Greece bailout placed "on ice"

November 3, 2011

In the middle of the night last week, a reunited Europe announced a Eurozone (countries united under the Euro) debt rescue package that spiked markets and gave the world hope that European banks, the world economy, and even the Eurozone itself might be okay.

According to the Washington Post, “Greek Prime Minister George Papandreou said the expected 50 percent cut in what the country owes to banks and other private lenders had lifted ‘a burden from the past’ and will give his country financial breathing room. French President Nicolas Sarkozy said the program would provide $1.4 trillion to prop up Spanish and Italian bonds, though details on the mechanics of that were scant.”

But as the G20, a meeting of world’s richest 20 nations, begins things look very different. After first announcing the bailout would become subject to a popular vote,  Greek Prime Minister George Papandreou has now backed off his demands. The BBC has even reported that the uproar following the vote announcement will prompt him to offer his resignation today. For now, the Greek bailout is “on ice.” Bloomberg reports:

A second European bailout plan for Greece has been put “on ice” because of uncertainty about the country’s future, said Luxembourg Prime Minister Jean-Claude Juncker.

“We now have to put on ice the solution we formulated” at a Brussels summit of euro-area leaders last week “because we don’t know how things will develop in Greece,” Juncker said on Luxembourg’s Radio 100.7 today. “Greece had the prospect of 8 billion euros which it has now forfeited.”

Putting the bailout up for a popular vote could put the package at risk, leaving a decision in the hands of the Greek people: austerity or leaving the EU.

A “yes” vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.

A “no” vote, however, could bring down the government and cut off international funding for Greece, leaving the country facing a financial meltdown. The government expects to hold the referendum in January.

Some Greek government officials believe a defeat in the referendum could propel their country out of the euro zone. Many European policy makers fear that a messy Greek default could spark a financial-market panic that would particularly affect Italy, a major European economy that’s already struggling to retain investors’ trust.

The decision’s impact on world markets was a bleak reminder that the referendum vote will have a great influence on more than Greek citizens. Many fear a second recession could develop if Greeks are unwilling to accept the terms agreed to by European leaders last week.

The International Monetary Board had agreed to hold the bailout until the referendum was held. Many European leaders fear even an approved referendum will be too late. These issues are certain to overshadow all other negotiations as the G20 begins its meetings.

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