Greece, the eurozone, the EU and the G20 were in crisis yesterday, as Greek Prime Minister George Papandreou lost the support of his deputy PM, five members of his cabinet, and several Pasok MPs, leaving the entire country, and the continent, in a state of disarray.
The crisis prompted a midday meeting of Papandreou’s cabinet, at which Papandreou was informed that he did not have support for a referendum. He then went to visit the president to request that he appoint a government of national unity, with some cabinet ministers drawn from the opposition New Democracy party.
Initial reports suggested that New Democracy leader Antonis Samaras would reject the offer — as it would require New Democracy to support the October 26 “rescue package”, which it has previously opposed. Later in the afternoon he announced that he had agreed to the rescue package on October 27, although this was news to everyone concerned.
By that point, the deal had changed. Samaras and New Democracy would be co-negotiators, Papandreou said, and on that basis he would go into Friday’s vote of confidence, fully intending to continue as prime minister without new elections.
By half-past eight (Athens time), Papandreou had his answer from New Democracy, with Samaras demanding Papandreou’s immediate resignation, and calling a parliamentary walk-out of his party. Papandreou continued to insist that negotiations with New Democracy begin immediately, but there were later rumours that he had agreed to a compromise with his cabinet — that they would whip Pasok together to win a vote of confidence, and that he, Papandreou, would the resign with dignity, with fresh elections in the offing.
That was the state of play at the end of the evening, but there had been much more throughout the day. It had begun at 5am, when Deputy Prime Minister Evangelos Venizelos, on arriving back from the Cannes meeting with G20 leaders, publicly stated he would not support a referendum on being in or out of the euro.
Papandreou had been humiliated at the G20 meeting in Cannes, with Nicolas Sarkozy and Angela Merkel dictating a change in the referendum question — from the specific question of the rescue package to the general question of euro membership — as well as its timing, and putting on hold the €8 billion tranche of emergency support to cover the country’s debt repayments ahead of a larger payment from the EFSF.
The French and German leaders rejected Papandreou’s January date. They wanted the vote moved forward from mid-January to early December to quell anxiety, and they made any payments conditional on acceptance of the full deal — which would see the country impose up to 30% public budget cuts across the board, and privatise vast amounts of state resources.
Hours after his dissent, Venizelos was in talks with six rebel cabinet ministers, ahead of today’s planned vote of confidence. Minutes before the emergency cabinet meeting, he said he would not support a referendum “under any circumstances”.
For a couple of hours in the late morning, attention was briefly diverted from Greece, as Italian bond prices, having dipped slightly, rose again to 6.35%, despite the belated delivery of an economic recovery plan by Italy. The plan would see mass sell-off of public holdings and utilities, but has failed to appease those demanding the resignation of Silvio Berlusconi. It did not quell fears in the markets, which left Italian bond offerings untouched.
On Thursday, six members of Berlusconi’s PDL party signed a letter urging him to resign, and inaugurate “the new phase of Italian government”, and President Giorgio Napolitano was talking to leaders of other parties, a move widely seen as a prelude to a “national salvation” government. Berlusconi’s continued presence as PM, and the resulting lack of confidence, is widely held to be the single factor keeping Italy’s bond prices high.
Attention switched back to Greece, as Venizelos’s factional meeting continued and the noon cabinet meeting was delayed for more than an hour. Rumours floated freely — that Papandreou had forewarned Sarkozy and Merkel of his referendum plan, and that much of it was theatre.
Another version had Papandreou telling the cabinet that the whole purpose of the referendum was to confront Samaras and make him take a share of responsibility, a suggestion that left Greek bloggers giddy with anger. At one stage it was suggested that Loukas Papadimos, the Greek vice-president of the European Central Bank, would be appointed caretaker prime minister while new elections were held.
Nor was the final result much clearer. Forty eight hours ago, Papandreou had set out a clear rationale for a referendum — a move that was howled down by those who argued that it was a way of letting Europe put the pressure on Greeks and hammering home to them what a disaster default and eurozone exit (which also means EU exit) would be. By the next day, the referendum was off the table, but what was wanted instead — immediate elections — wasn’t there either.
Indeed, the paradoxical conclusion was that a vote of confidence in Papandreou would trigger his departure, and the de facto confirmation of his government would prompt elections. This farcical chase was all done in pursuit of, inter alia, market certainty.
But will the rejection of the referendum achieve the desired aim of clarity? Even if Papandreou resigns, there is no requirement for the country to go to an election to ratify a new PM and government, though it seems unimaginable that they would not do so. But would an election campaign give the clarity required to express the will of the people? There are, after all, several positions one could take on the October 26 rescue package — and in one afternoon the New Democracy party held all of them.
Indeed the only party that wants to leave the eurozone is the KKE, the Communists — and they have explicitly announced that they will not be part of a governing coalition, turning up simply to vote supply for all the rope that capitalism requires. The most likely result would presumably be Pasok taking a haircut of its own, but New Democracy not gaining enough seats to form government in its own right. Would it serve in a grand national unity coalition with Pasok?
And whatever the result, why would the general public — and the Communist-led faction of the trade union movement — accept the deals that they have spent the past two years rejecting? Whatever the calculus behind the referendum, it would at least settle the question either way, and a government, any government could claim a clear mandate — and at this point it probably doesn’t matter if Izzy Dye and Dimitri Dollis run Greece, as long as they implemented the referendum.
As our commentator Nick Skrekas noted:
I think its about time we had a serious debate in this country as to where we want to go.
You can’t have it both ways — one week political, media and other leading institutions are screaming about the new bailout being an oppressive sellout that denigrates sovereignty — and then the very next week argue that the referendum will undermine the deal that you never wanted.
Financial support will always come with strings attached, it is up to an informed majority of Greeks to accept or reject it — as long as they have full information and a reasonable view of what the future will hold on casting a yes or no ballot.
I think the average Greek in the street has more maturity that they are given credit for.
An election would bring no relief, especially if the ND managed to scrabble back. They are the ones primarily responsible for the orgy of borrowing and spending. PASOK is little better and I continue to maintain that Papandreou is one of the few adults in the room. As for Venizelos, he lost out in a leadership bid against Papandreou way back (2005?) and the reason he is Finance Minister is pure factional politics. I would trust him as far as I could throw him (have you see the size of the bloke?). P is unpopular because he is the fall guy for the fallout from the GFC and the Eurocrisis, neither of which had anything to do with him, and he is the only one doing anything remotely likely to resolve the situation and dig the nation out of this hole. (He even brought in some tax reform–practically a suicide note in Greek politics!) Sarko and Merkel may be getting desperate but I think they know that Papandreou is still their best bet–and yes, a lot of the stuff this week is about keeping him in power. The Greek people and their politician low-lifes are being forced to confront the hard choices. It may seem increasingly tenuous to say so, but I still claim this is all good learning exercises to get the Greeks to finally embrace some real change.
As for “I think the average Greek in the street has more maturity that they are given credit for.” That is a big call.
And BTW, as I wrote the other day (last night?) the referendum, which would have been essentially to stay in the EU would have been handily won in the affirmative, and indeed IMO brought some political respite. Incidentally it is not just whether to stay in the Eurozone though that is what many commentators are saying. Finally I found an authoritative citation to back up my opinion:
[Leaving the eurozone doesn’t just mean changing a currency. The 2009 Lisbon treaty rules only accommodate for leaving the entire European Union, not just the eurozone.
It’s not just Greece’s economy future at stake, it’s Greece’s whole European identity, writes Tony Barber in the Financial Times:
“Aside from the existential question of the eurozone’s survival, what is at stake in the debt crisis is nothing less than the European identity of contemporary Greek society. This would be put to a severe test if Greece were to tumble out of the eurozone and suffer the mother of all economic and social implosions.”]
On this, I would agree with that citation in Rundle’s piece about the wisdom of the average Greek on the street. They do understand this. Which is why any referendum would be won.
MRJ – the Barber quote above is a non sequitor; only 17 of the 27 are in the euro so membership of the EU is not linked to being in the eurozone.
Thus far no-one has worked out the mechanics of returning to a domestic currency but even that is not necessary; a drachma can be linked to the euro, Sterling or zloty and allowed to float.
At least two countries in Latin America use the US$ (Ecuador & Costa Rica I think) and Argentina did so after it defaulted.
Ireland has always accepted Sterling and it would probably be the most obvious solution to its current problems.
@AR.
Not quite sure exactly what you mean. But Barber was explicit and no reason to think it was an error, say of omission, rather than of understanding. Also Mario Draghi refused to answer a question about this yesterday , until he finally said “It is not in the Treaty.” He repeated it twice. I interpret that as consistent with Barber–ie. if a country drops out of the Eurozone treaty there is no provision, and by default you may drop out of the EU.
At any rate, Papandreou got his vote of confidence, as I predicted. This thing will resolve ok IMO.
I admit I have my biases on this topic. I must have turned French! I find the UK attitudes wearisome and frankly would like them to be given the old de Gaul treatment: in or out, you f*ckers! Now the little Englanders are talking about insisting on a specific UK let-out-clause on every bit of new EU legislation. NO. If they wish to have all the benefits of being in the world’s large trading block they cannot choose a la carte. They should consider their options and decide if they want to be inside the tent or out. Play a role, be construction or piss off. (Interesting to see that there were intimations that Obama was not totally against a financial transaction tax–which scares the Brits because so much of their economy is based on financial skimming/scamming–but the reality is it is easy for Obama to talk positive knowing full well Congress will always block it. Again, IMO the Eurozone should go it alone–maybe try to bring China on board, that’ll scare the Anglosphere.)
[(guardian.co.uk/world/2011/nov/05/papandreou-step-aside-government)
“Papandreou will propose that Venizelos becomes prime minister and he will go home.” “It will be a four-month government,” said Venizelos. “In February new elections will be held.”
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Under pressure from his own MPs to resign at the end of a week that began with his shock decision to hold a referendum over the aid package, Papandreou chose the honourable way out by electing to cut the deal with Venizelos.
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“I don’t care about my post. I don’t care even if I am not re-elected. The time has come to make a new effort … I never thought of politics as a profession,” he told the chamber in an impassioned 45-minute speech before the ballot.
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The ruling socialists will join forces with smaller parties in the 300-seat parliament to form the government. “In unofficial talks they have agreed to do this and the new government will have a majority of 180 seats,” the source said. “The conservative New Democracy party has made clear they don’t want to collaborate so we will do it this way.”
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A coalition government is widely seen as the only way to bring Greece back from the brink as it struggles to contain the fallout from Papandreou’s decision to call a referendum.
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The move, an extraordinary high-stakes gamble by a prime minister determined to achieve “greater consensus” for the severe austerity measures demanded in return for aid, backfired dramatically, with EU leaders wondering whether Greece wanted to stay in the eurozone and global markets gyrating wildly on fears of the instability a no vote would bring.
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But the fiasco has also focused minds. The threat of bankruptcy – and sudden talk of Greece’s exit from the eurozone – prompted the conservative main opposition party to row back on its previous rejection of the bailout deal which will also see 50% of Greece’s colossal €360bn debt also being written off.
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Papandreou has brushed off the move as a successful form of brinkmanship, saying that ultimately with New Democracy’s endorsement of the measures it had proved to be a “positive shock”.
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But in the maelstrom of the past few days he also recognised that he would have to sacrifice himself for Greece to move on.]
In my book Papandreou called it correctly, in an incredibly multidimensional wedge. Venizelos is just the usual venal career politician who wants that top job so bad. But he might just consider that it could be wiser to let Papandreou take the heat until the election. I remain unconvinced that these politicians can really do what the country needs. So if Venizelos is PM I doubt much will happen in the next 4 months. I may be unduly idealist but maybe with P still in charge this could have been further opportunity to lock in more needed reform. I don’t expect the protests will reduce. And I remain unconvinced the elections will lead to seriously reformist government. Hope I am wrong.
Still the Eurozone is saved for the time being.