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Papandreou Seeks Support in Referendum


Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote, raising the prospect of derailing the European bailout effort and pushing Greece into default. Stocks and the euro tumbled.

Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents in his own party. Papandreou’s popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

 

“Papandreou could lose the referendum, which means that new elections would have to be called,” Thomas Costerg, European economist at Standard Chartered Bank in London, said in an e-mail. “Heightened Greek uncertainty could propagate to other fragile euro-area countries, in particular Italy.”

 

The 17-nation euro fell versus the dollar, dropping 0.6 percent to $1.3770 as of 8:49 a.m. in Berlin from yesterday in New York, when it sank 2 percent, the sharpest slide since August 2010. German government bonds opened higher, pushing the yield on the 10-year bund 16 basis points lower to 1.86 percent.

Futures on the Euro Stoxx 500 Index sank 2.9 percent.

 

Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said the referendum call “is material and consequential.”

 

‘Major Political Gamble’

 

“In addition to constituting a major political gamble, the run-up will put the European Central Bank, EU and International Monetary Fund in a tough position regarding disbursements to Greece,” El-Erian said in an e-mail today. He also expressed concern that the European Union deal “appears to be unraveling from many sides.”

Most of the 1,009 people surveyed on Oct. 27, the day the agreement was announced, said the accord should be put to a referendum, according to the results of the Kapa Research SA poll, published in To Vima newspaper. Forty-six percent said they’d oppose the plan at such a referendum. In the same poll, more than seven in 10 favored Greece remaining in the euro.

Papandreou also told lawmakers he’ll seek a vote of confidence in parliament. The referendum will likely be held after details of the EU accord are wound up, Papandreou said.

The vote of confidence will begin tomorrow and conclude late on Nov. 4, according to statements yesterday by House Speaker Filipos Petsalnikos.

‘Democracy is Alive’

 

“For the new agreement, we must go to a referendum for Greeks to decide,” Papandreou told lawmakers of his ruling socialist Pasok party in statements carried live yesterday from Athens on state-run Vouli TV. “Democracy is alive and well and Greeks are being called to rise to a national duty beyond the regular electoral processes.”

EU leaders carved out a second aid package for Greece at a summit in Brussels lasting into the early hours of Oct. 27, after Papandreou scraped together parliamentary approval for the second round of austerity measures in four months. Greece will receive 130 billion euros ($180 billion) in public funds plus a 50 percent writedown on Greek debt, following a fully taxpayer- funded package of 110 billion euros extended in May 2010.

Venizelos’s View

“I can no longer look at polls where the majority is against the agreement, the majority is against the program, but a majority is also in favor of staying in the euro,” Finance Minister Evangelos Venizelos said on Antenna TV after Papandreou announced his decision. A “no” vote at the referendum would lead to “developments” that the government would assess, Venizelos said.

Venizelos was admitted to an Athens hospital with stomach pains early today and is expected to remain in the clinic until later in the day, according to an e-mailed statement from the Athens-based Finance Ministry.

Papandreou, whose term ends in 2013, is seeking renewed support to push through measures including job cuts to turn around an economy that is set to shrink 5.5 percent this year.

The program involves new taxes and cuts in spending to plug the EU’s second-biggest budget gap.

 

The state budget deficit widened to 19.2 billion euros in the January to end-September period from 16.7 billion euros a year earlier, according to an e-mailed statement from the Athens-based Finance Ministry yesterday.

 

Opposition parties repeated their call for elections.

Papandreou’s plans are “reckless” and put Greece’s EU membership at risk, lead opposition New Democracy party spokesman Yiannis Michelakis said.

‘Dangerous’

Papandreou “has tossed Greece’s future in Europe in the air like a coin,” Michelakis said in an e-mailed statement from ND’s Athens offices yesterday. “He is dangerous and must go.

There is a solution: elections now. It’s the safest ‘referendum.’”

Papandreou now has just a three-seat majority in parliament and won approval for his latest austerity package amid protests that left one person dead. The budget measures prompted a near- rebellion in Papandreou’s party and violence in the streets.

The New Democracy party, led by Antonis Samaras, would win 22 percent of the vote in elections, with Papandreou’s Pasok party receiving 14.7 percent, and neither getting enough to form a majority in Parliament, according to the Kapa poll. More than 26 percent of voters said they were undecided on who to back. The margin of error is 3.09 percentage points.

Not Binding

 

Separately, the International Swaps and Derivatives Association said that the euro-area proposals for Greek bonds appear to involve “a voluntary exchange that would not be binding on all holders,” according to an e-mailed statement.

“As such, it does not appear to be likely that the euro zone proposal will trigger payments under existing CDS contracts,” the statement said. “However, whether or not it does so will be decided by the Determinations Committee on the basis of specific facts, if a request is made to them.”

The ISDA statement late yesterday follows a review of whether the proposal would constitute a “credit event” for holders of credit-default swaps linked to the securities.

Source: Bloomberg