Greece On The Verge by Raymond CS Lee

Should Greece hold a referendum?

The most difficult part about writing this article is to decide on the exact wording of the title or question.

I have considered the question "Would Greece hold a referendum?" but have considered it extremely subjective. I would quote German Chancellor Angela Merkel's words on Wednesday (2 November 2011) on the matter that characterizes Mr Papandreou's proposed referendum as a game of poker. Hence, I changed the title or question to "Should Greece hold a referendum?"

Let us consider all the players in this poker game in order to answer this question satisfactorily.

Player 1: The major players in EU such as German Chancellor Angela Merkel, France President Sarkozy and the ECB Bank chief.

Player 2: Mr Papandreou and his PASOK (Panhellenic Socialist Movement) party.

Player 3: Greece main opposition party, the New Democracy.

Player 4: Other peripheral players such as US and China with representation mostly from IMF.

The extremely onerous austerity programme prescribed by the EU has caused widespread strikes and massive unemployment in Greece making Mr Papandreou's ruling PASOK party extremely unpopular and at risk of losing its slim majority (160/300) in parliament. A likely internal revolt within his own party makes it unlikely for him to win a vote of confidence. Facing his own resignation, he is forced to consider roping in the main opposition, New Democracy party.

The main opposition party New Democracy's position is very clear: They would not throw a lifeline to their main rival and jeopardize their own popularity. Hence, they refuse to back the European rescue package or the referendum, since both are highly unpopular and painful propositions for the Greek public.

Now we return to Mr Papandreou position. He is all alone, facing his political death if he does not hold the referendum to officially get the support of the New Democracy party in the Greek parliament for the highly unpopular austerity programme.

What does Mr Papandreou need to consider if he pushes through this austerity programme without a referendum?

I would actually question its legality, especially if the main opposition can prove that it would not have been approved by the Greek parliament. But would the next Greek government dare to make such a move?

What is at stake?

1.      The government of Greece depends on EU support for funds or it will run out of money by December, that is next month.

2.      If it exits EU its government will immediately collapse due to lack of funds. Also, It would need to restructure its economy and revalue its currency. This will also cause possible paralysis to its maritime and tourism industries due to liquidity problems for its small businesses and its close connection to the EU.

3.      German Chancellor Angela Merkel made it quite clear that Greece cannot rejoin EU for at least 10 years if it exits EU now. That will put its businesses at such a disadvantage compared to its EU peers that the damage will likely be irreparable. In short, Greece cannot afford to exit EU.

What is the consequences if Mr Papandreou stays in EU with the only option left for him - that is to adhere to the requirements of more austerity programmes?

His government will be voted out and he will be force to resign. Unemployment, which currently stands at 16%, will continue to climb without government spending to jump start the economy and provide liquidity to small businesses.

In such a situation, Mr Papandreou is only allowed one step. That is to follow the bitter prescription in order to buy time and hope for a miracle to revive the Greek economy.

The opinions in this document are entirely the author's own and should not be construed as professional advice.

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