A Greek Lesson in Democracy

Editorial do WSJ

George Papandreou became the most unpopular man in Europe on Monday by announcing that his government would put the terms of last week's EU-IMF bailout package to a referendum, so that Greeks can decide their economic future for themselves. The Prime Minister's announcement sent markets tumbling world-wide, took Italian government-bond yields to a near euro-era high, and had German officials privately denouncing his behavior as un-European.

An alternative view is that Mr. Papandreou has done his own people, and all Europeans, a considerable favor. Who would have thought the Greeks had something to teach the world about democracy?

Since the euro-zone crisis began in earnest early last year, European policy makers have been placing Jon Corzine-sized bets on a series of rescue packages for insolvent nations and troubled banks, without much input from the taxpayers who are ultimately on the hook for these ever-more-expensive bailouts.

It's a method of governance that betrays the contempt of European elites for the views of their own people, who don't always like where those elites propose to take them. Recall the overwhelming rejection by French and Dutch voters of a proposed EU Constitution in 2005.

For Greeks, their stake in last week's euro-zone deal could hardly be higher: Their choice is either to sign up for a decade of EU- and IMF-imposed austerity or face the prospect of immediate default and the possible loss of the euro as their currency. That is at least partly why Mr. Papandreou, who has a parliamentary majority of two seats and faces another no-confidence vote on Friday, chose to go for a referendum, currently scheduled for January.

Should Greeks vote yes, Mr. Papandreou's hand will be strengthened politically. If they vote no, the Greeks will at least be taking responsibility for the consequences. That sounds better than Greeks rioting in the streets against politicians in Berlin or Brussels over whom they have no influence.

As for the rest of Europe, they may eventually come around to thanking Mr. Papandreou and the Greeks, even for a no vote. Today's conventional wisdom is that a Greek default would spread contagion, never mind that past bailout packages for Athens haven't exactly contained it.

While nobody can doubt that an Athenian default would be damaging for Greece's creditors, particularly French banks, these creditors will face a reckoning sooner or later. The real political purpose of the deal agreed in Brussels last week between French President Nicolas Sarkozy and German Chancellor Angela Merkel is to postpone that reckoning past their own (and President Obama's) elections.

A Greek default would provide a lesson in what happens to countries that can't live within their means. The sight might even be enough to terrify lawmakers in Italy to get serious about fixing their unfunded pension promises and other antigrowth policies. The serial bailouts sure aren't doing the job.

Even now—two years into the crisis—few of Europe's elites are talking about the need to restore growth by means of economic liberalization. Consider Greece: The World Bank recently published its latest annual "Doing Business" survey, and for all of its alleged reforms Greece rose all of one spot to 100th this year in the world rankings in the ease of doing business. That's just behind Yemen, though still ahead of Papua New Guinea. When it comes to investor protections, Athens ranks 150th.

The only good news in those figures is that Greece has plenty of room for improvements if only its political class had the courage to undertake them. However the Greeks vote in a referendum, this is the only route to an economic future that offers something better than penury or permanent indebtedness.