The idea that Greece should have a referendum to decide on whether or not to accept the bail-out package from the rest of us has clearly come as a bit of a shock to the politicians who like to think they run the eurozone. So far, absolutely no democracy whatsoever has been introduced to the bail-out process and that, I daresay, is how they expected things to carry on. But the bail-out package comes with nasty conditions – public sector pay cuts, tax rises, lower pensions and the like – that it is hard to see any nation accepting without something of a fight.
So it makes sense for the Greek government to give the people the final say on the deal. If they don’t, they are bound to lose power soon anyway – this just gives them something of a chance of hanging on. You can’t have severe austerity without consent of some kind from your electorate. As John Redwood puts it: “In reality, there was no ability to deliver their preferred policy without some means like a referendum of getting people to accept the chosen course of action.” The fact that the Greek government – seemingly alone among Europe’s governments – is prepared to recognise that big events of this sort need discussion with their populations as well as with the euro elite is actually rather heartening.
But the fact that markets are diving this morning should tell us one more thing. Greece has all the power. The talk around the bail-outs is usually about what Germany is prepared to do rather than what Greece is prepared to accept. Germany is assumed to have the power. But Greece has now shown the markets that it just isn’t so. If the Greeks decide they don’t fancy the terms much and announce a disorderly exit, it is game over for the euro, for Europe’s economy and for Germany’s weak-currency driven export boom.
Time for everyone to start being a bit more polite to Greece. A senior member of Angela Merkel’s government has noted that he is irritated: “»Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece,” he says. I suspect that if they don’t want to have to start staving off the next banking crisis, they might have to make a few more.