Perpetual crisis is not what George Papandreou imagined when he was elected prime minister of Greece in 2009. But that was before the stunning revelation that his predecessors had run up a debt so enormous—and so much larger than they reported—that if he failed to ﬁx it, the resulting chain reaction would not only cripple his country, but potentially destabilize the euro, as well as a still-vulnerable global financial system. In 2010, he called his economy “a sinking ship.” Today, for Papandreou, things are so much worse.
Last year’s $155-billion bailout package, which included tax hikes and hefty public sector pay cuts, was supposed to rescue his country. Instead, the economy has shrunk 5.5 per cent over the past year, plunging Greece deeper into recession and sending Papandreou back to the so-called Troika—the EU, the European Central Bank and the IMF—to ask for another bailout to service its debt, which now stands at $479 billion, or 150 per cent of its GDP. His socialist party, the PASOK, is in shambles, with members defecting or threatening to defect during this week’s votes on whether to approve another round of austerity measures demanded by his eurozone counterparts. Meanwhile, a 48-hour general strike in protest of the cutbacks shut down schools, transportation and other services, while demonstrations turned violent.
Unlike his charismatic father, who also served as prime minister—and helped create the financial mess he has to mop up—most consider Papandreou an uninspired speaker, lacking the oratory skills to rally a rebelling population. Perhaps worse, they consider him an outsider. Born in the U.S. and educated abroad, he’s increasingly viewed as too quick to appease the Troika, willing to trade sovereignty for bailouts that will keep the country dependent and the population poor. Grappling with a 16 per cent unemployment rate—36 per cent for youths—protesters shout “George, go home” outside of Parliament.
However, in a country where public servants have become infamous for their financial extravagance, a reputation as an outsider can have its advantages, especially when negotiating with the fractious eurozone countries. And Papandreou seems willing to sacrifice his own political future to resolve his country’s woes. Though the offer was rejected, in mid-June he proposed stepping down as prime minister if the centre-right opposition would form a coalition with his party and support harsh austerity measures. He’s also tapped his political rival to be his new ﬁnance minister. Though Evangelos Venizelos had challenged him for the leadership of the party in 2007, he has the charisma, populist ties and economic expertise that Papandreou, educated as a sociologist, lacks and so desperately needs.
In June, rating agency Moody’s gave Papandreou a 50-50 shot at avoiding debt default. If Greece does default, then economists warn market fears could trigger financial implosions in Portugal, Ireland and, most critically, Spain, whose economy is large enough to destabilize the euro—which, in turn, could rock world markets, again. The silver lining for Papandreou? In that event, he won’t be the only one in the political hot seat.