The Revolt of the Debtors

BRUSSELS – Greek Prime Minister George Papandreou’s call to hold a referendum on the rescue package agreed at the eurozone summit in late October has profound implications for European governance, despite the fact that the referendum will not now go ahead. It may also determine the future of the euro. 

Papandreou had to reverse course quickly in response to both internal and external pressure, but the option that he put on the table will not go away whatever the fate of the present Greek government. As long as the Greek people have to be asked to accept one austerity package after another, they might wonder when they will have a direct say on this matter.

Less than one week before Papandreou dropped his bombshell, eurozone leaders had spoken unequivocally: “The introduction of the European Semester has fundamentally changed the way our fiscal and economic policies are coordinated at European level, with co-ordination at EU level now taking place before national decisions are taken.” Simply put, pan-eurozone financial governance had supposedly won the day.

Technically, Papandreou’s proposed referendum was not directly about fiscal or economic policy, but it is a decision that would have had huge economic ramifications for the eurozone. Despite that, it was taken without any coordination with other eurozone leaders. Moreover, if Greece’s voters had rejected the deal that has just been proposed to them, the outcome might have foreclosed any further coordination on the country’s debt problems with the European Union. Greece would have sunk or swum on its own.