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Why Greece Needs a Referendum

And why Germany should welcome it this time.

Credit: Gil C - Shutterstock.com

Takeaways


  • Opposition promises are easy. You promise the sky. Then in power, you come down to earth and realize its limitations.
  • There will be no angel coming to the Greeks’ aid, neither the US nor Russia.
  • Greece needs a debate about the realism of debt repayment and the utopia of debt renegotiation.
  • No amount of left wing posturing will make Grexit painless. The voters have to choose the path they wish to follow.

The Greek debt-and-austerity negotiations are going according to a plan already seen. When George Papandreou was prime minister, he was stumbling through the beginning of the Greeks’ confrontation with their own profligacy.

The essence of classical narratives is that everyone knows what will happen next. They have heard it before or experienced it. The joy – the pain, too – lies in revisiting the familiar.

In 2011, Papandreou wanted to fight the troika and thought he could hold a referendum and ask the citizens for their views.

Alas, he was intimidated into cancelling that plan by Angela Merkel and Nicolas Sarkozy. He obeyed the German and French leaders’ wishes. That destroyed his credibility and his party’s electoral prospects.

Here we go again, with left-wing Syriza now in control. Promises are easy to make in opposition. You can promise the sky. Then you come down to earth when you get power and realize its limitations.

Syriza had a week of grandstanding, with Yanis Varoufakis, the finance minister, becoming a rock star.

Facing an impossible situation

Now comes the hard grind. The government faces an impossible situation. To behave responsibly and do what the troika tells them is a negation of all the party stood for. They arrived on the slogan “Can’t pay, won’t pay.” Now they have to bend down and take the punishment.

There’s just one escape. Like Papandreou, but with still greater urgency, Syriza can go back to the citizens.

The government has to say, “We thought it would be easy to defy austerity. But we have found out that is not so. If we are to fulfill our promise to you, we have to carry out Grexit.”

Leaving the euro would mean repudiating all debts and devaluing the new currency and paying through inflation the cost of being unable to borrow on the capital market. This would bring five years, at least, of total misery.

The government would have to say: “The alternative is what is going on now. That involves 40 years of constant dull pain and a generation wiped out. The choice is yours. We will obey your instructions.”

Insist on a referendum

This time they should not be bullied by the troika. They should insist on a referendum. They need to explain to their voters the alternatives in some detail. They need a debate about the realism of debt repayment and the utopia of debt renegotiation.

They should spell out the costs. Do scenario planning. Lay out the facts. No amount of left wing posturing will make Grexit painless. What counts is the relative pain of the two alternatives. The voters have to choose which path they wish to follow.

Syriza should warn their citizens that, unlike the Venezuelans under Hugo Chavez, they have no oil wells for extracting wealth that they can then fritter away.

It would be futile, too, to dream that the United States would come to Athens’ aid, as it did when Harry Truman started the cold war to save Greece from communism. Russia may offer help, but it’s suffering from the fall in oil prices.

There will be no angel coming to the Greeks’ aid. Their circumstances are reminiscent of those of Iceland, which reneged on the debts incurred by its private banks when a referendum gave the government the strength to shoulder the consequences of being shut out of international financial markets.

Iceland survived and returned to normalcy. Greece’s problems are worse. But, as in Iceland’s case, Greece’s creditors are foreign public bodies rather than private creditors.

There are plenty of reasons to say that what was not true earlier is true now. Greece needs a referendum so that the population can buy into the future course, whatever it is. The Germans should be in favor of it this time around.

Editor’s note: This piece was originally published as an OMFIF Commentary.

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About Meghnad Desai

Meghnad Desai is a member of the British House of Lords and an emeritus professor of economics at the London School of Economics.

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