On the last day of October, the leader of a small country made a decision whose consequences will ripple across the world.
European Union leaders had finally agreed on yet another bail-out plan for Greece. In exchange for more loans and a 50% "haircut" on existing debt, Greece was to accept even more EU control over its economy, and austerity policies cutting so deep that they could be more accurately characterized as disembowelment. The euro currency, we were told, was saved, at least for a while.
Greece's socialist-in-name-only government has always voted to kowtow to the EU and impose austerity as ordered, but the Greek people have been showing their anger with strikes and ever-more- violent riots. On Monday, Prime Minister Papandreou announced he would hold a referendum.
Background: EU rules for membership in the euro require keeping national debt and deficits within rigid limits. Over the last couple of years, recession in many countries has cut tax revenues and increased demands on social safety nets, so deficits have risen; this is part of how counter-cyclical stimulus normally works to help an economy out of recession. But in Europe, EU rules have forced spending cuts, driving down employment and demand, further slowing these countries' economies and increasing their deficits, which requires more spending cuts, etc. The worst-hit countries have gotten bail-out loans from the EU, but these loans come with strings attached in the form of further austerity policies which drive the target countries even deeper into recession.
The EU's stance is similar to that of economic conservatives in the US, forcing cuts and austerity when the real need is for stimulus policies to create jobs. The EU is essentially dismantling socialism in lands where it has existed for decades. But in the US, conserva- tives can be voted out of office. In Europe, voting for a different party just means bringing in a different set of people to obey the same orders from the EU.
Another tool a country can normally use to escape recession is currency depreciation, which makes its exports cheaper and thus more competitive. But Greece, Portugal, Spain, and Ireland no longer have separate currencies which can depreciate. They have no way out of the EU-imposed death spiral. It's no wonder that Greeks have been rioting and that Spain saw the world's biggest protest rallies during the October 15 day of action.
There is no democratic accountability. The real decision-makers in the EU aren't elected and can't be voted out. Most big political parties in all EU countries share in the elite pro-EU consensus. Majorities in most countries bitterly oppose EU policy, but they have no one to vote for to express this.
Over the weekend, in a private e-mail, I said that if I were Greek, Spanish, or Portuguese, I would be ready to resort to violence. Democracy in those countries has been abrogated and every peaceful avenue to stop the austerity madness has been closed off. These peoples have been backed against the wall and given no way out except emigration or revolt. (Even Britain, which doesn't use the euro, has suffered from this trampling of democracy, and was recently denied a referendum on continued EU membership.)
Papandreou's bombshell announcement has changed that. The Greeks, at least, will now have a chance to demand a new course.
Make no mistake -- that isn't what Papandreou wants. He's part of that elite pro-EU consensus (the conservative opposition is even worse; it opposes the referendum). But he may be running scared. A German economist who described the referendum plan as "suicide out of fear of death" was talking about political suicide or death, but just a few days ago enraged rioters tried to attack the Greek parliament and ministry of finance. Greek leaders may well feel that continuing to ignore the popular will would endanger their physical safety. This referendum is a concession which the masses forced from their rulers, as the rebellions of the Arab spring have driven tyranny into retreat.
The EU leadership and its toadies, all the sober respectable people in suits to whom the problems and fears of ordinary people are just economic abstractions, have denounced the referendum plan. And no wonder. This small spark of democracy, kindled in the country that invented it, could blow up the whole system.
The Greeks will very likely vote no on further submission to the EU. This would mean no more bail-outs, likely bankruptcy of the government and being expelled from the euro currency, default on debt held by foreign banks, and all manner of turmoil -- but Greeks have been through that kind of thing before. It's the devil they know. Voting yes, to continue the current course, would just mean more and more austerity and stagnation and decline for ever and ever, with de facto foreign rule thrown in. After a no, with its separate currency and economic independence restored, Greece could at last begin to work toward recovery. And, like dominoes, Portugal, Spain, Ireland, even Italy will likely follow the same path. The euro currency and perhaps the EU itself will disintegrate.
Over the next few months the spokesmen of the financial parasite class will bombard us with predictions of doom. The "markets", which must be left unfettered no matter what misery they bring to millions, will panic. Stocks will go up and down (as they are always doing because of one thing and another). We will all fall off the edge of the world and be eaten by dragons. And, in fact, there will probably be some short-term pain, even here in the US.
But the referendum cannot be held until January, giving other countries time to prepare. And Europe's depressed economies can't recover until austerity is abandoned, which looks impossible as long as the EU is in place, and until they recover the flexibility which an independent currency can provide, which means the euro must go. Once Europe's peoples have cast off this Moloch, the return to economic sanity and prosperity can begin -- which will ultimately benefit the whole world, including us.
Updates: Daniel Hannan discusses the EU elite's contempt for democracy; Ambrose Evans-Pritchard observes that the euro has ruined southern Europe and southern Europe is about to wreck the euro.