THE EURO CRISIS (2)

A week ago I was supporting the E.U.'s strategy of "muddling through" the current crisis, buying time with various stopgap measures, while groping towards more difficult, longer-term changes that might represent a real solution to the problems.

Then Greek Prime Minister George Papandreou announced - apparently completely off his own bat - that the rescue package for his country, painfully agreed at the recent E.U. summit, would be put to a referendum of the Greek people. The French President and German Chancellor were, to put it mildly, not amused. At a stroke, Mr. Papandreou had managed to turn a deal, which promised much but which lacked details, into a morass of uncertainty. No wonder he was dragged up to the G20 in Cannes and told by the joint headmasters a) that the only possible referendum would be on whether Greece wanted to be in the Euro or not and b) that no more tranches of cash would be forthcoming until the outcome had been decided. Against that background, it seems that the referendum idea will be dropped.

It's hard to see what Mr. Papandreou was up to. Yes or no referenda, by their nature, are not suitable for getting approval of a compromise package, since the most likely honest answer is "I like some bits of it, but not others". Furthermore, when (as in this case) the unpalatable bits of the package hugely outweigh the goodies, the chances of the vote being no must have been pretty high.

Perhaps the answer lies in internal Greek politics. The Greek Government is currently facing a vote of no confidence, which will take place in a couple of hours, after the U.S. markets have closed for the weekend. By means of his referendum ploy, Mr. Papandreou has at least managed to get the Greek opposition to state that they support the E.U. deal. If so, he paid a high price for clarity.

Walter Blotscher