To me, the wisdom of the political tactic of announcing a referendum as a total surprise hinges on the question of whether Mr. Papandreou is a shrewd political leader or whether he is the overcharged, panicky and desperate “son of the father” as which many describe him. This I cannot judge but, still, I think it is the key question. Let’s assume for a moment that he is the shrewd, Thatcher-style political leader who does not scream “I want my money back!” but instead “I want more money!”
I simply cannot believe that the referendum was announced with the real intention to hold one, and I would still bet that there won’t be one. Heck, it doesn’t make sense because there is no upside to it. If the outcome is a “yes” (to whatever the question will be), there will still be close to 50% against it. And if it is “no”, it may by Greece’s fastest road to poverty and perhaps even anarchy.
Let’s be mindful of what really happened here. For the first time since 2008, Greece is calling the shots. Perhaps in the worst of all possible ways but, nevertheless, Greece – as that party of the game which is going to be affected the most by its outcome – is calling the shots. All EU leaders who were interviewed today in Cannes said that they wanted “to hear from Mr. Papandreou what his intentions were”. So far, they had gotten used to telling Mr. Papandreou (and Greece) what his actions should be.
Let’s also be mindful of the consternation all over Central Europe that the October Plan may fall apart after all; that Greece may default after all; that Greece may even leave the Eurozone. Were those not the same people who only recently were suspected of ring-fencing Greece so that she could be driven into default and out of the Eurozone? If this were a poker game, I would get the strong feeling that one side just blinked.
Mr. Papandreou could make a credible case that he signed the October Agreement in good faith but that, in the time since then and back in Greece, reaction within his own party and protests from the streets had convinced him that something more had to be offered to the Greek people to safeguard against a breakdown of social order.
Why he had not consulted with his “bosses” in Paris/Berlin before? Well, just a procedural oversight. In hindsight a mistake, but please forgive me. Those things happen when one is under duress. Remember that Sarkozy/Merkel laughed about Berlusconi before TV cameras and they wouldn’t do that again, either.
Now that Mr. Papandreou obviously has everybody’s attention, it would be show-time for him. The time to explain that Greece remains 100% committed to bringing her household in order but to also explain that cutting government expenditures alone is not a workable solution for Greece (Mr. Papandreou could cite Mr. Reichenbach from the EU Task Force who said that Greece would return to growth in 2014 and not before). Mr. Papandreou could explain that parallel to the cutting of government expenses there have to be growth stimuli in the economy to create new jobs, new income, new income taxes and new corporate taxes. Otherwise, Greeks would not peacefully stay on board for another 24 or more months of continued pain.
The argument should be easy when it comes to money. With the 3-digit billion EUR numbers which the EU has gotten used to throwing around in connection with saving the banks who had lent to Greece, another few billion EUR for investment in growth projects in the Greek economy should not be such a big deal.
“It’s the economy, stupid!” – And that means it is growth which matters. If Mr. Papandreou is made out of Mrs. Thatcher’s mold, he will get what he wants and growth will return to Greece much sooner than 2014. If not, he will regret that he had not resigned when he could still have done so with some grace.
And if he gets what he wants, he can call the referendum off.
Update after the event in Cannes
What a missed opportunity for Mr. Papandreou! At least we know that he is not a Mrs. Thatcher.
According to media reports (official confirmation is not available), Merkozy gave Mr. Papandreou sort of an ultimatum: fulfill the October-Agreement or else be prepared to leave the Eurozone!
What an empty bluff! Mr. Papandreou should have expressed severe concern about such a posture instead of caving in. He might have said something like the following in a very polite way:
“Before you take rash actions, please remember that Greece owns 1,9649% of the ECB. The same day that you allow Greece to run out of cash, the ECB will have to close its doors (or get immediately massive capital infusions from its owners). The ECB holds more than 150 billion EUR in Greek assets which compares to a capital & reserves of the ECB of approxiamtely 10 billion EUR. If the ECB had to write-down only 10% of the value of its Greeks assets, that capital & reserves would be wiped out. If it had to write-down 50% of its Greek assets (the same proportion which is being requested from private lenders), the ECB would require an immediate capital infusion of over 60 billion EUR.
Incidentally, Greece is not in a position to inject new capital into the ECB.
Thank you for your attention!”