Greece & the Crisis; Referendum in the Membrane

The World

 Papandreou and MerkerFollowing two weeks of intense negotiations, two years of Greece and the Eurozone being full on into the crisis an agreement was struck.  People sighed with some slight relief, so did markets and the public across Europe.  Clearly they underestimated the lack of rationality of Greek politics, as the Prime Minister of Greece decided a referendum on the country’s future as a member of the Euro, and essentially whether it will go forward with the necessary measures, is appropriate.

The ruling party and more specifically the government has put itself in a tough spot.  Opposition parties have argued that the measures are too tough and have been asking for elections (smaller ones have been asking for a referendum).  Internally, the ruling party is not coherent with different fractions causing instability, it is now left with 152 MPs out of 300 making the passing of legislation difficult.  Protests keep on taking place as popularity of the government and the Prime Minister keeps plunging, not suprising for someone who is supposed to pass the mother of all austerity packages.  Governments with smaller tasks have seen their popularity drop.  Measures are not really being implemented, thus the part of public under threat is protesting while some looking forward to a new a turn of page (or at least a job) observe little movement.

The Prime Minister by asking for a referendum is playing a high stakes blackmailing game.  Either the public votes “yes” reaffirming his government’s position and putting him back on a strong position, or the public votes “no” leading to his likely resignation, political instability and elections for a new government that will have to implement the measures anyhow.  However, this has been a risky and unjustified move; the bailout has been agreed and is particularly generous.  The implementation of the measures asked though could do with more direct development actions is logical.  Finally, the government has gone through half of its four year mandate and implemented very little anyhow.  True costs/ benefits of the austerity package have not been realized.  What is even more irrational is the opposition parties’ argument that an election is the way to go.  PASOK members do not have much choice right now, and have been drawn into a pointless battle.  If they do not support the government and go to elections they are definitely going to loose.  Pushing for more time is the only option on the table, even though it might cost more in the long term. A possibility that should be examined is what happens in case of poor electorate attendance.  Will it still count; will there be a new referendum?

Two things need to be made clear; firstly from a purely practical perspective Greece’s finances do not allow it debate whether it would like to get a loan or not.  There is virtually no money in the government coffers, anecdotal stories include public services unable to do their work due to lack of ink (lack of productivity also plays a role).  If Greeks truly do not want to go through the austerity measures, even after a 50% haircut, that is fine.  However, it will mean an inability to pay public servants, healthcare, education, defence and so on.  The country would have to exit the euro, and probably print its own currency; ironically it will have to get a loan to do that.  Not pushing through these measures will essentially put the country in the same spot as Argentina; not a particularly good one. Secondly, from a normative point of view the country is missing out on a good opportunity to straighten itself out.  Surprisingly what is disappointing about Greece are not the ridiculous deficits, the corruption or the unfairness of the way policy is implemented.  No, what is disappointing is the country’s potential which remains to be tapped.  Shying away now will mean more of the same; more clientelist relationships, more deficit, more muddling through.

This referendum is a pointless task, a “crazy cowboy” moment; it has further disappointed the public, polarized public opinion with an “either/ or” option and offer no benefits.  If anything it is creating a risky environment for the entire globe.  Italian spreads reached an all time high yesterday.  This begs the question; for how long will the EU and the rest of the world keep backing up Greece.  German banks are already denying any haircuts until the referendum takes place. More importantly, a country that produces less than 3% of the EU’s budget should not be spearheading the crisis; it should be put in the back seat.  A possible “no” at the referendum might mean the Greeks drop off the wagon on their own.  Again a loss of potential and a completely irrational move.

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