Is the Storm About to Break?

The European flag, next to Greece. The Parthenon in the distance. Storm clouds overhead. A mysteriously powerful image.

Greek Prime Minister Papandreou has said Greece will have a referendum, probably in mid-December, asking the Greek people "Do we want to be part of the European Union or not?" European leaders are angry. As this is written, the Prime Minister is having dinner and being grilled by Merkel, Sarkozy and the Troika (EC, IMF, ECB). They reportedly will tell the Greek leader that he will not get his next 8 Billion euro bailout tranche, if he proceeds with the referendum. And if there is no second tranche, Greece will default in mid-December - or so we are told. Will Papandreou cave in? Will some compromise emerge? It's not yet remotely clear.

My wild guess: Papandreou will hold firm. The referendum will be moved to early December. And the Teutonic Lords of the Eurozone will commit to sending the money as soon as a Yes vote is clear. So if the Greek vote is Yes - no default, at least not immediately. If Greece says No, hard default, and a wild December market ride.

Will Greeks vote Yes? About 70% of the country supports the EU. A similar percentage opposes the austerity deal. Phrasing the referendum question around staying part of Europe is smart. It might pass. But it is not a slam dunk.

Markets moved up today, both in Europe and the US, buoyed, in part, by the modest increase in US private employment. But Italian debt is still soft, with 10 year yields above the 6% break point, and the ECB is having to buy aggressively just to keep a semblance of good Italian bond pricing, to the unhappiness of the Germans. Today the European Financial Stability Facility canceled a 3 billion Euro bond sale for lack of interest, and the EFSF its theoretically a AAA credit. None of this bodes well for the Euro.

My real takeout: Papandreou should tell the Overlords to shove it, that he will abide by his people's decision, that it is high time that they were given a chance to weigh in, and that he will do whatever he can to support Greece, if they decide democratically to leave the Euro. Too much abusive behavior and treatment by Sarkozy and Merkel, and their iron-fisted approach really does not offer a clear path to a bright future for Greece.