Will They or Won't They? (Vote That Is) Greece's Leadership in Disarray

After the much anticipated and twice delayed ‘comprehensive plan’ to fight the European sovereign debt crisis finally came together in Brussels last week, investors probably thought they were done worrying about Europe for a while. Since there was still much work to be done in terms of working out the details of the grand plan, it looked like investors could focus on other things such as the state of the U.S. economy and/or corporate earnings for the next month or so while finance ministers hashed out the details of the EFSF expansion and the Greek debt haircuts.

However, when Greece’s Prime Minister, George Papandreou surprised everyone on Monday – including EU officials and the members of his own party – by announcing that he intended to have Greek citizens vote yea or nay on being bailed out by the EU, investors’ focus was right back to where it’s been for the majority of the year: Greece... and Greece’s debt... and the risk of a disorderly default... and the fear of what that might mean to the global financial system.

The primary focus of stock markets around the world on Tuesday was the issue of the proposed public referendum in Greece. In short, Prime Minister Papandreou decided largely on his own to allow the citizens of his country to decide whether or not they are in favor of the EU bailout plan, including all of the austerity measures. The bottom line is this decision did not sit well with many.

Caught unaware by what was deemed a “high stakes gamble,” the leaders of France and Germany demanded that Papandreou meet them in Cannes on Wednesday for renewed crisis talks. Determined not to let their hard-won deal fall apart, both German Chancellor Angela Merkel and France President Nicolas Sarkozy agreed Tuesday to proceed with the implementation of the EU’s plan as scheduled.

In addition, Reuters reports that six members of Papandreou’s ruling PASOK socialist party called for the Prime Minister to resign on Tuesday. The group said that Papandreou should step aside and make way for a “legitimate” new government.

Another leading member of the party resigned on Tuesday, which meant that Papandreou’s majority in the parliament now stands at just one vote out of three hundred.

Dow Jones reported that a senior party official said Tuesday, "The party is in major turmoil. I can't exclude more desertions today [Tuesday], which will lead to early elections."

On that note, there were also calls for a “snap elections” by the opposing party. Thus, Papandreou’s future as well as his plan for a public referendum is hardly assured.

Doing the political math, the fallout from Papandreou’s unpopular decision means that it may be tough for the Prime Minister to win enough votes to hold a public election. According to Reuters, Papandreou needs 151 votes to enact the referendum (Papandreou’s party controls 152 seats in parliament). Therefore, if any of the dissenters votes against, the vote cannot legally be held.

This led a socialist party official to announce Tuesday that the referendum vote was “basically dead.” The headline created quite a stir in the stock market as the DJIA shot up 160 points in a matter of minutes.

But through it all, Papandreou apparently stood his ground Tuesday. "We believe the government will once again win a vote of confidence in order to proceed with its plans," government spokesman Angelos Tolkas told reporters. "We will not back down on anything we have to do to save the country."

In order to even get the referendum approved, Papandreou must first withstand a confidence vote for his government. Reports indicate that this vote is scheduled for Friday.

Should Papandreou’s government survive Friday’s confidence vote, the public vote on the EU bailout is expected to take place in January.

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