Greece’s surprise announcement on the economy
NOT SINCE THE NIGHT when soldiers emerged from the belly of a giant wooden horse in ancient Troy has Greece engineered a more stunning surprise: On Monday, Greek Prime Minister George Papandreou shocked Europe, and the world, by announcing that he would not put a promised economic austerity package into effect until the voters of his debt-strapped nation approve it in a referendum.
Mr. Papandreou’s announcement comes on the eve of a Group of 20 summit in Cannes, France, and less than a week after the European Union had agreed to a 50 percent write-down of Greece’s private-sector debt, and billions of dollars in aid, in return for government budget cuts and structural reforms. It puts at risk not only the bailout deal but also the world’s economic future.
And for what? Mr. Papandreou says that he needs a popular mandate before putting his country through the long bout of economic pain prescribed by Germany, France and the International Monetary Fund. It is “time for the citizens to reply responsibly,” he said. “Do they want us to implement it or reject it? If the people do not want it, then it shall not be implemented. If yes, we shall proceed.”
We certainly understand the prime minister’s predicament. As more and more people took to the streets and members of his own ruling Socialist party opportunistically jumped ship or threatened to do so, a sense of anarchy has been growing in Greece. Perhaps Mr. Papandreou thinks that, by offering the public a choice between the bitter medicine of austerity and the catastrophe of default, he can induce some much-needed responsibility.
Certainly, Mr. Papandreou could be forgiven for wondering why he has to be the only adult in increasingly chaotic Athens. He has been a model of realism and political courage until now, having come clean about Greece’s public finances two years ago and then winning parliament’s approval for a series of painful measures to cope with the crisis. Perhaps he believes that the silent majority of Greeks that has sustained him thus far will make itself heard at the ballot box — though recent polls suggest most Greeks would vote against austerity if given a chance.
Whatever the motive, we fear Mr. Papandreou’s strategem will go down in history as a terrible blunder. It’s not that the latest bailout package is guaranteed to work. Far from it: The proposed financial “firewall” for Italy and Spain looks big enough at $1.4 trillion to rescue one of those countries, but not both. China’s willingness to provide financing is questionable — as is the political wisdom of Europe mortgaging itself to a communist-ruled country. And the 50 percent “haircut” on private debt would still leave Greece owing 120 percent of its gross domestic product a decade from now, assuming all goes well.
But the package is the best hope to avoid a sudden recession in Europe that could reverberate around the globe; without calm and confidence in the markets, even that hope fades. Calm and confidence are unlikely to prevail until January, the apparent date of Mr. Papandreou’s still-undefined referendum. Indeed, his government faces a confidence vote Friday and could well tumble, to be replaced by who knows what. Meanwhile, Mr. Papandreou’s gesture has undermined all the other governments in Europe — creditor and debtor — that have faced down domestic opposition in pursuit of a solution.
Monday’s events heighten the contradictions between the financial and economic imperatives of a single European currency, on the one hand, and the political imperatives of democracy and national sovereignty in 17 eurozone countries, on the other. Perhaps Europe’s day of reckoning was bound to come. But that doesn’t mean Mr. Papandreou was wise to hasten its arrival.