[Skip to Content]

Register to receive the OMFIF Daily Update and trial the OMFIF membership dashboard for a month.

* Required Fields

Member Area Login

Forgotten Password?

Forgotten password

Why Greece needs a referendum

Why Greece needs a referendum

Next act in a classical narrative 

by Meghnad Desai

Thu 12 Mar 2015

The essence of classical narratives is that everyone knows what will happen next. They have heard it before or experienced it. The joy – the pain, too – lies in revisiting the familiar.

The Greek debt-and-austerity negotiations are going according to a plan already foreseen. When George Papandreou was prime minister, he was stumbling through the beginning of the Greeks’ confrontation with their own profligacy. In 2011, he wanted to fight the troika and thought he could hold a referendum and ask the citizens for their views. Alas, he was intimidated into cancelling that plan by Angela Merkel and Nicolas Sarkozy. He obeyed the German and French leaders’ wishes. That destroyed his credibility and his party’s electoral prospects.

Here we go again, with left-wing Syriza now in control. Promises are easy to make in opposition. You can promise the earth. Then you come down to earth when you get power and realise its limitations.

Syriza had a week of grandstanding with Yanis Varoufakis, the finance minister, becoming a rock star. Now comes the hard grind. The government faces an impossible situation. To behave responsibly and do what the troika tells them is a negation of all the party stood for. They arrived on the slogan ‘Can’t pay, won’t pay’. Now they have to bend down and take the punishment.

There’s just one escape. Like Papandreou, but with still greater urgency, Syriza can go back to the citizens. The  government has to say, ‘We thought it would be easy to defy austerity. But we have found out that is not so. If we are to fulfil our promise to you, we have to carry out Grexit.’

Leaving the euro would mean repudiating all debts and devaluing the new currency and paying through inflation the cost of being unable to borrow on the capital market. This would bring five years, at least, of total misery. The government would have to say: ‘The alternative is what is going on now. That involves 40 years of constant dull pain and a generation wiped out. The choice is yours. We will obey your instructions.’

This time they should not be bullied by the troika. They should insist on a referendum. They need to explain to their voters the alternatives in some detail. They need a debate about the realism of debt repayment and the utopia of debt renegotiation. They should spell out the costs. Do scenario planning. Lay out the facts. No amount of left-wing posturing will make Grexit painless. What counts is the relative pain of the two alternatives. The voters have to choose which path they wish to follow.

Syriza should warn their citizens that, unlike the Venezuelans under Hugo Chavez, they have no oil wells for extracting wealth they can then fritter away. It would be futile, too, to dream that the US would come to Athens’ aid, like it did when Harry Truman started the cold war to save Greece from Communism.

Russia may offer help but it’s suffering from the oil price fall. There will be no angel coming to the Greeks’ aid. Their circumstances are reminiscent of those of Iceland, which reneged on the debts incurred by its private banks when a referendum gave the government the strength to shoulder the consequences of being shut out of international financial markets. Iceland survived and returned to normalcy. Greece’s problems are worse. But, as in Iceland’s case, Greece’s creditors are foreign public bodies rather than private creditors.

Perhaps Merkel’s cajoling once again will force Greece to cancel the referendum. Syriza will then lose credibility like Papandreou did. Then we shall have to wait for the next cycle of misery. And all to save Germany’s trade surplus!

Prof. Lord (Meghnad) Desai is emeritus professor at the London School of Economics and chairman of the OMFIF Advisory Board.

Tell a friend View this page in PDF format