The referendum announced on Monday by the Greek prime minister, George Papandreou, is probably the final bell before Greece defaults and quits the euro. Assuming it is not withdrawn amid all the political turmoil afflicting the ruling party, the vote is planned for January, and the issue will presumably be the latest bailout. But the real question will be: “Euro or drachma?”
Greece’s ruling elite understands the dilemma perfectly, hence the negative reaction of political parties and the press to Papandreou’s initiative, with six senior officials of his own party calling on him to resign. If the vote goes against the euro, Greece’s economic, political and diplomatic strategy of the last 30 years would be deeply shaken. The repercussions would be incalculable, for Greece but also for Europe.
Papandreou’s decision has not been taken lightly, even though it has a whiff of the unpredictability of his family as politicians. The main reason for it is that Greece has become increasingly ungovernable through successive European Union “rescue” packages.
Rapid unravelling of domestic political power began in the summer, with mass gatherings across Greece’s major urban centres. The largest were in Syntagma Square in Athens, where the Aganaktismenoi (the “Outraged”) dismissed the political system and demanded “real democracy”. An enormous demonstration took place in June, the government was shaken and Papandreou even resigned for a few hours, seeking a coalition government with the opposition. But a lack of political focus by the Aganaktismenoi allowed the government to escape.
In September popular unrest returned even more decisively, led by trade unions that had broken their links with the ruling party. Local authority employees allowed rubbish to accumulate in the cities. Electricity workers said they would not co-operate with a government plan to collect a property tax via electricity bills. Civil servants began to occupy ministries and other institutions, profoundly weakening the capacity of the Greek state to collect taxes and cut expenditure.
The balance was probably tipped on 28 October, the anniversary of Greek entry into the second world war. Traditionally there are student and military parades in urban centres, the largest in Thessaloniki. In an unprecedented act, crowds of bystanders disrupted parades across the country, including in Thessaloniki. Government representatives were hounded and the president was called a traitor. The mechanisms of symbolic and ideological power of the Greek state buckled.
The reaction of the crowd signalled a development that has been in the offing for a while. By imposing ruthless austerity, privatisation and liberalisation, the EU has eventually succeeded in igniting the nationalist sentiment of Greeks. The rejection of the latest bailout has taken a nationalist tinge, often directed against perceived German domination.
Lest it be misunderstood, this is not yet virulent nationalism. It is more a reaction to the loss of national sovereignty and independence that would result from the permanent monitoring of Greek finances by EU bureaucrats, and from the plan to sell a huge range of public assets to pay off debt.
It is also a reaction to the palpable weakening of the democratic process in the course of the crisis. Papandreou is fully aware of the risk of being branded a traitor, fairly or unfairly. He is also aware of the advancing collapse of his government. But he is reluctant to hold fresh elections because he knows his party would be destroyed. And so he has opted for the desperate gamble of the referendum in the hope of buying time, as well as scaring people with the “euro or drachma” question.
It remains to be seen whether there will be a referendum. The government has to win a vote of confidence in parliament this week, which is far from certain. There could well be rapid political change that instead leads to elections.
The import of Papandreou’s move, however, is that it has put the real dilemma of this crisis in front of the Greek people. If debated freely, there would be no guarantees that the Greeks would opt for the euro. And if they chose to quit, it is possible the monetary union would begin to unravel.
Greece quitting the euro of its own accord would probably come as a surprise to policymakers in the EU. They never really intended to drive Greece out since the risk to banks would be enormous. Misled by the meek attitude of the Greek government, they imposed ever harsher measures, imagining they were doing Greeks a favour. Someone in the bubble of Brussels should have told the decision-makers what was really happening among Greece’s grassroots.
The real risk was always that Greece would be forced by necessity to break free of the euro, and this is now more likely than ever.
By Costas Lapavitsas, a professor of economics at the School of Oriental and African Studies, University of London.