Greece teeters after referendum bombshell

World leaders panic as a shock Greek plan to hold a referendum on the Eurozone rescue package sends borrowing costs higher and prompts new recession fears.

As they gathered on the French Riviera yesterday, leaders of the G20 group of industrialised nations had been expecting to discuss ways to strengthen the slow and faltering recovery from global recession.

Instead, sea air was mixed with panic as the politicians watched all the gains made in financial markets last week on the back of the Eurozone rescue package evaporate. The shock announcement on Monday evening by Greek prime minister George Papandreou that he would hold a referendum on whether to accept the spending cuts, tax rises and other harsh measures involved in the latest bailout deal, has been described as a grenade thrown into the middle of the G20 meeting.

‘For the second time in three years, the world is on the brink of a global recession,’ said one analyst. ‘This time the catalyst is the Eurozone debt crisis.’

The latest opinion polls show that 70% of Greeks want to remain in the European single currency, but 60% oppose the tough measures that form part of last week’s bailout deal – there have already been months of strikes, demonstrations and even riots in Greece, as the population struggles to adjust to austerity measures.

They can’t have both: staying in the Euro means accepting the package of an extra €130 billion lifeline in addition to the €110 billion already accepted, and agreeing to pay off half their debts. In exchange for this there will be even further falls in the Greek standard of living, rising unemployment, falling or unpaid wages and all the attendant social problems. The alternative is to go bust – or to abandon the Euro and suffer the possibly even greater economic hardship that would follow.

Cost of democracy

Sticking together and defending the Eurozone rescue package agreed only a week ago is seen by most of the rest of Europe’s leaders as more important than the Greek government’s level of support from voters. Papandreou’s referendum pledge has already pushed Italy into the dangerous territory of having unaffordable charges on its borrowing.

‘Giving people a voice is always legitimate but the solidarity of all Eurozone countries is not possible unless each one agrees to measures deemed necessary,’ said President Nicolas Sarkozy of France, who is chairing the G20 summit and therefore responsible for trying to keep the assembled world statesmen and women calm and focused on solutions.

But Greece, the birthplace of democracy, seems determined to consult the people, even if the whole world could pay the price.

You Decide

  1. Greece has never been a realistic partner for an economic project with Germany and France. Discuss.
  2. Are some commentators right when they say the European Union and the leaders of the G20 are afraid of democracy?

Activities

  1. Draw your own graphic explaining how the proposed austerity measures imposed on Greece will affect the Greek economy, deficit, debt levels and borrowing costs. The links below will help.
  2. Should Greece leave the Euro so that it can devalue its own currency? Analyse the consequences of such a move in an essay or presentation.

Some People Say...

“If Greece can't stand the heat, it should get out of the kitchen.”

What do you think?

Q & A

What if Greece leaves the Euro,defaults on debts and prints its own money?
It would be able to export competitively priced goods and become a more attractively priced tourist destination. For years, imports have outweighed exports: Greece has been selling tomatoes and buying BMWs, the saying goes. But the downside would be a huge drop in economic output and soaring inflation, meaning years of hardship.
Ouch.
Yes. At the moment Greece is in the same club as Germany, Europe's successful economic powerhouse, but it could soon have its quality of life put back by decades.
So why is Greece in the Euro anyway?
The French President has now said it should never have been allowed to join. But at the time, the rest of the Eurozone fudged the criteria in order to have 'the land ofPlato' participate.

Word Watch

G20
The club of industrialised nations. The EU counts as a member but Greece is not.
Referendum
A vote of all the electorate to approve or reject a proposal. Also known as a plebiscite or popular vote.
Plato
A philosopher in Classical Greece and student of Socrates. His writings are seen as a key plank of the development of western thought.
Greek democracy
The rule of the people (literal translation) was invented in the Ancient city-state of Athens, where voting was limited to a small group of freeborn men – no slaves, no women, no outsiders.
Default
Not paying your debts. The deal struck last week was a partial 'orderly' default in which only half of Greece's debts would be paid.
French Riviera
the southern coast of France, which is crowded with seaside resorts. The G20 is being held in Cannes.

PDF Download

Please click on "Print view" at the top of the page to see a print friendly version of the article.