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In the latest move in what is increasingly looking like a bedroom farce, the Greek cabinet has unanimously supported PM George Papandreou's plan to hold a referendum on accepting the measures needed to keep going with its EU bailout hopes. And it could happen as soon as December.
The decision has shocked other EU leaders, for obvious reasons. Does anyone really think the people of the country that pioneered democracy are going to respond with an enthusiastic "Yes please, we'd like to suffer the pain of further austerity"?
No, to many, holding such a referendum would be tantamount to Greece just defaulting on its debts and pulling out of the euro -- though an increasing number of commentators expect that to happen anyway.
Write-offs and cutbacks
Some debt default is unavoidable, with the latest EU deal reached at last week's summit offering a further bail-out loan of 100 billion euros and a 50% write-off of debts -- something that many lenders, fearful of losing the lot, have eagerly supported.
But to get that, Greece would have to cut its public sector pensions, wages, and workforce back to what its economy can actually afford. An obviously necessary plan, many would opine, pointing to the cushy number that many civil servants enjoy with early retirement and some of the most generous pensions in Europe -- and part of what got Greece into the mess in the first place.
Whether those cuts are made now as part of the bailout package, or later by a Greece that is on its own and bankrupt, they simply will have to happen. But such reasoning seems unlikely to sway the protestors, and there appears to be a very strong "Blame the EU" groundswell -- just as there is here in the U.K., though thankfully our politicians are far too sensible to turn to referenda at times like these.
The doom and gloom scenario
What will happen if Greece should thumb its nose at its would-be rescuers? Well, Brian Stoffel over at Fool.com has summed up the worst fears quite nicely.
In short, we could lurch back into a further banking crisis, triggering another stock market collapse. With Greece gone, attention would be turned to the dreadful state of the economies of Portugal, Spain, Ireland, and even Italy, which have only been able to keep their heads down because in Greece, there was a much worse case for people to point their fingers at. And that would pretty much be the end of the eurozone as we know it.
Of course, we really have no idea whether the proposed Greek referendum will actually happen. For one thing, Papandreou faces a confidence vote on Friday, and with the government having a majority of only two and many calling on him to resign, he might be out on his ear long before December arrives.
And EU leaders, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, are, even as I write, reported to be engaged in frantic attempts to get Papandreou back to the table to try to talk some sense into him.
Back from the brink?
The leaders of the EU's two strongest economies reckon that the current bailout plan will help Greece get back on its feet in the long term, even if there is short-term pain. And while there are many who don't share that optimism, Greece's rejection of the plan and inevitable eurozone exit would inflict a grievous injury on the eurozone, possibly a fatal one.
There seem to be a number of possible short-term outcomes...
Sarkozy andMerkel manage to pull it back from the brink.
Papandreou loses the confidence vote and a snap election is called.
He wins, and goes ahead with the referendum.
The referendum endorses the bailout conditions.
The referendum rejects the bailout conditions.
The referendum question is fudged.
Brian Rix runs on and drops his trousers.
Whatever happens, things seem set to stumble on for some time yet, and we should be seeing continuing stock market turmoil amid the political and economic uncertainty.
Got any thoughts? Please do share them, below.
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