Cause and Effect in European Politics and Law

Byzantine Tricks Threaten the Survival of the Euro Area

Ralitsa Kovacheva, November 1, 2011

new 16:00 In a joint statement the presidents of the European Council and the European Commission, Herman Van Rompuy and José Manuel Barroso, recalled the agreement from 26 october and stated: "We are convinced that this agreement is the best for Greece." Regarding to the intention of the Greek authorities to hold a referendum, both leaders noted: "We fully trust that Greece will honour
the commitments undertaken in relation to the euro area and the international community."
The Presidents of the European Council and Commission have had a telephone conversation with Prime Minister Papandreou and are in contact with members of the Eurozone, which they will keep also in the margins of the G20 meeting in Cannes.

The story so far:

Greek Prime Minister Georgios Papandreou surprisingly called a referendum on the the decisions of the euro area for the second Greek bailout. The news came up late last night so there is still no official reaction from the EU or the member states. The Financial Times quoted a source from Brussels, however, who described Papandreou's statement as "a bolt out of the blue". Rumours for a referendum appeared some time ago but were then denied by the Greek government.

The decision raises eyebrows, given the disapproval of the Greeks of the second bailout programme. A recent poll showed that about 60 percent of Greeks had a negative attitude towards the agreement. According to the decisions of the euro area from 26 October, by 2014 Greece will receive another portion of 130 billion euros and a 50% write-off of its debt. In turn, the Greeks commit to additional austerity measures, cuts in the public sector and reduction of pensions. The programme should be finally agreed by the end of the year and will come into force early next year. It is not clear, however, how this could happen, given that it is expected the referendum to be held in January 2012 when the deal on the Greek debt with the private creditors is scheduled.

Georgios Papandreou announced he would seek a confidence vote from Parliament, which is to be voted by the end of the week. He is expected to win, although a few times before his party comrades voted against the measures, proposed by the government, which cost them expulsion from the party ranks.

Comments in Greece, cited by media, are confused and contradictory. Politicians and analysts have commented that it is not clear what Papandreou aims with the referendum, nor what would happen if the rescue plan was rejected. Against the background of constant strikes and violence in the streets of Athens, fears of a negative result of the vote seem very realistic. The Financial Times quotes Sony Kapoor, head of Re-Define, as saying that "with an irresponsible opposition that is promising Greek voters the moon, it is very difficult to see how this referendum could be won." "The decision is good for democracy but is likely to make the euro crisis worse by heightening uncertainty in this very fragile environment," the analyst says.

On the other hand, there is the question whether the referendum is constitutionally permissible because the Greek Constitution prohibits referenda on economic issues, only on matters of exceptional national importance. And even if the rescue plan is viewed as such, it is unclear what results could be achieved so the people's decision to be binding. According to the Greek legislation on matters of national importance a minimum of 40% turnout is required and for "serious social issues" - 50%. The last time the Greeks voted in a referendum was in 1974 when they rejected the monarchy.

Perhaps Georgios Papandreou was subjected to internal party pressure to call the referendum, as was the case with the appointment of Evangelos Venizelos as a finance minister. The fact that Papandreou made a statement on the referendum before Socialist deputies is eloquent. The Financial Times reports that the prime minister has declared his intention to schedule a referendum and ask for a vote of confidence after having rejected the demands of some of his party fellows for early elections. According to opinion polls, however, if elections were to be held now neither of the two major parties (PASOK and New Democracy) would win a majority, which would mean a coalition government or new elections.

There was a similar scenario in the other two rescued countries, Ireland and Portugal, but in both cases a pre-election agreement was reached with the major parties, ensuring that whoever should come to power would fulfil the commitments agreed with the EU and the IMF. However, this is hardly possible in Greece, given the behaviour of the political class. A possible negative outcome of the referendum would completely undermine EU's efforts to compromise on all issues related to the Greek programme - private sector participation, increasing the rescue fund and recapitalisation of banks. And saving Greece would be truly a mission impossible.

Even if there is a referendum, the choice of the Greeks would not be reduced just to in favour or against the bailout loan and in favour or against cuts and reducing of their own pensions. The Greeks must choose whether to pay their debt to all Europeans who have indirectly financed Greeks' affluent life before and saving them now. It is time the European future to stop being held hostage by Byzantine tricks.