I would not like to be anywhere near French President Sarkozy or German Chancellor Angela Merkel as they discuss (?) the latest desperate move by their counterpart in Greece to call for a referendum on the deal that was forged with great acclaim just a few days ago.
Merkel could be forgiven for bemoaning the lack of a few good panzer divisions and Sarkozy must be thinking that George Papandreou’s balding head would look quite nice at the bottom of a guillotine. The cumbersome deal they patched together to bail out Greece and save the Euro – not to mention leading French and German banks – looks set to unravel if Greece goes ahead with the referendum announced late Monday evening.
But months of mounting tension, demonstrations and protests in Greece against the high cost of solving their self-inflicted debt burden have taken their toll. Political and social consensus, never very strong in Greece in the first place, has disappeared completely with the sharp decline in living standards and the imposition of austerity measures -- like paying taxes. No one, least of all the two main political parties, is in a mood to accept any responsibility for the mess. People are furious at what they see as the injustice of the so-called ‘austerity’ measures being forced on them for ‘someone else’s´ sins. “Why are they doing this to me? I had nothing to do with this crisis,” is a common moan. The fact that the entire Greek economic structure rested on an unsustainable, rotting foundation is irrelevant to most people. All they see is that their pensions and jobs have been cut. They overlook or simply don’t care that other measures are slowly forcing the economy to open previously closed professions or to generate revenue by selling some state companies.
You Deal With It!
In effect, Papandreou is throwing up his hands as if to say “I can’t deal with this anymore. I’m tired of trying to lead. You, the people, decide.” While this all-too-rare practice of real democracy in the European Union should be considered a good thing, the thought of about five million furious Greeks of voting age having the right to vote in a referendum that could endanger the entire Euro project is sending chills through the capitals of northern Europe. Leaders of those countries must be urging their Greek colleague to have a re-think. “Steady on, George. We know you Greeks think you invented democracy, but let’s not get carried away here.”
Also, there are serious questions as to whether the referendum will actually take place. As Kerin Hope points out in today’s Financial Times the Greek government faces a very difficult vote of confidence on Friday the 4th. Second, it is by no means clear that the Greek president will endorse the proposal. And third, the main opposition party says it will do everything in its power to block the referendum. This would be more convincing if the New Democracy party had itself demonstrated any better, realistic ways of dealing with the crisis. It is insisting on new general elections that could well bring it power. Then it will be interesting to see if it a) acknowledges its role in creating the Greek economic catastrophe, and b) is able to get better terms from its European partners. We would be unwise to hold our breath waiting for either of these to happen.
Time Has Run Out
But the biggest hurdle may be time, or the lack of it. Essentially Greece has no time left. If the referendum proceeds it is doubtful that next tranche of aid to Greece will be released until the referendum is decided sometime in January 2012. If the tranche is delayed then Greece runs of out money sometime this month and is effectively bankrupt. Europe is then faced with a default on Greek sovereign debt, and that has unknown—all bad -- consequences for Europe and the rest of the world. If Greece defaults on its sovereign debt it is likely that the country would be forced out of the Euro zone and plunged into an even deeper economic crisis. Argentina, with its strong commodity exports and deeper economy than Greece could get away with such a default and freeing its currency from the peg to the U.S. dollar. Greece is in a much more difficult situation with extremely limited exports of any kind and almost complete reliance on imported raw materials to keep what industry it has working.
A referendum would at least have the virtue of confronting the Greek people with some simple, stark choices. The Greek political class has thrived for decades on inflated promises paid for with borrowed money that has shielded people from some of the harsher economic realities that would be thrown into sharp relief by such a vote.
Do you want to stay in the Euro with all its rigid rules and requirements leading to declining (temporarily, one hopes) living standards OR do you want to be thrown out of the Euro zone and be relegated to the second division with unknown, but mostly unfavorable, economic consequences? The only pity is that such a referendum was not held years ago.