Suddenly realizing that he represents the people of Greece and not the IMF, Greek Prime Minister George Papandreou announced that he would take the unusual step of giving the public a say in the working of their government. Papandreou announced that Greece would hold a referendum on the latest austerity terms – and possibly even continued participation in the euro – a move that the rest of Europe looked upon with despair.
The vote on the austerity package introduces a note of uncertainty in what had seemed to be a done deal, threatening the comprehensive agreement reached by European leaders last week to shore up the euro zone. A rejection by the voters would also be likely to be treated as a vote of no confidence in the government and lead to early elections.
The anxiety stirred up by those fears hammered United States financial markets on Monday, showing once again how the domestic politics of even the smallest members of the European Union can create troubles that not only threaten the currency but reverberate around the globe.
Addressing lawmakers on Monday evening, Mr. Papandreou said the decision on whether to adopt the deal, which includes fresh financial assistance, debt relief and deeply unpopular austerity measures, properly belonged to the Greek people.
“Let us allow the people to have the last word, let them decide on the country’s fate,” he said.
This “let us allow the people to have the last word” stuff is really bad for democracy, don’t you think?
Apparently the mechanics of this are that there will be a confidence vote in Parliament within the next week or two, and then the referendum in January. The public will have to bless the exchange of foreign aid for austerity measures, which to this point have been worked out between the Greek government and the “troika” – the IMF, the EU and the European Central Bank. A no vote would trigger default, in all likelihood. Adding a new wrinkle, Greek Finance Minister Evangelos Venizelos said of the referendum, “It’s for the people to decide to stay in Europe or go back to the drachma.” The larger quote, fished out by The Guardian, was: “Do Greeks want to remain in Europe, with the euro, in a country that belongs to the developed world, or do they want to return to the 60s? Do they think it is good to owe €100bn to the banks or do they not think it is good to live with such debt?”
That puts a different spin on this, and raises the stakes for the public. I don’t see any way on Earth that the Greek people will give the go-ahead on more rounds of austerity, but they may not want to exit the monetary union (polls show support for staying in the euro), so it depends on the wording. Papandreou, having borne all of the responsibility for essentially destroying Greece, doesn’t want the burden of deciding on austerity and a Greek depression anymore, and through this turn of events, he seeks to offload it onto the public. One by-product of this is that the troika would renegotiate the terms with Greece, giving them a far more favorable deal, one that has the ability to pass a vote of the people.
Papandreou is a member of the Socialist Party in Greece, a man of the left, who came into office during the crisis. This wasn’t his mess, and I guess he didn’t want to go down in history as the man who felled an ancient people. But he could be angling merely for the people to take the responsibility themselves.
European leaders were stunned by the news. But this is a tactical decision, and we won’t really know Papandreou’s gambit until we see the language of the referendum. In the meantime, expect volatility in the financial markets, as the question of resolution to the euro crisis flips up in the air.