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This seems like a brilliant political maneuver by the Greek Prime Minister Papandreou: the announcement of a referendum shuffled all the cards in Greece, and Papandreou may not only avoid quitting, but also emerge as the winner.

This is the chain of events and a possible outcome:

  1. Papandreou was under pressure from the people, the opposition party and from his own party.
  2. He calls a referendum to get the people’s support.
  3. This exposes weaker members of his party who want to jump ship.
  4. It also triggers European leaders to reject this move.
  5. With international pressure and chances rising of an election and a government led by the opposition, the opposition led by Samaras changes its mind and now supports the government’s policies so far.
  6. Papandreou now set to talk with the opposition from a better point.
  7. Political pressure now rests on the shoulders of the finance minister and other ruling party dissenters which have been exposed.

Papandreou now has:

  • Support of the people for wanting a referendum.
  • Support of the people for standing up against Europe.
  • A notion that nothing will change if the opposition takes control.
  • Embarrassed opposition.
  • Embarrassed  political opponents.
  • Bondholders that fear that things could worsen.

This seems brilliant and Papandreou may enjoy a quiet political scene for a change. For markets it means extreme volatility.

In currency markets, every piece of news concerning the referendum rocks the markets, but major support ant resistance lines are untouched. See more in the euro dollar forecast.

For more on the political situation in Greece, this article by Matina Stevis is a very interesting read and sheds a lot of light on the situation.