Greek Prime Minister George Papandreou has impeccable political credentials. Both his father and grandfather served his country as prime ministers.
Until this week, he has performed quite remarkably under the most trying circumstances.
For many months, he led his beleaguered country through the dark tunnel of financial uncertainty until some glimpse of light at the end of it became visible with the latest package of bold measures put together at the European Union (EU) summit. With the slightest of margins in his parliament, Papandreou led his government in adopting tough austerity measures in the face of massive public resistance and nearly daily demonstrations in the streets.
Last week, Papandreou might have won his moment of crowning glory. The EU forced banks to take a haircut, pricing down Greek bonds by 50 percent. That translated into a reduction in Greece’s outstanding debt amounting to 100 billion euros. In addition, over a hundred billion euros will be lent Greece to help the country climb out of its debt crisis.
From hero, however, Papandreou quickly turned into a heel.
The very next day after the EU deal was forged by way of arm-twisting done mainly by France’s Sarkozy and Germany’s Merckel, Papandreou announced the matter will be submitted to his people in a referendum. That announcement blindsided everyone. It is nearly certain the austerity program required by the bailout deal will be rejected in a public vote.
Within hours, panic swept through the world’s markets. Stock markets withered. Interest rates spiked.
The day of doom had arrived, many thought. The referendum will almost certainly result in a Greek default. That, in turn, will force Greece out of the monetary union and back to its ancient currency. The European banking system will be forced to absorb a shock they could not take.
If Greece defaults, the rest of the financially troubled “olive belt” economies — Italy, Spain and Portugal — will probably slip over the ledge. A financial tsunami a hundred times more destructive than what we saw in 2008 will likely result, forcing the entire global economy into an unthinkable depression.
What bizarre thought might have crossed Papandreou’s mind that inspired a “democratic” proposition that will surely produce a calamity not only for his country but also for the entire global economy?
Leading a financially beleaguered country out of dire straits required statesmanship of the highest order instead of petty populist politicking. Although he held to a slim majority in his parliament, the painful austerity program Papandreou needed to do enjoys the support of the political opposition. There was admirable consensus among the Greek political parties to do whatever needed to be done to solve the fiscal crisis plaguing this small European economy.
The erratic and inexplicable proposal to conduct a referendum on the matter must have come from the darkest corner of Papandreou’s mind. It is from that same corner of his mind that Papandreou drew inspiration, many months ago, to declare that Greece does not need a bailout package from her EU partners.
Within hours after making that bizarre proposal to hold a referendum, Papandreou was summoned to Cannes by a visibly angry Nicolas Sarkozy. The two leaders met on the eve of Group of 20 summit held in that city amid talk of the European monetary union breaking up. Analysts were speculating about Greece being expelled from the monetary union and forced to return to the drachma.
Returning to the drachma will basically flush the Greek economy down the drain. That currency will simply devaluate endlessly, making it impossible for Greece to service its euro-denominated debts and cutting off that country from international financing.
Immediately after his meeting with Sarkozy, Papandreou flew back to Athens to address his parliament. He apparently took another about-face and abandoned this idea about holding a referendum to confirm the terms of the EU bailout arrangement. Sounding like the perfect Europhile, Papandreou urged his countrymen to support the fiscal program as the only way to climb out of the debt crisis.
The political damage was done, however.
The Greek opposition parties, who often sound more solidly in support of the EU than the Prime Minister, denounced Papandreou for attempting a ploy to blackmail them. Subsequently, a no-confidence vote was called. No one is confident Papandreou will survive this vote.
It is now increasingly clear that this bizarre idea to submit the EU deal to a Greek referendum was a clumsy attempt by Papandreou to consolidate his hold on the office he occupies. That cheap political maneuver, however, nearly pushed the global economy off the brink.
The stakes are much higher than petty personal political agendas. Papandreou, having proven erratic, is not indispensable. If he loses the no-confidence vote and is yanked out of office, the rest of the world might actually be more confident in the capacity and determination of the Greek government to continue working with a larger community of states to slowly and painfully pick its way out of this mess.
There will continue to be major uncertainty in Europe, nonetheless.
Across the Adriatic Sea, meanwhile, Italian Prime Minister Silvio Berlusconi faces yet another no-confidence vote. This will be the 52nd time since 2008 that the scandal-prone leader faces a no-confidence motion.
Berlusconi is many times funnier that Papandreou — and Italy’s debt is many more times larger than Greece’s. The Italian economy, also deep in debt, is one of Europe’s largest economies. It is generally considered too big to bail out.
If Berlusconi begins to act funnier than his Greek counterpart, the world is in for bigger trouble.