Greece keeps eurozone guessing

Greek Prime Minister George Papandreou speaking to journalists, 2 Nov 11 The eurozone crisis has shot to the top of the G20 agenda in Cannes

Greek Prime Minister George Papandreou rolled the dice, but he may prove to be the big loser.

He decided to gamble on a referendum. He calculated that a majority of Greek people would not risk voting against the bailout package agreed last week. But events have overtaken him and by the weekend he could be an ex-prime minister.

Events have moved fast. His decision to call a referendum - which had democratic merit - hammered markets around the globe. It sent the EU spinning into crisis. The agreement reached so painfully the week before was in danger of unravelling. No bank, for instance, could contemplate taking losses on their holdings of Greek debt when the future was so uncertain.

Other EU leaders were infuriated and rounded on Mr Papandreou. At the meeting in Cannes yesterday evening the French and German leaders played hardball. They made it clear they were no longer prepared to be held hostage by the Greeks.

Mr Papandreou encountered two leaders who had changed. No longer was the message that they would do all it took to keep Greece in the eurozone. Their exasperation was summed up in the message by President Sarkozy: "abide by the eurozone rules or leave".

There would be no reopening of negotiations. If there was to be a referendum it had to be held at the earliest date. They also insisted that whatever the question asked this was a referendum on whether Greece wanted to remain in the eurozone.

Also they told the Greek prime minister that the country would not receive a cent more in aid until after a Yes vote in the referendum. Greece has cash reserves only until mid-December.

Political turmoil

But back at home George Papandreou's support is crumbling. Voices from within his own Pasok party have called on him to resign.

Four of his ministers have said they oppose the referendum. The most damaging intervention came from the Greek Finance Minister, Evangelos Venizelos. Arriving in Cannes he issued the following statement: "Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt. This acquis by the Greek people cannot depend on a referendum."

Greek parliament graphic

Two nights ago, whilst the Greek cabinet was debating the referendum, he had been holed up in a clinic with stomach problems. It was widely thought then that he disapproved of a referendum which he said he had not been told about.

On Friday Mr Papandreou faces a vote of confidence. There is now a strong chance he will lose it. The Papandreou era would then be over. Almost certainly Greece would move to early elections. There would be no referendum.

An early election would bring its own uncertainty, but the mood in Greece is for a strong government of national unity. Only such a government might be able to persuade the EU and IMF that Greece needs a new deal that delivers growth as well as cuts.

The future is clouded with uncertainty. It probably remains true that a majority of Greeks would vote to stay in the euro. Both the EU leaders and local politicians will paint a No vote as ushering in a period of bankruptcy and chaos. However, a significant number of people would use a referendum to register their anger with austerity. That is why a referendum would be unpredictable.

For a long period George Papandreou called on European solidarity to support his country in its hour of need. In the face of huge hostility he has pushed through cuts in wages and jobs and opened the way for vital reforms.

But even if Greece remains in the euro - which I judge as the most likely outcome - he will get no thanks. His own ranks are turning against him and his government is on the verge of collapse.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 5.

    Beggars can't be choosers. It is not within the beggar's democratic right to dictate how much money under what conditions the giver wants (or not want to) to give. All beggars can democratically decide is whether he/she wants to be a beggar (in which case they are at the mercy of the giver) or not (in which case they can do whatever they have democratically decided to do). Am I being too harsh?

  • rate this

    Comment number 4.

    EU = Murderers of democracy.

  • rate this

    Comment number 3.

    A referendum would make sense one year and a half back, before Greece got it's share of "help" from Europe. Too late now. But in his folly Papandreou has showed how much damage Greece can do in the markets, even with such a half-hearted attempt at gamble. A new government must use this to renegotiate.

  • rate this

    Comment number 2.

    At long last. Political parties in Greece found the consensus they lacked during this crisis. Everybody, from government MPs to the whole opposition, agreed to turn against the only person that was crazy enough to say, let's put that to a referendum and let the people decide for themselfs.

    Another great day for democracy.

    /sarcasm off

  • rate this

    Comment number 1.

    This is an EU coup. Remove the man who was going to give the people their say and replace him with a yes man, a banker.

    I hope it's now clear to every Greek they are being sacrificed for the bankers to ensure they get their money back. And we'll pay for it too - it's our money, going into the bankers pockets, with the poor Greeks being used as a proxy.

    Time for a European spring.


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