After a hard fought battle to resolve Europe’s debt crisis, key European leaders finally came together with bankers to offer Greece an incredible deal. European bankers would forgive half of Greece’s debt and a European rescue fund would continue to fund Greek debt in an effort to keep their interest rates low. All the Greeks have to do is trim their budget to the point of sustainability. Upon hearing this news the markets rallied and the politicians decreed that they had settled the debt crisis. All of the politicians except Greece’s Prime Minister George Papandreou that is. As Greece has been forced to tighten its budget by enacting austerity measures which cut government employees’ salaries and benefits and increase taxes, the prime minister’s approval ratings have been sinking. In fact, Papandreou’s party has seen their power wane tremendously in the last two years.
Since the unveiling of the European bailout, the Greek people have been extremely apprehensive about any possible loss of sovereignty that may result. After seeing further opposition to the bailout, Papandreou decided to shift the consequences of such a plan onto the people by creating a public referendum to approve it. This is probably the most selfish political move in history, albeit a brilliant one. Even though the referendum is looked upon unfavorably, Greece has no choice. If they don’t pass it, they will immediately default on their debt and the small austerity measures they are being forced to take now will look like a carnival compared to what they will face. Greece will be kicked out of the European Union, its tourism will suffer, massive government layoffs will be announced, and general chaos will reign. Surely the government will make the people understand the gravity of the situation before the vote takes place, but this will rattle global financial markets in the meantime. Upon hearing the news, most world indexes fell between 3-5%.
Papandreou is clearly counting on the people to pass the resolution. He hopes the referendum will be seen as democracy at work, all while being able to pass the responsibility of to the people. In a year or two, when the Greek people get frustrated with further austerity measures or losses of sovereignty they will have no one to blame but themselves. And if by some chance the measure fails, Papandreou will be able to blame not only the people for the chaos that will result, but also the opposing party, who have been mounting populist opposition. He is essentially calling the opposing party’s bluff. If they continue to oppose the measure and it fails they will forever be labeled as the party that caused the Greek default, and if they change sides and support it they will reveal themselves as having been playing politics at the expense of the people. Unfortunately Papandreou is gambling with the world financial markets as well as his own people’s welfare. Let’s hope it works out.