Greek Referendum on Reforms? Another Complication in the Crisis

Greece’s Prime Minister, George Papandreou, announced in the Greek  parliament  that he will hold a referendum about the structural reforms during the autumn. This promise of a referendum goes to appease the discontent about the austerity measures and exposes the weakness of the Greek government. The EU and IMF may ignore the fact that Greece didn’t fulfill its obligations and still transfer the money of the current tranche. But will there be someone in Greece to receive it?

The announcement was made on a special session of the parliament on Sunday, in which Papandreou  presented his new cabinet. His newly appointed finance minister,  Evangelos Venizelos, is already in Luxembourg, attending a special meeting of the European finance ministers that discusses the Greek crisis.

According to Spain’s ElEconomista, Papandreou  wishes to reach a political consensus. He also called opposition parties to participate in a government, but they refused. Some of the members of his ruling Pasok party already quit, and his government is expected to pass the vote of confidence on Tuesday with a very narrow majority.

There was some talk of a referendum a few weeks ago, but this was dismissed very fast. But now, this official announcement is already more important and it shows two things:

• Papandreou  isn’t certain that he’ll pass the vote of confidence on Tuesday: Demonstrations don’t stop in Athens and this has an impact on some members of parliament. This move shows his uncertainty.
• A referendum will delay the next tranche: It seems that the European Union and the IMF will ignore the failure of Greece to meet the conditions of the bailout plan, and that they will approve the next tranche scheduled for the end of June. This will be “kicking the can down the road” until September. If the referendum is on the required reforms, this will delay the next tranche. The current political atmosphere isn’t likely to change, and the referendum will probably result in a NO answer.

This isn’t good news for the euro. For more on EUR/USD, including technical analysis, see the euro to dollar forecast.