The Popular Mandate

Two thousand years ago, Greece introduced the world to the concept of democracy. But a Greek decision this week to hold a referendum on whether to stay in the Eurozone has shocked the world and threatens further financial turmoil. Under pressure from the Eurozone partners and threatened with no-confidence vote, Prime Minister George Papandreou withdrew the plan. Whether his government survives or not, the drama played out in Athens offers a valuable lesson in globalisation and democracy: only when citizens are aware of the responsibility and pain, and not just its benefit can the global engagement be sustained. The inadvertent lesson is particularly valuable as similar anti-globalisation sentiment has grown in the West in recent years.

The first lesson from Greece is about the disproportionate influence of lesser actors in an interconnected and interdependent world. Tiny Greece may account for 2 per cent of Eurozone GDP, but fears about its impending bankruptcy shook Europe and sent shockwaves throughout the world. Given the massive exposure of international — especially European — banks to Greece, a default could have a similar effect as the Lehman Brothers collapse of 2008. No matter how small the country, the cascading effects of its failure to service its debts reverberates through the world, magnifying the impact. When a European summit meeting on 26 October hammered out a bailout deal for indebted Greece — ‘voluntary’ write-off of half the debt by private banks and setting up a trillion-dollar support facility in exchange for further austerity measures promised by Greece — markets heaved a collective sigh of relief. Papandreou’s surprise announcement on Tuesday that he would put the deal to a referendum reignited fears about a default and Eurozone-wide devastation. Leaders of all stripes agreed that allowing the Greek people to exercise their democratic rights at this moment in history was profoundly irresponsible.

That said, the rationale seems clearer when viewed from Athens. For Papandreou, letting citizens decide whether they are willing to bear the heavy cost of the bailout is the most responsible thing to do. Ever since Greece signed agreement with the troika —European Union, the European Central Bank and the IMF — accepting loans to avoid default and agreeing to drastic austerity measures, successive rounds of budget cuts have resulted in the loss of tens of thousands of jobs, reducing benefits and imposing high taxes. The country has responded with waves of strikes and violent protests. Before entering yet another austerity programme, Papandreou sought a clear mandate from his furious constituents and challenged the opposition New Democracy party: do you want to stay in euro and bear the pain? Or lose your affiliation with Europe through a less costly but uncertain reversion to the drachma?

Having lived under military dictatorship and being rejected by the European Union decades ago, Greece was happy to reinstate democracy in 1974, and be accepted as a member of the EU. A clear decision by the public to stick with the Euro — Papandreou’s preferred outcome — would pave the way for eventual economic stability despite significant and inevitable pain.

Eleven years ago, when Greece was welcomed into the European common currency bloc after being initially refused as an underdeveloped economy, there was much joy. Greek products — from olive oil to services and tourism — would find a rich market and investment and credit would flow in. In their euphoria at being accepted into the club, Greeks did not care to read the small print of the Maastricht Treaty, which required members to be mindful of their finances and not allow their budget deficits to exceed 3 per cent of GDP. Brussels looked the other way as bloated Greek bureaucracy, its lax revenue collection and the country’s generous welfare drove the deficit up until the creative accounting was exposed. Advised about the hidden mountainous debt, bankers began pulling out of Greek bonds sparking a crisis threatening European unity and forcing Brussels to launch repeated bailout effort.

With Papandreou’s call for citizens’ involvement in the decision, the music stopped. Had he persevered with his plan to hold the referendum, it would have let citizens decide whether they wanted to return to the dance floor, limping, or quit Eurozone altogether. Democracy will have determined whether to embrace globalisation or say goodbye.