George Papandreou has stunned his own people and his European colleagues with his late night call on Monday for a referendum on a new financial rescue package for Greece, which could plunge Greece into bankruptcy and force it out of the Euro area.
Greece’s government was thrown into turmoil Tuesday, following the referendum announcement, threatening to take down the government and remove the country from the Euro area. The whirlwind of activity stunned European leaders and global markets, sparking a new wave of uncertainty on Wall Street. The actions of the Prime Minister, a supposed act of supreme democracy, has illustrated his inability to remain in office and the instability of Greece’s political arena. Politicians in Greece and across Europe were appalled by the idea of the referendum. 2 Socialist lawmakers, part of the ruling majority of PASOK, revolted against the calls for a plebiscite and broke away from the party, expressing their disenchantment with the Prime Minister’s actions and declaring themselves as independents. Moreover, 6 senior members of Greece’s ruling PASOK socialists expressed their wishes for Papandreou’s immediate resignation, addressing the need for a political legitimate administration. The dissenters have marked a serious turning point in Papandreou’s already slim majority of 152 seats of 300. The Prime Minister needs 151 votes to enact the referendum and if any one dissenter votes against it, it cannot be held. With senior officers publicly voicing strong resentment and aggravation at the actions being taken, the hurdle does seem to be too high for Papandreou.
“Mr. Papandreou is dangerous, he tosses Greece’s EU membership like a coin in the air. He cannot govern and instead of withdrawing honorably, he dynamites everything.” – Yannis Michelakis, conservative opposition New Democracy party spokesman
Greece’s former deputy finance minister, Petros Doukas, stated that the actions being taken by the Prime Minister are a political gamble that has gone incredibly wrong. The Prime Minister has tried to make the opposition parties share the pain of unpopular reforms. Doukas also expressed his doubt about the passing of the referendum, despite a supposed large public support for a negative vote on the bailout package. So saying, the first step to be taken is a vote of confidence in Parliament on Friday. With Papandreou’s majority limited to 1 and a general feeling of dissent from senior members, there is evidence to suggest that the referendum will never come to be.
Nevertheless, a “no” vote on the bailout package could theoretically force Greece to crash out of the Euro and send shock waves throughout the global financial system. The actions by Papandreou have undermined the sacrifices and commitment that all Euro area members, most especially Germany and France, have dedicated to the survival of the Euro. Past statement by Merkel and Sarkozy about the necessity for unity and the incomprehensible consequences of default have all be undermined by Papandreou. If his actions have solidified anything, it is his incapacity to continue his term.
“Announcing something like this only days after the summit without consulting other members is irresponsible” – Ivan Miklos, Slovak Foreign Finance Minister
European politicians expressed incredulity and dismay at Papandreou’s announcement on Monday evening, which took even his own finance minister by surprise. The sentiment is widespread, as irritation becomes an understatement for many Euro are politicians witness the apparent backtracking of Papandreou on previous commitment to reform and EU legislature. Both French President Sarkozy and German Chancellor Merkel were outraged by the action, which have effectively leveraged years of work on a cliff. Both leaders issues a terse statement, disregarding the actions of Papandreou and expressed their determination to ensure the full implementation, without delay, of the decision agreed upon in last week’s EU Summit. The renewed uncertainty is bound to embarrass G20 host, Sarkozy, as he tries to coax China, the IMF and the US into throwing the Euro area a financial lifeline. Furthermore, the actions could also further undermine the dwindling political support in northern Europe for aiding Greece. The Dutch Prime Minister, Mark Rutte, told Parliament that his cabinet was concerned about the risk of delay and uncertainty. The news is supported by Joerd Rocholl, president of the European School of Management and Technology in Berlin, who believed that Greece’s retreat from the agreement could mean that other countries would being to no longer feel obliged to take part in the rescue. Evidently, the actions of one unfit Prime Minister has essentially sabotaged the previously resolute actions of a EU that seemed to be nearing true unity.
“The Prime Minister had agreed to a rescue package the benefits his country. Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece – wrong decision were made and the country maneuvered itself into this crises.” – Rainer Breuderle, parliamentary floor leader for the Free Democrats Party (FDP)
On the markets, investors scurried for safer investments, hammering away at the weakening Euro. The FTSTEurofirst300 index of top European shares was down almost 4%. German and French markets closed down about 5% by the end of Tuesday. Much of the weight came down on banks exposed to Greece’s sovereign debt, with France’s Societe Generale falling 17% and Credit Agricole down almost 12.5%.
Greece has been hit by a wave of anti-austerity strikes and with Papandreou calling for wider public backing for deep spending cuts tied to the new 130 billion Euro aid deal, the future of Greece and the Euro Summit deal is reasonably doubted. A poll during the weekend showed that nearly 60% of Greece has a negative or partly negative view of the rescue, suggesting a majority of votes could vote “no” in the referendum, which will probably be held in early January, if Papandreou survives this week’s vote of confidence which could easily lead to a forced resignation. Greece is due to receive an 8 billion Euro tranche of aid in mid-November, but it is likely to run out of cash, once again, by January, when the referendum is to take place. With the threat of a referendum looming, countries like Germany, Finland and the Netherlands may find it difficult to defend funneling more cash to Athens. Opposition in Belgium has already described Papandreou’s gambit as a deal breaker, which could doom parliamentary approval of the latest measures.
In retrospect, despite the uncertainty and chaos escalating from Papandreou’s actions, solitude can be found in the certitude that Greece is not governable with Papandreou as Prime Minister. Despite fueling dissent among his own party, he has fueled growing Euroskepticism abroad and undermined the first true signs of progress in the EU in months. The ability for one individual to ruin the committed actions of many illustrates both the instability of the grounds being walked upon by the EU, as well as the readily available source of public frustration and dissent against any scapegoat. Nevertheless, Greece will remain a Euro area member, Papandreou will find himself politically homeless, along with Italy Prime Minister Berlusconi, and the EU will emerge all the stronger in years to come.