Greeks Go Wild, to Vote on Austerity

Greek Prime Minister George A. Papandreou will risk destroying his country’s bailout by other nations in the eurozone. He will offer a referendum on the austerity package meant to save Greece from default. He will ask those who have rioted to block the budget cuts to now approve them.

Officials from other countries around Europe must think Papandreou is mad. Either that or he is conceited enough to believe he can get his populous in line to approve the least popular program in the history of the euro. He will do all of this after successfully begging his neighbors to save him. Now, he probably has turned his back on that aid just days later.

Irrational decisions are usually the most difficult to decipher. Papandreou’s does not only hurt Greece. Global capital markets investors will look at the renewed instability of the Greek settlement and will once again look beyond the country’s problems to those of Portugal, Spain and Italy. That means the borrowing costs for these nations will rise. The backstop of a new, larger European Financial Stability Facility (EFSF) will look less powerful. All or most of what Germany and France have done to agree on a plan to settle investors concerns about the region will be lost.

Papandreou already has the votes he needs to affect a bailout. He got them, with great effort, from his own parliament. The members of that parliament, by definition, represent Greece’s voters. The country’s citizens can vote their leader out in the future and let a new parliament choose whether to honor the terms of the rescue package. A referendum now neuters Greece’s democratic system.

Papandreou has lost his head, and his decision that will ripple across all the troubled nations in Europe.

Douglas A. McIntyre