Wall Street Journal
November 1, 2011
George Papandreou's decision to call a referendum on Greece's latest debt deal is an astonishing roll of the dice. The Greek prime minister is asking the country to decide whether it wishes to continue with a debt deal that will require Greece to effectively hand over its economic sovereignty to Brussels and endure at least another nine years of brutal austerity at the end of which its debt-to-GDP ratio will still be 120%, higher than Italy today. The alternative is to vote down the debt deal, a path that would likely lead to default, exit from the euro and European Union and economic collapse.
The result has been to throw the euro zone back into turmoil: a referendum is unlikely before January and current opinion polls suggest 60% of Greeks oppose the deal. Much depends on what question is actually asked and how opposition parties respond. But the decision seems to have caught Brussels by surprise and will no doubt have enraged other euro-zone leaders coming just days after they cobbled together the latest summit deal, billed as a comprehensive response to the euro crisis.
But in reality, the debt deal was patently inadequate, not only leaving Greece's debt burden at a level that few believe is sustainable but also capping the possibility of future debt relief from the private sector as a result of the €30 billion collateral deal agreed with the banks. Meanwhile Greece's official lenders, including the European Central Bank, refuse to take losses on their own exposures. Germany and the other northern European countries continue to resist any fiscal transfer -- and it is even argued that to provide one would be illegal under the E.U.'s "no bailout" rules.
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