Tuesday, November 1, 2011

November Starts on a Rocky Note

I'm worried about how quickly the apparent Greek debt accord reached just last week in Europe is unraveling.

The decision by Greek Prime Minister Papandreou to put the European Community's plan to a vote in the Greek Parliament illustrates very clearly which country is in control. And, no, it's not Germany - it's Greece.

John Maynard Keynes once famously observed that "If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has."

Greece knows that if it defaults on its debt obligations, and it is forced out of the eurozone, the consequences will be huge for all of the remaining members.

The major euro players are trying to force draconian austerity measures on Greece in return for more financial help. But my suspicion is that Papandreou knew this wouldn't fly in Athens, but went along anyway last week. Some observers noted his almost surreal calm in the midst of the conference; maybe he is a better poker player than the other leaders thought.

German Chancellor Merkel - who expanded so much political capital on last week's agreement - must be hugely frustrated at this point.

My real concern is what happens next. I doubt they will convene another European summit if the Greek parliament does not agree to the terms imposed last week. And the ECB is not the Fed - it can't just print money to intervene in the capital markets.

I am getting the uneasy feeling that we saw this meeting before, in 2008. Could the collapse of MF Global be this year's Lehman Brothers?