Chicken time

3 November 2011 By Hugo Dixon Follow @hugodixon

Merkel and Sarkozy have threatened to cut Greece loose if it doesn’t back the latest bailout plan. But Europe isn’t prepared to handle the backlash. With barely a month to get its act together and a history of dysfunctional decision-making, there’s a big risk of a mega crash.

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Euro zone leaders decided on Nov. 2 to defer payment of Greece’s next tranche of bailout money of 8 billion euros. At a meeting prior to the G20 summit in Cannes, French President Nicolas Sarkozy and German Chancellor Angela Merkel told Greek Prime Minister George Papandreou that his country will not receive further financial aid until it votes on its commitments to the euro zone.
The chairman of euro zone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said that policymakers were working on possible scenarios for a Greek exit, while other euro zone leaders stressed that their priority was saving the euro and not rescuing the Greeks.
Papandreou called an emergency cabinet meeting at 1000 GMT on Nov. 3, in a scramble to avoid the collapse of his government before a vote of confidence, expected to take place in the Greek Parliament at around 2200 GMT on Nov. 4.
In Athens, both the Greek Finance Minister Evangelos Venizelos and his deputy Pantelis Oikonomou rejected the ultimatum handed to Greece, joining several other members of the ruling Panhellenic Socialist Movement (PASOK) who have spoken out against their Prime Minister since he announced his plan to hold a referendum on the country’s most recent bailout package.
PASOK member of parliament Milena Apostolaki resigned from the party while another representative, Eva Kaili, has said that she will not support the government in the confidence vote, leaving Papandreou with a majority of one. At least seven other party rebels have spoken out demanding that their party leader step down.
Italian 10-year bond yields jumped to a high of 6.42 percent early on Nov. 3, from 6.25 percent when the markets opened, as fears of contagion sank deeper.
(Research by Christine Murray)

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