Why the Greek referendum controversy is a tragedy in slow motion.
ATHENS – Greece is no stranger to referendums. In fact, the world's first plebiscite was held here in 483 B.C., when Athenian leader Themistocles won a vote to use silver discovered at the port of Laurium to build a fleet of 200 triremes. It set ancient Greece on its way to becoming a maritime superpower. Today, however, the words "Greece" and "superpower" don't even belong in the same sentence. Themistocles's descendants now face the prospect of another referendum -- one that could decide whether Greece's economy will sail on within the eurozone or sink into bankruptcy.
If Greece could pay its debt in units of uncertainty, the crisis would have ended some time ago. Since Athens agreed to an emergency loan package with its eurozone partners and the International Monetary Fund (IMF) last year, Greeks have been living in a permanent state of insecurity, unsure whether their country would avoid bankruptcy, doubtful about its future in the eurozone, and confused about what their own futures might hold. This frustration has led to almost daily protests over the last 18 months by unions, civil servants, and private-sector workers in Athens. Sometimes, protesters have clashed with riot police and, on one occasion last month, between themselves. On Monday, Oct. 31, Prime Minister George Papandreou, who leads the center-left PASOK party, decided to step the uncertainty up a notch or two.
The premier's decision to propose a popular referendum on whether Greece should accept the latest debt deal with eurozone leaders and bankers in Brussels, proposed last week, sent markets tumbling and European leaders scrambling for their phones. In Greece, the reaction was somewhere between shocked and bewildered. Papandreou's motives for proposing the referendum are still somewhat unclear, though it seems concerns about the increasing polarization between the PASOK government and the opposition parties and the prospect of continued popular unrest were uppermost in his mind. "Let each Greek person decide; with a ballot paper in his hand, let each person decide for his country and for himself," Papandreou told parliament. "Democracy is alive and well, and Greeks are being called to rise to a national duty beyond the regular electoral processes."
The prime minister held lengthy talks late on Tuesday with his ministers, many of whom claimed to be in the dark about his motives. Although there was support within the cabinet for the prime minister's surprising move, some ministers objected to the referendum and expressed concern about the exact phrasing of the question that will be posed to voters. The seven-hour meeting ended with ministers agreeing to back the premier over the referendum but asking for the vote to take place as soon as possible.
Papandreou's chances of having an equally straightforward task in convincing the majority of the Greek people to vote yes in the plebiscite are extremely slim. It may seem oddly suicidal to outsiders that Greeks would choose to reject an agreement that reduces the country's debt by some 100 billion euros and provides another 130 billion euros in loans to Athens, thereby securing its funding for the next few years, when it won't be able to access international markets.
However, the deal is not as simple as that. Almost half of the 100 billion euros to be written down is held by Greek banks and pension funds. In fact, Athens would have to borrow 30 billion euros from its eurozone partners to recapitalize its banks, at an interest rate of about 4 percent. Under the terms proposed in Brussels last week, another 30 billion euros would have to be provided by Greece to foreign banks as incentives to voluntarily accept a 50 percent loss, or haircut, on the Greek bonds they hold. Basically, Greece would have to borrow 60 billion euros to save 100 billion euros. Given that the Greek debt pile is now roughly 350 billion euros, it seems what Greece's European partners are proposing is hardly a panacea for its problems. But these are concerns for central bankers.
What worries average Greeks much more are the measures the government will have to adopt to please the eurozone and the IMF so that a steady supply of loans keeps coming. The last two years have seen unprecedented levels of austerity adopted in Greece as it tries to bring down its large public deficit. The measures have included pay cuts of at least 30 percent in the public sector and a substantial increase in taxes, including an emergency levy on property, that has seen the average Greek's bill increase by some 2,500 euros just this year. Along with the recession, which is set to complete a third year, the spending cuts and tax hikes have had a devastating effect on Greek society. Unemployment has passed 17 percent and is still rising, hundreds of businesses are closing each week and ordinary families are finding it near impossible to meet all their financial commitments. "I have spent the last few weeks going from one bank to the next to try to renegotiate my mortgage," says 32-year-old civil servant Maria Kotsari, who saw her salary virtually cut in half overnight. "But no matter what deal they offer me, the numbers simply don't add up. I don't know how I'm going to hold on to my home."
The Brussels debt deal does little to address these concerns. In fact, it requires Athens to continue its austerity program under the strict supervision of EU and IMF officials who are to set up a permanent presence in the Greek capital. It gives Greece a little breathing space, but it does not provide hope of economic growth or job creation. These concerns have been the main driving force behind the occasionally violent protests in Athens over the last few months. The displays of public anger peaked on Oct. 28, when hundreds of anti-austerity protesters prevented for the first time an annual military parade marking Greece's entry into World War II from taking place.
In this charged negative climate, it seems counterproductive at best and self-destructive at worst for Papandreou to call for people to vote on the deal. The only thing that the prime minister could hope to gain from the referendum is that it would force politicians and commentators in Greece -- who have suggested that there are simpler and less painful ways of tackling the debt problem -- to get off the bleachers and defend their positions from the center of the court. Papandreou appears to hope that this would unmask his detractors as charlatans and would concentrate Greeks' minds on the uncomfortable truth, which is that the best option they have is to combat their economic problems from within the eurozone. Voting no, he argues, would open a dangerous and destructive path to the drachma. There are fears that an exit from the euro would collapse the Greek banking system and make key imports, such as fuel, so expensive that the economy would not function properly.
It's possible, however, that Papandreou will not get the chance to go face to face with his opponents. Although he survived a meeting with his anxious ministers on Tuesday, he still has to overcome a vote of confidence in parliament on Friday. The prime minister may have put his neck on the line in calling for the referendum, but it's not at all certain he'll be able to save himself. He started the week with a parliamentary majority of just three deputies; one member of the ruling PASOK party has since quit and another has indicated she is unlikely to support Papandreou. If one more goes, his government will crumble. But even if Papandreou scrapes through the confidence vote on Friday, he will still have to put his referendum proposal to parliament. Again, a simple majority in the 300-seat legislature would be enough for his motion to pass -- but of the 152 PASOK deputies left, four have already indicated they won't support it.
If the prime minister fails to get his way, he will be forced to stand aside and call snap elections. And just in case you thought that this would clear some of the uncertainty surrounding Greece, most opinion polls indicate that the a general election would produce a hung parliament. Greece has an extremely poor record of coalition governments, and there is currently no basis for cooperation between any of the main players. Also, the conservative opposition, New Democracy, which leads in the polls, says it wants to renegotiate the loan agreement with the eurozone.
If enough MPs do approve the referendum motion, it could take a month for the plebiscite to actually be held. But Greece isn't just treading water right now; it's sinking. There are fears that in the intervening month, the structural reforms the European Union and the IMF have demanded would be put on hold and that Greece's lenders would not release the next loan installment, bringing Athens a step closer to bankruptcy -- and no doubt causing widespread anxiety in the markets.
It seems that wherever Greeks turn, their future is mired in doubt. In fact, the only thing Greece is rich in at the moment is uncertainty. Almost 2,500 years since a referendum that shaped its future, Greece could be heading for another era-defining vote. How it could do with finding another seam of silver, as the ancient Greeks did at Laurium, to help pay off its debt.
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