Greece referendum: Democracy versus the eurozone

George Papandreou (right) caused dismay in eurozone circles

Many were cursing the Greek leader George Papandreou yesterday. Certainly European officials and certainly the leaders of France and Germany.

They complained they had not been forewarned or consulted about his proposal to put the rescue deal to the people.

They believed, in a rash moment, the Greek prime minister had jeopardised the eurozone bailout plan so painfully constructed in Brussels last week.

As a result, another plan - like so many of its predecessors - was in doubt after just five days.

For whatever reasons, George Papandreou was standing up for democracy.

For two years, outsiders and international officials have dictated terms to Greece. They have insisted on the austerity packages that have changed so many Greek lives.

Now they will be given a chance to vote on all this. It may well be that Mr Papandreou has chosen the referendum option to save his own skin.

Domestic politics

The likely question voters will be asked is whether they support the Brussels bailout deal. The Greek prime minister will turn it into a referendum on whether they want to stay inside the eurozone.

Polls suggest that 70% of Greeks want to keep the euro. The PM will say that a No vote will lead to default, bankruptcy and chaos. It will be a powerful argument.

He has calculated that it will box the opposition into a corner.

If they vote No they will be seen to be risking Greece's place in the eurozone.

The opposition will argue for elections with the promise that they would re-open the terms of the bailout deal. Their argument is that what Greece needs now is growth and that austerity is strangling the country.

In the end, the vote will come down to choice. The Greek people must decide whether membership of the eurozone is more important than retaining control of their future. Many will see it as a healthy debate.

The R word

Europe's leaders often fear the people. They do not like the messiness of democracy intruding on their project. "Referendum" is a dirty word in Brussels.

French President Nicolas Sarkozy has said "giving people a voice is always legitimate but the solidarity of all eurozone countries is not possible unless each one agrees to measures deemed necessary". In other words, the needs of the eurozone trump democracy.

Mr Papandreou has seized the democratic high ground. It may be a tactic born out of necessity rather than belief but the truth is that the Greek people - in significant numbers - have turned against austerity in exchange for EU loans.

In recent days they have even heckled the Greek president, branding him a traitor. The mood is angry, even toxic.

Even if the measures were pushed through, the Greek people would resist in many, many small ways.

The property tax that was to deliver 2bn euros will only raise a fraction of that. Many Greeks will find a way to avoid paying. So the prime minister gambled on getting the Greek people behind him.

"We will not implement any programme by force," he said, "but only with the consent of the Greek people.

"This is our democratic tradition and we demand that it is also respected abroad."

Now even within his own cabinet some regard this as a reckless gamble that has spun the eurozone back into crisis. That is why they were arguing until 3 AM.

But in the end they backed him. They could have gone for elections but they judged - probably correctly - that they would lose power.

Elections, they also argued, would trouble the markets more than a referendum.

People power

It is one of the most controversial features of the eurozone crisis: the failure to consult the people.

The German government has been criticised for its slow response but it is a country that remains staunchly committed to respecting the democratic process.

There is, however, growing resentment towards the way France and Germany between them appear to decide the future of the eurozone.

The Dutch are increasingly irritated at the way Chancellor Angela Merkel and President Sarkozy set the agenda for so many meetings and summits.

Jean-Paul Fitoussi, a professor of economics at Paris's Institute of Political Studies, was quoted in the New York Times giving this assessment: "This is democracy. In Greece and even in Italy you cannot expect to rule without the support and consent of the people.

"And you can't impose an austerity programme for a decade on a country, and even chose for them the austerity measures that country must implement."

Humiliated country

Having been going backwards and forwards to Greece, it is hard to exaggerate the degree of humiliation that the bailouts have created.

There is deep resentment that unelected officials from abroad now seem to be running the country. The Greeks are proud and possessive of their democracy.

A newspaper recently published photos of the members of the task force EU officials sent to Athens to administer the reforms.

Under the photos, the paper ran the caption "the prison guards have arrived".

All of this, of course, is why the outcome of a referendum is uncertain. If there is a No vote, Greece could be on the way out of the eurozone, and a disorderly default may follow.

In the view of Mr Papandreou, the future will be determined by the people.

Of course it may not come to that. A referendum has to be approved by a majority in parliament. MPs may not agree to it.

And the prime minister and his government face a vote of confidence this Friday. It will be close.

More and more voices within his own party are calling for him to stand down and to make way for a government of national unity. If he loses, an election will almost certainly follow. That will usher in further delays.

The markets may not like the uncertainty. European officials are dismayed at the prospect of a vote. Europe's leaders can scarcely contain their frustration.

But the Greek leader - for whatever reason - has insisted on a principle, that a plan which almost certainly result in 10 years of austerity "should be adopted by the Greek people".