Moody's said it might downgrade them because of their exposure to Greece's debt-stricken economy.

Figures from the Bank for International Settlements to end-2010 show the exposure of French banks at 56.7 billion euros and those of German banks at roughly 34 billion euros when sovereign, bank and corporate debt holdings are included.

"Even if you look at the best case scenario, where we get parliamentary approval in Greece and the EU agrees a new aid package, you still have big medium-term issues," said Jacques Cailloux, an economist at RBS in London.

On Tuesday, a member of the prime minister's PASOK party defected over the plans, reducing his majority to 155 in the 300-seat parliament. Another party ally has promised to vote against the austerity.

Markets are overwhelmingly skeptical that Greece can ever repay its debt mountain, which has reached 340 billion euros or 150 percent of the country's annual economic output. Many expect a painful debt restructuring in the years ahead, regardless of what governments agree over the coming weeks.

Time's Up

The market has decided that time is up. The ECB's only choice in the matter now (assuming there is a choice at all), is whether a Greek default will be orderly or disorderly.

The longer Trichet plays the fool, the more disorderly the final result.

Amid violence and riots in Greece, it is increasingly clear Greek Prime Minister George Papandreou's days are numbered. Talk of containment is nonsensical.

Max Keiser is in Greece with excellent footage of 
Greek Rioting in Syntagma Square.

According to our hotel managers (all wearing gas masks) the government is jamming communications in the Square so we had to come to a friend’s apartment 10 minutes away to upload.

See link for more images.

Papandreou to Reshuffle the Deck

When all else fails, leaders inevitably propose reshuffling the deck. In this case it did not take long. After coalition talks with the opposition failed, Yahoo Finance reported 
Greek prime minister to reshuffle Cabinet
Greece's prime minister, struggling to ensure Parliamentary approval for a crucial austerity bill, said Wednesday he would reshuffle his Cabinet and seek a vote of confidence for his new government this week.

Papandreou's announcement came after hours of negotiations on a day when central Athens was rocked once more by anti-austerity riots and the debt-ridden country came under massive pressure from markets.

"Tomorrow I will form a new government and immediately afterwards I will ask for a vote of confidence from Parliament," the prime minister said, adding that "The country is facing critical times."

Wednesday's talks "reached the point that there should be a government of national unity and that Mr. Papandreou should not remain prime minister, because he symbolizes the failure of the last 18 months," senior conservative party official Panos Panagiotopoulos said on Mega TV.
Reshuffling Deck Cannot Possibly Help

I have seen the deck and reshuffling cannot possibly help.

26 cards say "Papandreou is Out". Another 26 cards say "Greece will Default". Two Jokers picture ECB president Jean-Claude Trichet as the court jester. The caption on those cards says "Stubborn Fool".

Irony of the Day

The irony of the day comes from ECB Vice President Vitor Constancio who said “Some sort of Vienna style initiative could be conceived. It’s not for us to provide solutions.”

Indeed, it is not for the ECB to provide solutions. Yet, that is exactly what the ECB tried to do when Trichet foolishly stuffed the ECB balance sheet with Greek and Irish debt.

Greek Recap

Mike "Mish" Shedlock

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