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A Greek flag flies as thick smoke from a forest fire rises a few miles east of Athens August 25, 2007. (REUTERS/YIORGOS KARAHALIS/REUTERS/YIORGOS KARAHALIS)
A Greek flag flies as thick smoke from a forest fire rises a few miles east of Athens August 25, 2007. (REUTERS/YIORGOS KARAHALIS/REUTERS/YIORGOS KARAHALIS)

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Greece's dilemma: A loss of sovereignty or penury? Add to ...

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Greece's choice Greece's prime minister is rethinking his controversial idea to give his people a say.

With his government under extreme pressure, and close to collapsing amid a revolt, George Papandreou told his cabinet today that he's trying to strike a deal with his parliamentary opponents. If he succeeds, he may scrap the national referendum on the euro crisis accord that he pledged just a few days ago.

“I will be glad even if we don’t go to a referendum, which was never a purpose in itself," Mr. Papandreou said in the text of his talk to the cabinet, which was released to reports, according to Reuters. "I’m glad that all this discussion has at least brought a lot of people back to their senses. If the opposition comes to the table to back the bailout, a referendum is not needed."

To recap, Mr. Papandreou stunned euro zone leaders earlier this week by announcing he would hold a confidence vote and a national referendum on the terms of the euro deal, a sweeping plan to shave Greece's debt, recapitalize the banks in the monetary union and enhance the region's bailout fund. The package aims to reduce the country's debt-to-GDP ratio to 120 per cent by 2020, and many observers have questioned whether it's enough.

Whether or not it's enough, Mr. Papandreou put the whole thing in doubt with his decision to hold a vote amid widespread opposition to the austerity measures tied to the accord. Euro leaders reacted with dismay, and yesterday French leader Nicolas Sarkozy said Athens would be denied any bailout money until it was decided.

Now, there's an ultimatum. The question for Greece, then, is this: Will it back down in the face of global pressure and deny the people their say through the referendum promised by Mr. Papandreou, or will history record that Greece quit the euro zone and defaulted on its debts?

Many observers have said the referendum was the democratic thing to do. Many others, though, fear the outcome, and question why Mr. Papandreou did what he did after the fact. It's clear that the pressure built to the point of the Greek leader deciding to pull a -put-up-or-shut-up move.

Whether or not there's a referendum, the issue of Greece being able to repay its debts remains, said CMC Markets analyst Michael Hewson.

And even if the referendum is off the table, that "still leaves the issue of the vote of confidence and any possible new transitional government."

Greece can't be kicked out of Europe's monetary union, but it can choose to quit on its own. And what was once unthinkable is now suddenly on the table.

But there would be a huge cost to Greece leaving the euro zone and returning to the drachma, one that would include a deep currency devaluation, high inflation, a hit to Greek banks and higher unemployment, already in the 17-per-cent range.

And don't rule out the embattled Greek people, who have shown their anger at Mr. Papandreou's cuts, which are tied to the bailout money. Polls show they want to stay in the euro zone, but that they're violently opposed to austery measures, which isn't a surprise.

To be told now that they won't have a referendum could bring social consequences that other world leaders may not have envisioned.

"Will the Greek people stand for having their right to be heard snatched away and subjected to another 10 years of austerity without any input?" Mr. Hewson said. "I doubt it."

The odd couple For Mario Draghi, the new chief of the European Central Bank, it was the rate cut heard 'round the world.

The ECB surprised markets today by cutting its policy rate by one-quarter of a percentage point to 1.25 per cent, expecting another recession is in the making. Indeed, markets gained immediately after the rate cut, though pulled back somewhat when Mr. Draghi forecast a mild recession.

"Note that today’s decision is the first ECB policy decision under the new president Draghi, and with inflation elevated at 3 per cent as of October, it suggests that the central bank’s hawkish concerns are taking a back seat to fears surrounding euro zone financial stability and elevated 'downside risks,'" said Emanuella Enenajor of CIBC World Markets. "The decision comes on the heels of unsettling developments in the last 24 hours for the euro zone."

Observers are already speculating over whether Mr. Draghi will unveil another rate cut next month.

"The ECB’s surprise rate cut is certainly welcome amid a sharply weaker outlook for Europe, as the sovereign debt crisis continues to weigh on regional activity," said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

"The incoming president might be making a statement with this unexpected move, perhaps signalling a change in tack by the historically hawkish central bank. Looking ahead, Draghi declined to comment on whether rates are 'appropriate,' responding that the ECB never pre-commits to any policy moves. This suggests that unless conditions improve meaningfully (doubtful), another rate cut is probable in December."

BCE profit climbs BCE Inc. posted a gain in third-quarter profit of more than 40 per cent as it boosted its share of the TV market and won more smart phone subscribers, The Globe and Mail's Iain Marlow reports.

BCE earned $642-million or 83 cents a share, up from $454-million or 60 cents a year earlier. Revenue climbed to $4.9-billion.

BCE added around 127,000 new, high-value wireless customers in the post-paid category, many of which are on smart phones, and also boosted the number of net new TV subscribers by more than 40 per cent.

Manulife posts loss Canada's Manulife Financial Corp. was hit again in the third quarter by falling stock markets and interest rates, posting a loss of $1.28-billion or 73 cents a share.

That's narrower than the loss of $2.25-billion or $1.28 a year earlier, The Globe and Mail's Tara Perkins reports.

Manulife's results are the latest indication of the severe toll that market turmoil continues to take on life insurers, which have not managed to recover from the financial crisis to the same degree as banks.

Yesterday, Sun Life Financial posted its first quarterly loss in two years.

Magna profit slips As The Globe and Mail's Greg Keenan reports today, Magna International Inc. posted a drop in third-quarter profit as it still struggles with lagging operations in Europe.

The Canadian auto parts giant earned $102-million (U.S.) or 42 cents in the quarter, down from $266-million or $1.14 a year earlier. Magna took a charge of $113-million on the disposal of an interior systems business in Europe.

"Our top priority continues to be the improvement of our underperforming operations in Europe," Magna said.

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