Last week’s rebellion by David Cameron’s backbenchers in support of an EU referendum ended eight years of peace in the Tory party on the European question. Now, the offer by the Greek Prime Minister of a referendum on the bailout package — designed to appease nervous Greek Socialist party backbenchers — means that the uncertainty surrounding the eurozone will drag on into the New Year.
George Osborne regards the confusion surrounding the future of the single currency as the single biggest obstacle to a British economic recovery. The Chancellor and his colleagues have become increasingly convinced that only when the markets have confidence about what is going to happen will businesses be prepared to invest their cash, and not just sit on it.
The British government hoped that there would be a moment of clarity and confidence at this week’s G20 summit in Cannes. Back in September, Osborne tried to make Cannes the deadline for a package to save the euro, and there was every indication, last week, that his efforts would be met with success.
After the European Council and eurozone meetings, both the Treasury and the Foreign Office were confident that there was a good chance of the details and numbers behind the rescue plan being made public by the end of this week. There was a belief that the political barriers to a deal had been overcome. Indeed, the French had moved on to preparing the backdrop for the Cannes gathering. They had even boarded up the designer shops in the area where the various world leaders would arrive, to better fit with the theme of austerity.
But the proposal for a Greek referendum dashed hopes of progress. As one government source puts it, ‘all the preparatory work for Cannes has now been unpicked’. And the political limits have been reached, if not breached, in debtor and creditor countries.
In the best-case scenario, the world will now have to wait until January to see if the Greek demos will accept the terms of the deal. In the worst, the Greek government will fall and chaos will reign in Athens. The decision by the Greek government to sack all the military chiefs on Tuesday night suggests that there are real worries at the highest levels about the risk of a coup.
The euro is now destroying the whole European project. The European Union’s claim to be a force for peace, stability and democracy in Europe is rapidly disappearing into the Athens smog.
Even if the Greek army stays in its barracks, the path ahead is far from easy. The main opposition party is committed to renegotiating the terms of the bailout, which means that the government falling would add yet another delay to attempts to resolve the situation.
In truth, the Greek Prime Minister George Papandreou had little choice but to do something dramatic. His government was becoming weaker by the day. He was making little progress in trying to meet the terms imposed on Athens by the troika of the European Central Bank, the International Monetary Fund and the European Commission. If he had tried to plough on with the austerity plan without a mandate, it would have been impossible to implement. Civil servants would have simply downed tools. Papandreou would have been powerless in the face of a general strike.
If Papandreou were to win the referendum, he would have the legitimacy he needs to implement these reforms. But nothing in Greek politics is ever simple, and it is far from certain that the public vote on the bailout package will ever take place.
But the mere possibility of a referendum has had two effects on British politics. First, it means that the eurozone will still be crippled by uncertainty when the coalition presents its growth review at the end of this month. This gloomy prospect has one happy result. It means that Cameron and Osborne have the political cover to use it to make changes that would not be possible in normal circumstances. But will they seize the moment?
One early test of the pair’s willingness to act on Britain’s behalf is whether or not they push ahead with the Beecroft Review’s suggestion of altering employment law to do away with unfair dismissal and replace it with redundancy pay based on length of service. This would give both employers and employees far greater certainty. Firms would also be more inclined to hire people if they knew that they could sack them if necessary. The Liberal Democrats have set themselves against this idea. But, interestingly, it remains under consideration by No. 10.
This autumn’s growth review also offers Osborne a chance to take a scythe to the employment and environmental regulations that are holding back the British economy. This would be an excellent idea, but there are two main obstacles: the Liberal Democrats and the civil service. Those close to Nick Clegg remain adamant that there’s no evidence that deregulation boosts economic growth. They claim that it is simply a Tory ideological obsession. They can be expected to try to block any radical measures on this front. The civil service will present a different problem. The Whitehall machine, to quote the old adage, has the engine of a lawnmower and the brakes of a Rolls-Royce. Between now and the growth review, it will concoct endless reasons why the regulations can’t be scrapped.
A Greek referendum will also alter the dynamics within the Tory party. Any vote there would revive the debate about whether the public here should have a say about developments in Europe. It would also heighten divisions in the party about whether it really is in Britain and Europe’s interests for a 17-member euro to continue. Already, the veteran Tory Eurosceptic Bill Cash is saying he will go to Greece and campaign for a ‘no’ vote if invited.
The worry for Cameron is that a Greek referendum could have the same galvanising effect on Tory Euroscepticism that the Danish referendum on Maastricht did in 1992.
But perhaps the biggest lesson of the last few days is that the crisis in the eurozone will not be resolved quickly. As one ally of the Foreign Secretary remarked this week, ‘This’ll take the best part of a decade to play out.’