Last week the ECB’s Bazooka deal seems to gotten the financial market upbeat.
Yesterday, positive sentiments suddenly evaporated on the bizarre twist of events unraveling in Greece.
Greek Prime Minister George Papandreou unexpectedly called for a referendum on the Euro bailout measures that heightened the risks of a default. A default could trigger a derivatives meltdown, as well as, jeopardize the recent agreement.
This from Bloomberg,
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.”…
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.
The deteriorating political events has even led to an abrupt reshuffling of their key military officers.
From the Telegraph,
In a surprise development, Panos Beglitis, Defence Minister, a close confidante of Mr Papandreou, summoned the chiefs of the army, navy and air-force and announced that they were being replaced by other senior officers.
Neither the minister nor any government spokesman offered an explanation for the sudden, sweeping changes, which were scheduled to be considered on November 7 as part of a regular annual review of military leadership retirements and promotions. Usually the annual changes do not affect the entire leadership.
To my perspective, the Greek political drama (or tragedy) has now diffused to the military hierarchy which implies of increased risks of a mutiny or a coup d'état.
Additionally, Papandreou’s grip over the Greek government appears to be crumbling
According to the Business Insider,
Meanwhile, turmoil seethes within Papandreou's ruling PASOK party. One PASOK MP has already resigned over the referendum decision and six more have called for Papandreou's resignation, according to eKathermirini.
The opposition has even stepped up calls for a snap election instead of a referendum where the referendum “was putting Greece's EU membership at risk”.
Again, political events in the Eurozone has been unfolding real fast. Uncertainty clouds the marketplace.
