Krugman Warns Of “Gigantic Bank Run”, “Emergency Bank Closing” And “New Lira”
Gold is higher in most major currencies but especially the US dollar this morning. Although gold has lost some of its early gains in Europe as the euro and equity indices have stabilized.
The shock and uncertainty regarding Prime Minister George Papandreou call for a referendum on a European Union bailout deal continues to reverberate in international markets leading to a renewed safe haven bid.
Greece’s cabinet decided early on Wednesday to back Papandreou’s proposal for a referendum on the EU deal – according to government spokesman. Papandreou is sticking to plans to hold the vote despite signs his government may collapse.
Greek Referendum To Lead to Return of The Drachma?
The possibility of a return to the drachma has raised its head after Papandreou said a referendum on Europe’s rescue package will confirm Greece’s membership of the euro.
There are increasing calls in Greece for a return to the drachma – polls show 33% in favour of a return to the Greek drachma at this time.
The fact that it is impossible for Greece to regain competitiveness while clinging to the euro is becoming increasingly evident. Prominent economists such as Nouriel Roubini, as well as investor George Soros have said as much and influential voices in Greece are now questioning the wisdom of clinging to the euro.