Thinking more about the Greek situation last evening, I realised there was one thing I hadn’t said — and which is picked up today by the news reports.

Papandreou clearly knows that in order to make the rescue deal work he has to take the Greek people with him. But that ain’t about to happen just because he (or anyone else) dictates the deal. So they have to agree voluntarily and than means getting them to vote in favour of the deal. Hence he has to hold a referendum — however much is pisses off Merkel and Sarkozy. Fortunately the Greek Cabinet seem to have got the message.

I don’t normally blog about politics, economics, etc. but I’m amused that the Greeks are playing chicken with the world monetary system and planning to hold a referendum on whether to accept the deal brokered last week by Germany and France.

From Papandreou’s point of view I guess he figures he has little to lose as outlined by Robert Peston on BBC News. Whatever he does he knows Greece will be a pariah. And by holding a referendum, what ever the outcome is, it won’t be Papandreou’s fault — the people not the government will have made the decision.

So what are the possible outcomes. Not good whatever the Greeks decide.

Greek parliament …
It seems to me that in calling a referendum Papandreou is hoping it will stimulate a paradigm shift in the brains of his party members opposing the deal. But news reports seem to indicate this is unlikely and that there will be fierce parliamentary opposition to a referendum. If parliament reject a referendum (or indeed the deal) then the Greek government falls. That might be as catastrophic as the Greek people rejecting the deal, and will be further uncertainty which will force the markets even further downwards (they are falling already).

If the Greek people accept the deal …
Well they may as well be turkeys voting for Christmas as all they’ll get is austerity and yet more austerity.
But the Euro and the banks get a reprieve for a year or so until the next round of threatened defaults by one of the bankrupt Euro-zone countries. Oh that’s all of them then!

If the Greeks reject the deal …
Greece has little choice but to default on it’s debts.
While this will save the Greek government the repayments, it ain’t going to do much ‘cos they’ll still have no money and not be able to borrow any. So the people will still get austerity.
And once Greece defaults there will be a domino effect. Italy, Spain and Ireland will likely follow suit.
Which means France will lose it’s AAA credit rating and Germany will ultimately end up picking up the tab for the whole of Europe.
That in turn will likely bring down the Euro, a number of world banks and possibly even the EU.
Which is going to be messy because the world leaders — and especially France, Germany and the USA (whose banks are also hock deep in all this) — can’t afford to let this happen.

So from a Greek perspective it looks like a “heads we lose, tails we don’t win” scenario; either way the Greek people lose.
And from everyone else’s point of view it’s “heads we can’t win, tails we lose everything”; the best that happens is the next banking crisis is postponed by a few months.

And whatever the Greeks now do, they manage to piss off Merkel and Sarkozy big time — even bigger time than they have already. The meeting between Papandreou, Merkel and Sarkozy scheduled for later this week could be fiery, to say the least.

Plus Greece is on the slippery slope to becoming a third world country.

Interesting times we live in, innit?!