EU tells Greece: Choose the euro or go

11/3/2011

By Leigh Phillips

BRUSSELS - Europe delivered a stark ultimatum to Greece on Wednesday night (3 November), demanding that the country’s planned referendum ask plainly whether the country’s citizens wish to stay in the euro or to get out.
French President Nicolas Sarkozy and German Chancellor Angela Merkel - both of whom are reportedly livid with their Greek counterpart, George Papandreou, for suddenly announcing that he would hold a plebiscite on the austere terms of a fresh, €130 billion bail-out - issued the warning in Cannes ahead of a meeting of the G20, where they had summoned the Hellenic leader, demanding he explain himself.
They told Papandreou that the latest tranche of bail-out cash from the EU and IMF, som €8 billion needed to keep the lights on in the country, is now suspended and will not be delivered unless Greeks vote in favour of remaining in the single currency zone.
"The question is whether Greece remains in the eurozone, that is what we want. But it is up to the Greek people to answer that question," Sarkozy said, adding that Greece would not receive "a single cent" if it does not adhere to the bail-out plan agreed last week.
It is the first time Sarkozy and Merkel have countenanced the possibility of Greece exiting the euro, an outcome they have battled for almost two years to prevent.
It is understood that France - as well as the UK, which is outside the eurozone but part of the G20 group of leading global economies - had initially hoped to persuade Papandreou to withdraw his plan for a referendum.
But such a position hardened into a demand that Athens hold the referendum within weeks rather than in January, as Papandreou had intended.
"Europe cannot be kept waiting for the outcome of the referendum," French Prime Minister Francois Fillon, told domestic deputies. "The Greeks must say quickly and without ambiguity whether they choose to keep their place in the eurozone or not."
Papandreou has now committed to holding the referendum on 4 December under pressure from the two leading EU powers. It is the earliest they can hold the vote, the Greeks insist, as they require a minimum of a month to make the necessary preparations.

Expulsion but not voluntary exit

The legality of an exit from the euro remains however an open question. 
A 2009 assessment by the European Central Bank of the legal options came to the conclusion that while expulsion from the single currency is feasible, voluntary exit is not permitted under the EU treaty.
More seriously, an exit from the euro would provoke massive capital flight from the country. Anecdotal reports suggest this is already happening on a significant scale. To prevent further haemorrhaging, capital controls would have to be imposed while an armed presence on the borders and coastal waters would also be required to stop wealthy citizens from attempting to smuggle assets out of the country.
It is for these reasons that the government believes if the referendum question is posed in such plain terms, the 70 percent of Greeks that support continued membership in the euro according to recent polls, will back the bail-out plan.
"The Greek people want us to remain in the euro zone," Papandreou told reporters after his grilling from Sarkozy and Merkel. "We are part of the euro zone and we are proud to be part of the euro zone."

The €100 billion question

However, it remains unclear what the nature of the referendum wording will be. Government spokesman Angelos Tolkas said on Wednesday: "No, this will not be the issue. It will be the bail-out plan." 
Confusion was also sewn by another government spokesman, Elias Mossialos, who told Vima radio, a domestic broadcaster, that EU leaders had already been told of the referendum plan before Papandreou made his announcement.
"They had been informed of his intentions," he said. "But they were not informed about the date. That belongs to the Greek prime minister and not to foreigners when they will announce something or how to take the political initiative. It is a part of our national sovereignty and our policy initiatives."
Separately, Papandreou’s finance minister distanced himself from the prime minister, saying that he opposed the referendum and called for a national unity government.
"Greece’s position within the euro area is a historic conquest of the country that cannot be put in doubt. This [achievement of] the Greek people cannot depend on a referendum," he said in a statement. "If we want to protect the country we must, under conditions of national unity and political seriousness and consensus, implement without any delay the decision of October 26. Now, as soon as possible."
"Internal political balances and the future of individuals and political parties of this country is not what matters," he added.

Report

1. Withdrawal and expulsion from the EU and EMU, December 2009