At the beginning of the week, participants in the G-20 meeting in Cannes were still thinking that their sojourn in the ritzy town on the Côte d’Azur would be a relaxed affair of photo ops, handshakes (air kisses between Merkel and Sarkozy), and fancy dinners, interrupted by rubber stamping the previously negotiated Grand Plan of bailing out Greece, bondholders, and banks. And in between, they’d put Italy back on some kind of unspecified track.
Then, on Wednesday, Giorgios Papandreou, prime minister of Greece, who isn’t even in the G-20, fired his bazooka: with a sentence about a referendum at home, he single-handedly knocked the world’s financial markets into a vertigo-inducing tailspin.
“I want more,” he said in between the lines, “and if I don’t get more, just watch what will happen to the financial markets and even to the world economy, including China and the US, if I say a whole paragraph.”
Partiers were stunned. Their beautifully constructed Grand Plan was scattered in little shards on the Greek marble floor. The Euro plummeted. Stocks tanked. Italian and French yields spiked. Things got ugly. Suddenly, it seemed that Cannes would go down in history as the place where the Euro came unglued. And a new word was coined: papandemonium.
Whatever chaos this caused in the Greek political scene, it did accomplish exactly what Papandreou wanted: total worldwide attention refocused on him.
To get him to back off, German chancellor, Angela Merkel, and French President, Nicolas Sarkozy summoned Papandreou to … a finely crafted multi-course French dinner. Afterwards, a dour-faced Merkel and a grimacing Sarkozy stepped up to the podium and officially gave Greece a Bushian choice: either you’re with us, or you’re against us.
Well, being Europeans, they were more nuanced.
Merkel, by now the unquestioned boss in the house of Europe, was the first to speak. The referendum has reintroduced fear into the markets, she said, but we’re steeled against any contagion, and our defenses are in place.
“We want Greece to stay in the eurozone, but“—the word elicited gasps—“there is this one-sided decision by Greece, and that has changed the situation.” She went on to dictate the questions Greece should put on the referendum—stay in or exit the Eurozone—and the timing—have it wrapped up by early December. Of course, the sixth bailout installment would be put on hold until Greece accepts all previously negotiated provisions. Period.
Then Sarkozy spoke, and his love-us-or-leave-us speech mirrored Merkel’s. Not a cent of the agreed upon sixth installment would be made unless Greece fully accepts the conditions of the bailout package.
“Now the Greeks have to decide if they want to continue in this adventure with us or not.” Unlike Merkel, he didn’t say that France was “steeled” against Greece’s exit from the Eurozone, given the state of France’s tottering mega-banks and its shaky triple-A rating. Six months before an election that is getting increasingly difficult for him, he fretted that an unraveling of Greece would trigger a downdraft in the French economy, an uptick in unemployment, and a further collapse of the French stock market—the CAC 40 is already down 53% from its March 2000 high and hovers at levels first seen in July 1997.
They’d responded to Papandreou’s shot from the bazooka with a barrage from their howitzers. And the officially unspeakable idea of Greece’s exit from the Eurozone had coagulated into French and German words.
Papandreou’s party rebelled. Parliamentary chaos ensued. He backed off the referendum. A caretaker government was being discussed. A vote of confidence would be held.
Greece, which for a decade rode the euro-debt gravy train to wealth and sent huge profits north to German exporters, has been tearing itself apart over the social costs of returning to a life within its means. Its political system is a corrupt vote-buying machine. The tax system encourages fraud. The state-dominated economy isn’t competitive. And whenever there’s a problem, there’s a strike. What they absolutely must have to solve all these problems is more money.
“€80 billion by the end of February,” announced the Greek finance minister Evangelos Venizelos in a statement yesterday. Turns out, before the dust has even settled on the papandemonium, the Greeks are back in Brussels negotiating with the Eurozone (Figaro, article in French).
Based on the framework agreed upon on 27 October in Brussels, the amount includes the guarantees made to Greek banks in exchange for their accepting a 50% haircut on their holdings of Greek public debt and the amounts needed to recapitalize them. It would “save the Greek economy,” the ministerial statement said.
Greece would “offer the necessary political guarantees” during the meeting of the Eurogroup in Brussels on Monday “for the timely transfer of the sixth installment of €8 billion.” The very installment that Merkel and Sarkozy vowed not to pay a cent of. Alas, if Greece doesn’t receive this money by 15 December, it will go bankrupt, Venizelos explained, thus pushing the extortion racket up to the next level. And Papandreou won the vote of confidence.