Financial Times
November 2, 2011
Has he gone insane? This question summarises the global reaction to Greek Prime Minister George Papandreou’s decision to put his government through the twin tests of a parliamentary vote of confidence on Friday and a popular referendum in January, over the debt deal painstakingly hatched by the eurozone leaders last week. A decision that threw financial markets into disarray, and was reportedly taken almost spontaneously with little consultation within his own party, let alone with his eurozone partners, does appear senseless: it undermines the latest and most extensive effort to shore-up the eurozone and brings Greece closer to a disorderly default and a disgraceful exit from the euro. What was Mr Papandreou thinking?
From the moment he sought external support to avoid outright default, Mr Papandreou never hid his displeasure at having to implement the kind of painful reforms required by it. After all, the two main Greek political parties, Pasok and New Democracy, are huge political machines that turned the exchange of public sector jobs and favours for votes into an art. Downsizing and reforming the public sector amounts to political suicide. Mr Papandreou couldn’t avoid implementing painful austerity measures, but made a conscious decision to postpone structural reforms. Having never owned that programme, he never really sold it to the population. Political and social paralysis ensued.
Faced with yet another difficult vote over the new debt deal and with mounting popular protests against austerity measures, Mr Papandreou was left with three options. The first was slow death: persist on his current path of political paralysis, dwindling popularity, and collapsing governing capacity. The second was immediate death: call for early elections that, all surveys indicate, would have resulted in an unprecedented rout for his party. The third was gambling for resurrection: call for a referendum that would give his government a new lease on life and salvage his political career. Seen from this perspective, his decision does make political sense.
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