Greek Prime Minister George Papandreou has stunned the EU by calling a national referendum on the latest bailout deal to the economy. This might be the only way for the Greek government to restore its legitimacy, argues economist James Meadway.
“Possibly, it is by forcing the issue back on to the people that is the only route for them to deal with the crisis, restore their legitimacy and rehabilitate the deeply unpopular government,” says James Meadway, senior economist at the New Economics Foundation.
Papandreou will have to face other ordeals before the proposed referendum can take place, continues Meadway. First, the government will have to withstand a confidence vote on Friday. Moreover, the New Democracy Party, which is the principal opposition party in Greece, is demanding a new election rather than a bailout referendum.
The recent violent protests in Greece suggest the bailout referendum might result in a ‘no’ vote, but this could play into the hands of Athens, says Meadway. The country would be in a position to default on its debt and rebuild its economy, which has been shattered by the euro burden.
Greece and the EU are facing the “endgame”, believes the economist. Time has come for concrete measures.
“Since the first bailout of Greece in March 2010, we have always been reaching a critical stage while the final reckoning has been deferred and deferred. The collective leadership of the EU, European Central Bank and International Monetary Fund has managed to push off any kind of decisive change of the situation which could resolve the crisis,” he told RT.
Greece’s possible default, although urgently needed within the country, poses a danger to the fundamentals of the eurozone, underlines Marco Pietropoli, a financial adviser at RM Wealth Management.
“Most of the Greek debt is owned by other EU sovereigns as well as by the banks and pension funds,” says Pietropoli. “The Greek default might make the banking system much less stable. The worry here is the snowball effect – whether this will lead to a number of other sovereign defaults and the credit crunch for the banks to plunge into.”
The crisis has shown that the eurozone as such should be restructured. Countries which are not truly aligned should leave, or Europe should integrate further both politically and fiscally, remarks Pietropoli. Another solution to the eurozone crisis would be the Europeans printing more money to monetize the debt, but that would send inflation spiraling.