Anxieties Stir As Greece Plans Referendum On Latest Europe Aid Deal

The vote on the austerity package introduces a note of uncertainty in
what had seemed to be a done deal, threatening 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 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 unclear how the referendum would be worded, but Mr. Papandreou
said it would be a vote on whether or not Greeks supported the debt
deal and the program of austerity measures in exchange for foreign
aid.

The stakes are extremely high. A no vote could 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 move the package forward,
effectively shifting responsibility for the nation’s painful economic
choices from Mr. Papandreou’s Socialist Party onto the public. That
outcome would help Mr. Papandreou shore up his 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. On Sunday, the center-left newspaper To
Vima reported that a majority of Greeks viewed the deal negatively.

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.

It also appeared to give the Greek government a bit more leverage in
negotiations with Europe. The terms of the deal, in which banks have
been asked to voluntarily take a 50 percent write-down on Greek debt,
have not been finalized and must still be accepted by the banks.
Putting the package up for a vote, with the distinct possibility of
rejection, could induce banks to agree to the deal rather than face
greater losses if Greece defaults.

“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 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?’ ”

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, and
he is expected to squeak by with his narrow three-vote majority in
Parliament.

The referendum will probably be held in January, government officials
said, essentially buying the government time while the details of the
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, or
not. “It’s for the people to decide to stay in Europe or go back to
the drachma,” he said.

While the austerity measures have proved incendiary for much of the
public, setting off widespread strikes sometimes accompanied by
episodes of street violence, being part of the euro zone generally
meets with high approval.

Takis Michas, a political analyst with 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.
“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, he said, “we have a very big chance that the
country would go into a disorderly default.”

A spokesman for the center-right New Democracy Party, Yiannis
Michelakis, said a referendum was dangerous. Mr. Papandreou, he said,
“has tossed Greece’s future in Europe in the air like a coin.” NYT