Will the Greek referendum snatch economic defeat from the jaws of victory?(Read article summary)
After months of having their pride savaged by the rest of the continent, the Greeks have astounded Europe by announcing a referendum on the debt crisis plan.
Greeks may not be trying to teach a lesson or give pushback to Europe. But the referendum announced Monday by Prime Minister Andreas Papandreou may partly act this way.
For 19 months the Greeks have had their considerable pride – and their economy – trashed by the rest of Europe. There’s a reason for that: The incoming Papandreou government revealed in December 2009 that the Balkan nation had cooked its books and was under mountains of state debt.
Teams of accountants came to Athens and began to expose a corrupt system of uncollected taxes and crony deals in a state widely described as “dysfunctional.”
But for a Greek nation forced to accept austerity, a series of bailouts never seemed to staunch the crisis. The slow-moving remedies of May 2010, of March and July 2011, and of last week, brought considerable national humiliation. “We don’t see light at the end of the tunnel,” said a Greek academic on the phone last week in the midst of huge strikes, “and now we don’t even see a tunnel.”
But with a referendum that Mr. Papandreou apparently didn’t inform his finance minister about – the shoe is on the other foot.
Today, it is the European Union and its leaders that are scrambling to figure out what to do about a stark uncertainty created by a sudden Greek demand for more democracy and say-so from its people. Markets have fallen. Only last week, EU leaders settled on yet another “final answer” to a eurozone crisis that could also sweep in Italy and Spain.
The chaos comes just as France hosts the G-20 on the Riviera starting Wednesday. Greece’s status is prolonged, with a referendum scheduled for January, and a no-confidence vote scheduled later this week.
As Sony Kapoor, who heads the Brussels economic think tank Re-Define, puts it, “We have a referendum that may be good for democracy, but is very bad for the euro crisis."
“I understand that Papandreou faces a squeeze between the devil and the deep blue sea. He has only a three-vote margin [in the Greek parliament], faces massive strikes, and his opposition is promising the moon but can’t deliver.”
No one is sure how Greeks will vote on more cuts and austerity. But the view from a Europe that has watched Greek protests and strikes is not favorable.
Given the efforts of Brussels, the IMF, the EU finance ministers, and others to deal with Greece, an up or down referendum is of enormous import and risk, analysts say, since it will certainly act as a vote to leave or stay in Europe.
Some in Greece suggest national pique is partly an issue. As the euro crisis unraveled since early 2009, rhetoric between Germany and Greece got particularly sharp. Germany was dictating terms, and German Chancellor Angela Merkel made speeches castigating Greece and saying it never should have been allowed in the eurozone. (French President Nicolas Sarkozy now, a year later, says the same thing.) Whether correct or not, it smashed Greek pride. Greek-bashing by Germany and other states, reported every day in the Greek media, came even as much of the rest of Europe castigated Ms. Merkel for not backing a sustainable remedy for a Greek default that would send Europe’s union into uncharted territory.
Merkel's aides have made it clear that her abilities to take tough decisions to bolster Europe are constrained by German political realities and her constituents. Papandreaou, embattled, may be making the same point about his own political realities.
Last week, Merkel appeared to placate her constituency in the German parliament and helped get a deal in Brussels to start writing down Greek bank debt to 50 percent. How sustainable that solution may be is suspect. But it played as a triumph for the euro and Europe. Now Papandreou has taken away the triumph, though the long-term cost is likely to be high.
“An unprecedented conflict is in the making,” Mr. Kapoor adds. “The will and suffering of the people confronts the very harsh financial and political reality that Greece faces.”