The Great Debate UK

Capitalism and democracy under threat from euro zone crisis

By Laurence Copeland. The author is a professor of finance at Cardiff University Business School. The opinions expressed are his own.

It takes quite a lot to make me feel sorry for politicians, especially the European variety, but I must say that Nicholas Sarkozy and particularly Angela Merkel have a right to be livid at the news that the Greek government now proposes to hold a referendum on whether they will agree to be given another gigantic dollop of aid. Having only reached agreement (of a very vague kind) at last week’s summit in the early hours of the morning, you can imagine how the French and German leaders must have felt when they discovered that their marathon negotiating sessions may all have been in vain. It seems the Greeks are now too wary of foreigners bearing gifts to accept their largesse without weeks or months of prior deliberation and debate.

The acceptance of the referendum proposal is apparently not a foregone conclusion, which is just as well, since it is plainly insane.

First, consider the wording of the referendum question. Opinion polls appear to show that Greeks remain keen on staying in the EU (and maybe even in the euro zone), so as things stand at the moment the outcome could be a majority in favour of rejecting the deal, but staying in the EU.  But is this option still open to Greece? If not, the Greek government could end up with a mandate to follow a road that is already clearly blocked.

To pre-empt this scenario would require some sort of clear statement from Brussels about whether they would be willing to allow Greece to stay in the euro zone and/or EU if it rejected the latest round of austerity measures.

Even supposing the details of the referendum are sorted out, what then? How long is all this supposed to take? The vote could hardly go ahead before mid-January at the earliest. What on earth does Mr Papandreou think will be happening in the markets in the meantime?  Does he think they will simply sit on their hands and wait patiently for Greek democracy to grind through the gears?

In reality, the momentum of this crisis is so inexorable that you can be quite sure that the deal currently on offer will have become totally irrelevant by the time any referendum is held, if the offer hasn’t anyway been withdrawn by the time you read this.