Greece to Hold Referendum on New Debt Deal

Workers in Greece are demonstrating against the economic crisis inside the country. The unions are saying that the capitalists should pay for the crisis they created and not the workers., a photo by Pan-African News Wire File Photos on Flickr.

October 31, 2011

Greece to Hold Referendum on New Debt Deal

By NIKI KITSANTONIS and RACHEL DONADIO

ATHENS — In a surprise move that jolted Europe and put his political future in play, Prime Minister George A. Papandreou announced Monday that his government would hold a referendum on a new aid package for Greece, putting austerity measures — and potentially membership in the euro zone — to a popular vote for the first time.

Analysts said the vote on the austerity package could threaten the comprehensive agreement reached by European leaders last week to shore up the euro zone. A rejection by the voters would also be likely to be treated as a vote of no confidence in the government and lead to early elections.

The decision to hold a vote introduces a note of uncertainty in what had seemed to be a done deal. The anxiety stirred up by those fears hammered United States financial markets on Monday, showing once again how the domestic politics of even the smallest members of the European Union can create troubles that not only threaten the currency but reverberate around the globe.

Addressing lawmakers on Monday evening, Mr. Papandreou said the decision on whether to adopt the deal, which includes fresh financial assistance, debt relief and deeply unpopular austerity measures, properly belonged to the Greek people.

“Let us allow the people to have the last word, let them decide on the country’s fate,” he said.

It was still unclear how the referendum would be posed, but Mr. Papandreou said it would be a vote on whether Greeks supported the debt deal and the program of austerity measures in exchange for foreign aid.

The stakes are extremely high. A no vote would not only be likely to bring down the Greek government, it could also break the deal between Greece and its so-called troika of foreign lenders — the European Union, European Central Bank and International Monetary Fund — which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would help Mr. Papandreou shore up his flagging political fortunes and avoid the instability of early elections. The center-right opposition has opposed the bulk of the austerity program, and the prime minister’s popular support has dwindled as Greeks have been hit by a seemingly endless series of tax increases and wage and pension cuts.

A referendum would in effect shift responsibility for the nation’s painful economic choices from Mr. Papandreou’s Socialist Party onto the public.

By framing the debate as one of continuing to use the euro or returning to the drachma, the move also appeared to give the Greek government a bit more breathing room — and leverage — in negotiations with Europe over the debt deal, proving that a matter that German leaders had hoped had been settled last week still had the potential to be reopened.

“It’s not motivated by the intention of some sort of brinkmanship with Europe, but it may have this sort of positive or negative effect,” said George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business. “It raises the stakes. It’s about, ‘Will we remain in the euro with a lower public debt or will we lose everything that we will achieve?’ ”

At a time when Mr. Papandreou is under intense political and social pressure, including from members of his own Socialist Party, the move was seen as the last card he could play.

Mr. Papandreou also said that he would seek a parliamentary vote of confidence in his administration, just four months after winning a similar vote before pushing an earlier batch of austerity measures into law. The vote of confidence is expected to be held on Friday evening, and Mr. Papandreou is expected to squeak by with his narrow three-vote majority in Parliament.

Government officials said the referendum would probably be held in January, essentially buying the government time while the details of the debt deal are hammered out.

Addressing lawmakers on Monday evening, Finance Minister Evangelos Venizelos framed the debate as one of Greece’s staying in the euro zone — the group of 17 European Union countries that use the euro. “It’s for the people to decide to stay in Europe or go back to the drachma,” he said.

Takis Michas, a political analyst and the project director of Forum for Greece, an Athens research institute, said posing the question this way was “a master stroke on behalf of Papandreou in the sense it is forcing the various parties to take a very responsible position.”

“If he succeeds in framing the issue as being one of remaining in the euro zone, obviously he is going to get a huge yes,” Mr. Michas added. “But it depends on whether he can frame the question in those terms.”

Under the Greek Constitution, the government must propose the language of the referendum, which would need to be approved by Parliament and then by the president.

Some analysts said the referendum was an invitation for instability. “People are very discontent with him personally and toward his economic policy, and in these kinds of circumstances when the debate is very passionate and things are tense, holding a referendum could be risky,” said Alexis Papahelas, the editor of the center-right daily Kathimerini.

“If the referendum fails, obviously everything will be in disarray,” he added. “Probably we will go to elections, but we have a very big chance that the country would go into a disorderly default.”

Last Thursday, after European leaders and the International Monetary Fund had finally reached an accord, Mr. Papandreou had hailed “a new day for Europe and for Greece.” But the deal has proved broadly unpopular among Greeks, who do not understand how it will translate into immediate relief.

Niki Kitsantonis reported from Athens, and Rachel Donadio from Rome.