Early elections in Greece would be the “least disruptive option” for financial markets as they would likely result in a referendum on the country’s bailout being discarded, said Fathom Financial Consulting.
Greek Prime Minister George Papandreou’s grip on power weakened before a confidence vote on Nov. 4 as his decision to call a public vote on a new rescue package provoked a lawmaker rebellion. If he fails to win, elections would be held within two months, Yiannis Koutelidakis, an economist at the London based economics consultancy, said in an e-mailed note today.
While that would leave “enough time to severely disrupt” the bailout pact and financial markets, “it would probably see the referendum put on hold and eventually discarded, making it the least disruptive option at this juncture,” Koutelidakis said. If Papandreou’s party wins this week’s vote, the referendum would go ahead, according to the note.
Reasons to hold the referendum include forcing the hand of the opposition, who are critical of Papandreou’s policies, as well as a possible effort by the prime minister to pressure euro-area neighbors into relaxing the terms on a second bailout, Koutelidakis said.
If the referendum resulted in rejection of the current rescue pact, “the risk of Greece being expelled” from the euro area “increases dramatically,” with a “catastrophic” impact for the nation, he said.