Markets were roiled last week by the possibility that democracy would break out in Greece – of all places – when George Papandreou floated the idea of holding a referendum on the EU bailout plan. Stocks sold off hard Monday and Tuesday but by the end of the week Papandreou had given up his ridiculous notion of allowing actual citizens to vote on matters of national importance and markets breathed a sigh of relief. It appears as I write this that a new government will be formed in Greece and elections put off until after the EU’s plan has been put into effect.
Now that Panadreou’s scalp has been claimed, next on the bond vigilantes hit list is Italy’s cad of a Prime Minister Berlusconi. Italy’s bond yields have been rising recently and Berlusconi faces a vote tomorrow that he seems likely to lose with elections soon to follow. With the IMF already on the scene to oversee austerity efforts, more serious reform may be on the way in Italy but it will take time to work out the details. Fortunately, the new head of the ECB, Mario Draghi, hails from Rome and seems likely to keep Italy afloat until a budget can be worked out.
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