Papandreou's Referendum Genius

We recently published an article entitled, “Oxi Day Still Means No to Greeks,” within which we discussed the continued misery of Greeks despite the agreement to give Greece a “haircut” on their debt obligations. We suggested in the piece that Greeks have continued to disagree with their government, despite this celebrated grand barter. Well, it seems Prime Minister Papandreou is calling us on that. Tuesday, he announced that he would ask the Greek people what they would like to do. Everything hangs in the balance as a result.

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Papandreou’s Referendum Genius

Surprising his European brothers, his countrymen and even members of his own party, Greece’s Prime Minister Papandreou Tuesday called for a referendum on the latest debt deal which would effectively cut the country’s bond debts in half. Of course, Greece is expected to keep to its austerity efforts implemented already, and to pay back the IMF what it owes it. Thereby, nothing much changes for Greeks at street level, and the Greek economy will continue to carry a heavy load. Thus, despite the grand barter so celebrated on Wall Street, misery remains for Greeks.

Alexander Stubb, Finnish Minister of European Affairs and Foreign Trade, declared the vote would effectively be a decision about Greece’s ongoing membership in the euro zone. Certainly, from an outside perspective, this action by the Greek leader would seem akin to looking a gift horse in the mouth. After all, half of Greece’s bond debts would be forgiven. But the view from the streets of Greece is much different, where 60% of the polled population (seems like more) stands against the austerity measures and the suggestion of their necessity. Furthermore, while the Prime Minister and his government have found support from rivals in prior votes of confidence, many of those political lions have at the same time been rallying the masses for a later toppling of Papandreou and his PASOK Party.

Yet Tuesday, several PASOK partisans resigned from their positions in a loud expression of disapproval, leaving Papandreou with just a slim representative majority in Parliament. The loss of his vulnerable majority could lead to an early election, and thus expedite the government’s replacement. This also could theoretically lead to Greece rejecting the deal. Still, so many unknowns tag along with what appears an irresponsible and unnecessary direction, that a government led by either of Greece’s major political parties should lead to the same result, the acceptance of the deal. The only way Greece might reject the deal is if the question were posed directly to the people, who unfortunately may not fully comprehend what would happen if Greece were to reject the deal and accept its consequences, the default on its debt and Greece’s ejection from the euro zone.

With such great risk weighing, many are speculating today as to the motive of the Greek prime minister, and of course I have a few ideas myself. It’s possible that Papandreou has grown weary, looking out his window daily at street fires and enflamed countrymen. Perhaps he has been questioning whether his decisions are representing his people’s wishes, and if perhaps the darker route might not be so bad. After all, Iceland has already found its way back, and Ireland seems headed in the right direction as well.

Another idea is that Papandreou is playing political roulette. His despised government could regain some of its lost support, by putting the decision in the hands of the people. When presented with the prospect of ejection from Europe, a community Greeks view inside the bubble of civilization and economic progression, they may make the hard choice themselves. Perhaps the scenario might also ease the so easily rounded up protests, for it is much easier to complain than to take responsibility. Papandreou might just save himself as well, after struggling to keep crutches under his nation.

Other options I find less logical include the idea that Papandreou might be seeking to gain greater leverage to re-negotiate with his European brothers, turned masters. The risk/reward trade-off here is just too far out of balance to adequately defend this theory.

Finally, the simple act of declaring there would be a referendum might have been enough in and of itself to accomplish all goals. European ministers now see the risks of overburdening their desperate brother, and so could ease the burden on Greece with regards to the austerity demands weighing upon it. The Greek people might now better see the position of their embattled leader, and the few options he really has while under bombardment from speculative markets and few resources. Perhaps they understand the dangers of the other option, exit from the euro zone. Therefore, what many are describing today as an unconscionable act of Prime Minister Papandreou, might in fact be pure genius.

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