Greece Taunts the EU With Austerity Referendum

5 MINS READMar 10, 2015 | 09:31 GMT
Greece Threatens the EU with an Austerity Referendum
Greek protesters hold the flags of several EU member states outside the Greek parliamentary building in Athens in February.

Finance ministers from the eurozone countries met in Brussels on March 9 to discuss Greece's latest proposals for economic reform. At the same time, key members of the Greek government suggested that Athens put the country's future to a vote should an agreement with its lenders fail. While the Greek statements were vague and quickly downplayed, in the coming months the government in Athens will come under more pressure, and the possibility of a referendum or early elections could become a reality.

Greece's defense minister and leader of the Independent Greeks party, Panos Kammenos, suggested on March 7 that Athens call a referendum if no agreement is reached with the European Union and the International Monetary Fund on Greece's debt. On March 8, Greek Finance Minister Yanis Varoufakis said his government could hold a referendum or early elections should Athens and its lenders fail to make a deal. Kammenos and Varoufakis did not specify what the referendum would cover, and Greek officials rejected media speculation that it would decide whether Greece remains a member of the eurozone. Yet both statements suggest that the ruling Syriza party and its junior coalition partner, the Independent Greeks, are at least discussing the possibility of asking whether to implement the policies requested by the European Union and the IMF.

This is not the first time a Greek government has suggested a referendum on Athens' relationship with the European Union. During the height of the eurozone crisis in late 2011, former Prime Minister George Papandreou proposed a referendum on Greece's bailout program and debt restructuring plan. But Papandreou faced strong pressure from the European Union and dissent within his government, forcing the Greek leader to abandon the idea. At the time, Greece was still ruled by its traditional parties, and a large part of the Greek establishment was in favor of accepting Brussels' demands.

But the political situation in Greece and Europe has changed since 2011. Asking voters in Greece whether to comply with EU and IMF requests is more probable now for a simple reason: Syriza was elected to renegotiate Greece's debt, end austerity measures and keep Athens in the eurozone. But Athens is finding it increasingly hard to achieve these goals simultaneously. The European Union will not give Greece more money if Athens does not introduce substantial economic reforms that include cutting spending, privatizing state-owned companies, redesigning the pension system and reforming labor legislation. However, the Greek government said it will not apply policies that go against its electoral platform and is focusing its proposals on fighting tax evasion and corruption.

While Athens and the Eurogroup debate Greece's future, Greek voters are trapped in the middle. Opinion polls show that the Greek government is very popular, and many voters support Athens' tough negotiation tactics. But the polls also show that most Greeks want their country to remain in the eurozone, so Syriza cannot fulfill both mandates without making compromises. The dilemma comes as the party is dealing with internal disputes. Left-wing factions within Syriza are criticizing the government's recent proposals to the European Union and the IMF, and some even believe that Greece would be better off outside the eurozone.

Greece's lenders are also facing political constraints that influence their negotiating positions. In Germany, some of the most conservative sectors of the government oppose making concessions to Athens. Members of Chancellor Angela Merkel's Christian Democratic Union and its sister party, the Christian Social Union, are also worried about the electoral growth of Alternative for Germany, a euroskeptic party that criticizes Germany's membership in the eurozone and opposes assisting Greece. The German parliament easily approved the extension of Greece's bailout program in late February, but a record number of conservative lawmakers voted against it.

Germany is also worried that making concessions to Syriza would increase the popularity of other anti-system parties throughout the eurozone. Spain, Portugal and Ireland — countries that have received bailouts in recent years — will hold elections between late 2015 and early 2016. Berlin fears that if Syriza can successfully renegotiate Greece's debt, other governments will demand similar concessions in the future. This also explains why the current conservative governments in Madrid, Lisbon and Dublin have taken a hard stance against Greece's requests for debt relief. These governments have defended austerity measures in the past and cannot support concessions for Greece that they did not request for themselves.

Because of these conflicting interests, the coming months will be filled with political friction in the eurozone. The current agreement between Athens and its lenders is so fragile that it could collapse at any point over the next four months. Athens' strategy is to make selective promises to its lenders and pass just enough reforms to secure the final tranche of its bailout package (some 7 billion euros, or nearly $7.6 billion) without generating unrest at home.

Greece will probably manage to complete its bailout program in late June, but immediately after, it will have to face even greater challenges. Athens will probably not be able to return to financial markets because borrowing costs are likely to remain high, so the European Union will pressure Greece to request a third bailout. This would, however, be politically unacceptable for Syriza.

Therefore, the Greek government will push for debt relief, most likely in the form of longer maturities, lower interest rates and repayments linked to Greece's economic growth. While some eurozone governments may accept these proposals, any deal will come with strings attached. These conditions will put Syriza under substantial stress as it decides whether to abandon some of its electoral promises and accept EU demands or reject them, a course of action that would move Greece dangerously close to a default and possibly force it to leave the eurozone.

This is the point where the Greek government may feel it lacks the electoral mandate to make such a crucial decision and when a referendum or early elections could become possible. During an interview with Germany's Der Spiegel magazine, Greek Prime Minister Alexis Tsipras poetically said, "If we were to hold a referendum tomorrow with the question, 'Do you want your dignity or a continuation of this unworthy policy,' then everyone would choose dignity, regardless of difficulties that would accompany that decision." The irony behind a vote on the future of Greece is that it would not put an end to the country's crisis, because each alternative creates nothing but new problems down the road.

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