The Crisis in Greece, Democracy, and the EU

Editor's note: There is a a synopsis in Greek of this article in a PDF at the bottom of the page.

Introduction

The sovereign debt crisis in Greece that erupted at the end of 2009 and led to an unprecedented decision by the Eurozone leaders to seek the International Monetary Fund's (IMF) support in 2010, highlighted that the fate of Greece, the Eurozone, and the EU are irrevocably bound together. Following the May 6, 2012 Greek Parliamentary elections that failed to create a coalition government, a new wave of political uncertainty spread across the country, and the possibility that Greece might exit the Eurozone was discussed openly around the world. The June 17 elections resulted in a coalition government, which reduced fears of an imminent 'Grexit.' Nevertheless, at the end of 2012 Greece remains in media headlines worldwide, frequently perceived as a litmus test of the Eurozone crisis.1

Although determined by country-specific structural causes, the crisis in Greece is reflective of a wider set of phenomena, of which Greece is a part and to which it also contributes. Accordingly, in the debate on the sovereign-debt crisis in Greece a variety of issues and concepts are being discussed and commentators are attempting to establish logical connections between them. Economically-inclined commentaries focus on fiscal consolidation, an austerity program, and the reform process. Others raise questions of democracy, solidarity, sovereignty, and popular discontent. Thus the crisis in Greece brings together a number of narratives that are only superficially distinct from each other and invites analysis not only about the Greek economy, society, and political scene but also about the EU and the nature of the European project. The objective of this essay is to take a snap-shot view of one specific development in the time-line of the Greek crisis, and against this background to discuss the curious connections that (may) exist between the variety of concepts and issues listed above.

Case-Study: The Attempted Referendum of October 2011 One of the incidents that sparked a particularly vibrant debate on Greece, democracy, sovereignty, the EU, and the way of handling the crisis was the attempted national referendum proposed on October 31, 2011. In order to understand the debate and the disputes caused by this failed proposal it is necessary to shed some light on the developments in Greece leading up to it.

The Troika of Greece's creditors'2 5th review mission, completed at the beginning of September 2011, revealed (although no official review mission report was published until the end of October) that, once again, the Greek government had failed to meet the fiscal consolidation and reform targets as renegotiated in June the same year. Accordingly, the decision about the disbursement of the 6th tranche of the EU/IMF loan was postponed to October 2011. Simultaneously, a firm message was sent to Athens that the government must take extraordinary measures to meet its June 2011 commitments. Amidst uncertainty about the scope and efficiency of the reform measures announced by the Greek government in early October 2011, and in the context of discussions on the approval of the disbursement of the 6th tranche of the loan, on October 21, 2011 the Troika released a confidential report depicting that the Greek public debt was unsustainable.

On October 26, 2011, during an extraordinary Euro Summit, under the leadership of German Chancellor Angela Merkel and French President Nicolas Sarkozy, a compromise was reached concerning the Greek debt problem and the stability of the Eurozone. In line with the compromise, a 'voluntary bond exchange with a nominal discount of 50 per cent on notional Greek debt held by private investors' was scheduled.3 A second financial assistance program for Greece would follow. Insiders reported that negotiations leading to the compromise were held in two adjacent rooms concurrently so that the representatives of the private sector creditors and the Eurozone member-states could swiftly exchange their negotiating positions. The negotiations were full of unexpected turns and spawned unprecedented tension among their participants. Meanwhile, the Greek political scene was far from stable. The inability of the PASOK (Panhellenic Socialist Movement) government to handle the situation was striking and increasingly its mandate to rule was questioned by the opposition leaders, who pressed for early elections. Voices of discontent were heard also in the PASOK camp itself. In essence, the credibility of the Greek prime minister, George Papandreou, was put in question. An implicit consensus prevailed that he should step down.

Against this background, on Monday October 31, 2011, Papandreou announced a proposal of a nation-wide referendum. Although it was never officially and explicitly spelled out, the question was to be roughly whether Greeks were for or against the second assistance package for Greece and a debt restructuring scheme. In essence, by answering this question Greeks would have been forced to answer several other related questions, such as: "Do you approve of the current government, its prime minister, and its policies? Do you want Greece to stay in the Eurozone? Do you want Greece to overcome the crisis?" Clearly, therefore, although foreign media argued to the contrary, there was no personal gamble attached to Papandreou's referendum proposal. Instead, the very idea of the referendum resembled an attempt, concealed by references to the virtues of direct democracy, to force Greeks to legitimize the discredited PASOK government and Papandreou in particular.

The idea of a national referendum in Greece sent shockwaves at home and abroad. Domestically, it was criticized for a number of reasons. First, the referendum's legality was questioned. Many argued that the Greek constitution provides for referenda only on matters of national urgency. Second, it was perceived as a dishonorable way of legitimizing the government and its policies. Third, it was considered "dangerous and frivolous"4, putting the compromise reached at the Euro Summit of October 26th at risk, as well as casting a shadow on the integrity of the Eurozone. In a similar manner, Greece's European partners were surprised by the call for a referendum. Announced just three days before the start of the G-20 Summit in Cannes, Papandreou's proposal caused the EU leaders to schedule a series of informal meetings with Greek government officials on the sidelines of the G-20 discussions.

Obviously, there is no official record of the informal discussions that ensued, and neither did Papandreou provide a convincing explanation for abandoning his plan. On November 4, 2011, in a lengthy speech to the Greek parliament where he was expected to resign from his post but also to gain a vote of confidence for the government, he did not utter the phrase "I resign/I step down" even once. Instead, the leadership of the government was tacitly passed on to Evangelos Venizelos, deputy prime minister and minister of finance, who according to a deal struck within PASOK before Papandreou's speech, was to form a coalition government.5 That the referendum proposal was eventually withdrawn was hotly debated abroad, much more so than in Greece, where popular opinion agreed that this particular referendum was damaging for the country.

Quite a different perception of the developments concerning the failed referendum was apparent abroad. Several commentators, such as the BBC's Gavin Hewitt, argued that "not allowing" Greece to hold a referendum was a breach of democracy and sovereignty, and represented "the most controversial feature of the Eurozone crisis: the failure to consult the people"6. Anthony Barnett, founder of the website openDemocracy, argued that the referendum proposal was "a breath of honesty and democracy in the crisis of the European currency"7, while The Guardian's D. Baker said that abandoning the referendum proposal was a lost chance to "bring the Greek people into the discussion"8. Barnett portrayed Papandreou as the knight of democracy trying to save the euro, which he called "the most undemocratic and elitist of projects"9. From a different perspective, the referendum was conceived of as "the inevitable result of Greece's loss of sovereignty to Brussels and the International Monetary Fund"10, on the one hand, and a depiction of "a return to politics in the EU"11. Jean Pisani-Ferry, director of the Brussels-based think tank, Bruegel, argued that "The management of all this [i.e. the crisis] by the Europeans has been fairly technocratic. But now we see the gamble of a politician, which creates uncertainty again, but in a different form"12. The question that follows from the above brief insight into the debate on the Greek referendum is: Was this particular referendum initiative truly a democratic tool for gaining democratic legitimation for the government's policies? Or was it an attempt to manipulate the Greek people?

Discussion: Referenda as a Tool of Democratic Legitimation Supporters of referenda argue that they serve as a tool for consulting the people, bringing them into the policy-making process, and thus acquiring legitimation for the political course of action pursued. This in turn yields political stability. In this context, Switzerland is frequently referred to as an example of a country where the institution of a referendum allows achieving exactly that. Skeptics suggest, however, that referenda are not always as innocent and democratic as they seem to be. Indeed, there are many negative examples from Central and Eastern Europe. A good case in point is the "Three Times Yes" Polish referendum of 1946. Quite apart from the fact that its results were forged, the way the questions were formulated gave the Communists the opportunity to interpret the results according to their liking. Indeed, the Communists used it as an opportunity to legitimize their claims to power in war-damaged Poland. Another example is the 1921 Upper Silesia plebiscite ordered by the League of Nations in line with the provisions of the Versailles Treaty of 1918. The issue at stake here was whether the rich industrial province would belong to the Weimar Republic or to the Republic of Poland, which had regained its independence only in 1918 after 123 years of occupation. Although historical records indicate that the majority of votes were cast in favor of the Weimar Republic, the original inhabitants of the area, i.e. Poles with a distinct Silesian sense of identity, claimed that the Germans committed several unlawful practices ahead of the plebiscite, thus altering its results. Following the plebiscite a violent uprising took place and the League of Nations was forced to reconsider the plebiscite outcomes. Accordingly, new border lines were established across Upper Silesia, this time depicting the national divisions and sense of belonging, if not accurately, then more adequately.

Furthermore, not all issues qualify for a referendum, because with complex issues it is often technically impossible to frame them adequately for voters, so there is always the chance that voters will be either under-informed or misinformed about the issues at stake. It is argued of course that a 'referendum culture' could minimize the above risks associated with referenda. Still, is it the same to ask about a technical matter requiring a thorough understanding of the national economy compared with a question of whether a school or a mosque should be built in a given community? Supporters of referenda tend to criticize the skeptics by arguing that in a democracy "you cannot precook results," and this kind of inclusive discussion is exactly what makes democracy what it is and renders referenda meaningful. By engaging people with the debate—so the argument goes—you seek legitimation by acquiring the consent of the majority.

The counterpoint here is that the virtues of democracy should not be derived solely from majority rule. That the majority of voters may be right about a given issue does not derive from the fact that they outnumber their counterparts. Likewise, the counterparts are not wrong because there are less of them. In a similar way referenda may not necessarily serve democratic purposes. For instance: What happens if a referendum is being used in an instrumental manner, i.e. to achieve goals other than the ones officially declared? Is it still a tool of democratic legitimation?—Definitely not. The problem is that contemporary democracies are not devoid of politicking and demagogy—and never will be. It would also be naive to believe that all elected representatives of the people, i.e. the politicians, will always act in an ethically absolute manner, in line with the highest standards of responsibility and personal integrity. In this sense, referenda cannot be considered either as a cure for the weaknesses of democracy or as a promise of making people satisfied with the political course of action pursued.

Looking at the attempted Greek referendum from this perspective, it cannot be considered a tool of democratic legitimation. If Papandreou was driven by an honest attempt to engage the Greek people in a discussion concerning the ways of handling the crisis, he should have called a referendum more than one year earlier, i.e. in April 2010 when the initial €110 billion financial assistance program was negotiated with the Troika of Greece's creditors. Reverting to popular support once a range of harsh fiscal austerity measures were already taken and the country had fallen in deep recession, was simply an attempt to escape the political consequences of his policies. Given the fact that the referendum question would have been very vague and general, the proposed referendum constituted a perfect escape-strategy for Papandreou in an effort to save his political future and to legitimize the policies that his government had pursued since late 2009.

Conclusion: The Missing Link: Fiscal Consolidation, Democratic Deficit, and Popular Discontent To address the issue of democracy from a broader perspective, it should be stressed that the crisis in the euro area revived the debate on the question of a "democratic deficit" in the EU. For instance, the wave of popular discontent with the "policies of austerity," colored by the all too well-known assertion13 of the IMF "imposing" its policies on the creditor countries, was interpreted as reflective of a democratic deficit consistent with the failure to consult the people on economic policy choices. However, the problem is not that the people were not consulted, but that the EU leaders were unable to devise adequate policies to address the variety of country-specific causes behind their economic downturns. The way of addressing the crisis in Greece proves it. That is, initially the EU leaders treated it as a short-term liquidity problem and the structural causes of the crisis were downplayed. Simultaneously, with the exception of Ireland, the political leaders seemed to be unable to reconcile austerity/fiscal adjustment with growth, focusing—as in the case of Greece—on increases in taxation, frequently disconnected from income, rather than on the structurally-determined expenditure drift. This basic 'omission' of the EU leaders and other actors involved in the 'rescue program' in Greece is the more surprising given the fact that research shows that "fiscal adjustments based on cutting spending and especially if accompanied by pro-growth supply-side reforms, can have zero cost on the economy and sometimes can be expansionary over the medium run. On the contrary, tax-based adjustments are always recessionary"14.

In view of the above, the broad discussion provoked by the attempted Greek referendum highlights that concepts such as democracy, growth, popular discontent, fiscal adjustment, and solidarity are connected. As efforts to contain the crisis in the euro area are challenged by debates about their (lack of) democratic footing, it should be made clear that the lack of remarkable improvements across the eurozone—which creates opportunities to ignite popular discontent—should not be attributed to the ills of democracy. Instead, the quality and competence of the elected officials should be questioned. In the particular case of Greece the problem is that only a very scant minority of politicians has recognized the degree to which the twin-malady of the Greek economy—i.e. the bloated public sector resembling the bureaucratic systems specific to communist countries and a degree of state intervention in the economy that recalls the worst experiences of étatism—ruins the country's prospects. At the same time a religious belief in hand-steering the economy rather than reliance on market forces prevails. A referendum would not have been helpful in bypassing these cognitive barriers, not to repeat that the particular referendum discussed here was designed to serve quite a different purpose.

NOTES

1. Visvizi, A. "The June 17 Elections in Greece: Domestic and European Implications", PISM Policy-Paper No. 31, June 2012, Polish Institute of International Affairs (PISM), Warsaw, 2012.

2. That is: the IMF, the European Central Bank, and the European Commission.

3. For details see: Visvizi, A. (2012) 'Greece: The riddle of perplexity', Euro&Finance/Analysis, at: Euractiv, March 19, 2012

4. Bakoyanni, D., former foreign minister and leader of the small centre-right Democratic Alliance party, quoted in: Kyriakidou, D. & Papachristou, H. (2011) "Greek PM calls referendum on new EU aid deal", 31.10.2011, at: Reuters

5. Venizelos did not succeed in forming a government. Instead, an interim government, dominated by PASOK and led by Lucas Papademos, former Vice-President of the ECB, was sworn in Athens in mid-November 2011. Due to its provisional nature and lacking democratic legitimation, the government was endowed with a limited mandate. The purpose of the government was threefold, i.e. to ensure that the 6th tranche of the EU/IMF rescue package was disbursed; to negotiate the 50% voluntary bond exchange programme with private creditors along with provisions for Greek bank recapitalization scheme; and, to pave the way to parliamentary elections tentatively scheduled for February 19, 2012.

6. Hewitt, G. (2011) "Greece's referendum: democracy versus the Eurozone", 02.11.2011, at: http://www.bbc.co.uk/news/world-europe-15553685

7. Barnett, A. (2011) "The Greek referendum is an excellent idea" (the original article), openDemocracy, 04.11.2011, at: http://www.opendemocracy.net

8. Baker, D. (2011) "Greece, home of democracy, deprived of a vote", The Guardian, 08.11.2011

9. Barnett, A. (2011) "The Greek referendum is an excellent idea" (the original article), openDemocracy, 04.11.2011, at: http://www.opendemocracy.net

10. Fitoussi, J.P., professor of economics at the Institute of Political Studies in Paris, quoted in: Erlanger, S. (2011) "Austerity Faces Test as Greeks Question Their Ties to Euro", News Analysis, NYT, 01.11.2011

11. Pisani-Ferry, J., director of Bruegel, quoted in: Erlanger, S. (2011) "Austerity Faces Test as Greeks Question Their Ties to Euro", News Analysis, NYT, 01.11.2011

12. Ibid.

13. In the literature on the IMF assistance, the appropriateness and sustainability of economic policy measures advocated by the IMF are frequently put in question. I.e., essentially, the IMF tends to be criticised for "establishing and reinforcing the global hegemony of neoliberal economic policies" (Mueller 2010), which in turn affects the poorest. See, for instance: Mueller, J. L. (2010), "Drinking the Kool-aid: The IMF and Global Hegemony", Middle East Critique 19(2): 93–114.

14. Alessina, A. & Giavazzi, F. (2012) "OECD offers better history lessons on public debt", Letters, Financial Times, October 11, 2012. For details on the expansionary fiscal adjustment thesis, see: Alesina, A. & Ardagna, S. (2012) "The design of fiscal adjustments", Working Paper 18423, NBER Working Paper Series, National Bureau of Economic Research, Cambridge, MA, September 2012.; Alesina, A., Favero, C., Giavazzi, F. (2012) "The output effect of fiscal consolidations", Working Paper 18336, NBER Working Paper Series, National Bureau of Economic Research, Cambridge, MA, August 2012.