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‘Après Moi, Le Default’

Posted on the 04 November 2011 by Periscope @periscopepost
‘Après moi, le default’

Fighting off critics: Greek PM George Papandreou. Photo credit: World Economic Forum,

The decision by Greek Prime Minister George Papandreou to call a referendum on whether to accept the terms of the EU rescue plan has left the other European leaders in shock. Papandreou, who has never previously shown very much backbone, appears to have stiffened the sinews, summoned up the blood, and taken the most colossal gamble of his career.

It is not yet known whether he took advice before making the announcement, although if he did, it was probably not from his finance minister, who promptly checked himself into hospital on the news, and has since actually announced that the referendum will not happen. Equally unclear is what he hoped to achieve by waiting months for the EU to finally take a meaningful step in the right direction, and then kicking them in the teeth. At best, this is an attempt to get a strong mandate from his people in order to push through the cost cuts that are desperately needed. More likely, it is an attempt to blackmail European leaders into relaxing the austerity measures that they have demanded. At the same time, Papandreou is trying to placate the Greek people by telling them that they have the chance to decide their own destiny, and showing them that he is willing to stand up to the foreign powers who are demanding that the Greeks make all these sacrifices.

Equally unclear is what he hoped to achieve by waiting months for the EU to finally take a meaningful step in the right direction, and then kicking them in the teeth.

Rather than being a sign that Papandreou has found his courage, it is more likely one that he has finally lost his nerve; a desperate last throw of the dice for a leader who fears his own people too much to show them tough love. It is entirely possible that he cannot and does not wish to push the austerity agenda any further in the face of massive opposition from the grass roots of his party and the Trade Unions, even perhaps to the extent that he would prefer to lose his job. If this is the case, the announcement of a national referendum to take place in only a month’s time, a piece of populist nonsense that has precipitated a vote of confidence in parliament this evening, may earn him his wish.

Unfortunately, it has had other consequences. The latest €8 billion tranche of the second bailout has been witheld until after any referendum, which means that the Greek state will have to suspend payments this month. More worryingly, the prospect of Greece leaving the Eurozone has caused the other EU leaders to speculate openly for the first time about a monetary union that does not contain Greece. They might just decide they  like the idea.

Indications are that in a referendum the Greeks would vote overwhelmingly to remain in the Eurozone, thus giving Papandreou his mandate. However, by then it may be too late. Without firm support from the EU-ECB-IMf “troika”, which has been lukewarm at best, Greece may be forced out. If the short term fallout from such an outcome can be contained, especially in Italy, the fears that a Greek exit will precipitate the longer term collapse of the eurozone may well turn out to be unfounded. There is every chance that the disastrous consequences to the Greek people of an unstructured default will act as a dire example to others, and cause the other southern European countries to redouble their restructuring efforts in order to avoid the fate of the Greeks. Papandreou may no longer be in power next week, but we must hope that his final actions while in office do not turn out to be a terrible betrayal of his people.

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