After the EU seemingly locked up a new Greek bailout and other areas of concern last week, Greek Prime Minister George Papandreou shocked the EU and even some party loyalists with the announcement Tuesday that the latest bailout would be put to Greek voters, notably angry ones seemingly uninterested in more austerity demands. If they reject the EU’s bailout plan, which appeared all but finalized with the support of much of the union if not the world, the debt-hobbled nation would almost certainly careen into default.
A trio of economists reacted in the following ways when polled by NACM in the hours after the announcement that the matter would be put up for a referendum in Greece:
“I think the announcement just adds so much uncertainty into the financial market,” Chmura Economists & Analytics Economist Xiaobing Shuai told NACM. “The U.S. economy may be in a better position than European economy, but we don’t know the exposure of large U.S. banks and other financial institutions to Greek debt, and other euro debt. That is the key in deciding how big the impact is to global economy. In short, a more likely Greek default is a bad development.”
“The Greek announcement will make it increasingly difficult for France and Germany to get investors to put their money into the EFSF,” said Moody's Analytics Economist Enam Ahmed. “At best the Greek's have delayed the implementation of firewalls. With the euro zone also showing recessionary signs, this is very much unwelcomed. At worse, this is a game-changer, and we enter a new danger level in the debt crisis which has the potential to trigger another deep and prolonged recession in the region.”
“There is no way to go back to the euro as we’ve known it for the past decade. Either the euro breaks up or tightens up; And neither is politically popular," said Ken Goldstein, of the Conference Board.
"The referendum will allow the prime minister to go to the Europeans and demand far more than has been on offer, but there is nothing to suggest that euro zone officials will have any more desire to give than they do now," said NACM Economist Chris Kuehl. "The markets are assuming that Greek default is more likely and inevitable than ever."
Editor's Note: More in Thursday's eNews coverage of this developing story.
Brian Shappell, NACM staff writer