In Europe, uncertainty kicks up a notch

Greek Prime Minister George A. Papandreou speaks to media.

Jeremy Hobson: Everyone is watching Europe, there's lots of news coming from different places on the continent. There are reports the Greek Prime Minister George Papandreou is on the verge of resigning -- his office says that's not the case.

Meanwhile, news from Brussels that the European Central Bank is lowering its main interest rate by a quarter of a percent. And of course the G20 leaders -- including President Obama -- are discussing the debt crisis in France.

We're going to get more on all of this now from Marketplace's Stephen Beard, who is live with us from London. Good morning.

Stephen Beard: Hello Jeremy.

Hobson: First - tell us what's happening with the Greek prime minister.

Beard: Well, as you said, there have been reports in Athens that George Papandreou is offering to step down and is inviting the opposition to form a government of national unity with his party in order to deal with the debt crisis.

The situation, though, is very confused. There are other reports saying no, Papandreou is really going to cling to power. But whatever happens, it's clear we are entering a new phase of even more acute uncertainty in this crisis. The prospect of a Greek default and Greece's ejection from the eurozone seems to be looming larger.

Hobson: All right, well what about this move from the European Central Bank to cut interest rates?

Beard: This was not expected, but it's a further sign of the pressure building in the eurozone. The eurozone economy is in an increasingly fragile state and the doubts about the debt crisis are further depressing confidence and the new president of the European Central Bank clearly believes he had to start cutting rates to help revive confidence.

Hobson: And finally Steven -- and it's sort of interesting that we're coming to this part of it last -- all the G20 leaders are meeting in Cannes. Is there anything they're going to do to help solve this problem?

Beard: Well as you say, this summit's totally been overshadowed by the growing chaos in Athens. The summit was supposed to be the deadline for the Europeans to get their act together and deal with this debt crisis once and for all. Clearly, that isn't going to happen.

Hobson: Marketplace's Stephen Beard with us in London, thanks Stephen.

Beard: Okay, Jeremy.

Hobson: And let's get some domestic reaction now from our regular Thursday guest. Diane Swonk, chief economist with Mesiro Financial, she's with us live from Chicago. Good morning.

Diane Swonk: Good morning.

Hobson: So Diane, a lot of news out of Europe this morning -- Stephen just laid it out. What do you make of all of it? What's most important?

Swonk: Well certainly, the situation with Greece is still very important because if Greece actually does default, there's many who fear that could trigger a bank run in Europe that spreads to the U.S., which would be a Lehman-like event. And that's something -- anything Lehman-esque these days is not acceptable -- in the U.S. as well.

So that's why we've seen so many jitters. There's hopes that the Europeans will figure it out. But I think the important issue here is that the Europeans are on a marathon; they've started on the right path, we keep looking for them to finish a sprint in this process of saving the euro, and it just can't be done with 17 nations -- as we've seen -- in that kind of timeline.

Hobson: Well this all sort of started -- this week anyway -- with this move by George Papandreou, the prime minister of Greece, to go to a public referendum to have the public vote on the terms of the bailout. Do you understand at this point why he would have done something like that?

Swonk: I do understand it -- although it was certainly a slap in the face to all other Europeans who had stepped up to do the rescue package for Greece.

But let's face it -- the austerity programs in Greece, the riots in the streets, the interruptions, the strikes to business. It makes the Occupy Wall Street movement -- we're talking about 100 times the anger factor there in terms of the pain they're feeling and what they're reflecting.

So he's trying to stay in power and reflect some democracy -- ironically enough -- in the process.

Hobson: Diane Swonk, chief economist with Mesirow Financial, thanks so much as always.

Swonk: Thank you.

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