New York Times
November 1, 2011
Sovereign debt is debt of the sovereign — and this sovereign can simply decide not to pay.
This was the key message when the Greek prime minister announced that the country would hold a referendum on the most recent rescue package agreed at the European Council of last week. Investors in euro zone bonds have now been put on notice that when the going gets tough, the real sovereign — “we the people” — might be asked whether they would like to pay, and are likely to say no. Greece might simply be the first to take this approach; nobody can guarantee at this point whether Portugal or Italy might be next. The result is predictable: a soaring risk premium for any debt from such periphery nations.
This decision to invoke a referendum could thus mean the beginning of the end game for the euro.
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