The Revolt Of The Debtors

BRUSSELS – Greek Prime Minister George Papandreou’s call to hold a referendum on the rescue package agreed at the eurozone summit in late October has profound implications for European governance. It may also determine the future of the euro.

Less than one week before Papandreou dropped his bombshell, eurozone leaders had spoken unequivocally: “The introduction of the European Semester has fundamentally changed the way our fiscal and economic policies are coordinated at European level, with co-ordination at EU level now taking place before national decisions are taken.” Simply put, pan-eurozone financial governance had supposedly won the day.

Technically, Papandreou’s proposed referendum is not directly about fiscal or economic policy, but it is a decision that will have huge economic ramifications for the eurozone. Despite that, it was taken without any coordination with other eurozone leaders. Moreover, if Greece’s voters reject the deal that has just been proposed to them, the outcome might foreclose any further coordination on the country’s debt problems with the European Union. Greece would sink or swim on its own.

So, only days after the eurozone’s heads of state and government congratulated themselves on their summit success, the concept of coordination has been shown to be meaningless for the one country where coordination matters most. Papandreou’s move also exposes the fatal flaw of grand plans for a political or fiscal union to support the euro: the “people,” not governments, remain the real sovereign. Governments may sign treaties and make solemn commitments to subordinate their fiscal policy to the wishes of the EU as a whole (or to be more precise, to the wishes of Germany and the European Central Bank); but, in the end, the people may reject any adjustment program that “Brussels” (meaning Berlin and Frankfurt) might want to impose.

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