Our recent article discussed the utterly sound, responsible, and highminded decision of Mr. Papandreou, the Prime Minister of Greece, to schedule a referendum on the question of whether Greece should accept the unpopular bailout terms which had been offered by the rest of Europe. Unfortunately for democracy, Mr. Papandreou caved under pressure from elites the world around. The Economist described the situation:
Seeking the backing of the Greek people in a referendum, he was immediately condemned in the capitals of Europe as a fool or a traitor. ... A furious Mr Sarkozy and Mrs Merkel summoned him for a dressing-down on the fringes of the G20 summit in Cannes.
The opposition parties threatened to bring down the government if Mr. Papandreou proceeded with the referendum, even though they'd been extremely vocal in opposing the austerity measures that had been imposed as conditions of Greece getting billions of euros more in aid. Mr. Papandreou stated that there was no need to ask the opinion of the voters, given that the opposition party had decided to support the bailout.
Why are all these people so opposed to a referendum? Because they're pretty sure the Greeks wouldn't just vote "no," they'd vote "Heck, NO!" That would put Greece into default, which would probably drag down Italy, Spain, and possibly the rest of Europe.
The vastly different economies and trajectories of the nations of Europe would no longer be able to share a common currency and would each have to implement their own monetary policies, as they did for centuries prior to the last few years. To the pan-European elites, losing the Euro and all the power that comes with managing it would be a fate worth than death.
This is yet another example of elected leaders ignoring the wishes of their citizens. German voters aren't enthusiastic about throwing more good billions after bad. British MPs know that their voters would appreciate being permitted to vote about their future relationship with Europe, but the government keeps stalling because there's a good chance John Bull would vote his way clean out of the EU. Mr. Obama clings to Obamacare despite its growing unpopularity. Both Republicans and Democrats continue to ignore the huge number of illegals in the United States despite most voters wanting them sent home.
The problem is that most of our ruling elites are more concerned with what the rulers of other countries think of them than they care about the welfare of their own citizens.
There are occasional exceptions; consider Iceland. At the start of the Great Recession, all three of their major banks went under owing 50 billion Euros. That doesn't sound like much to Americans, but Iceland is a small place; their banks lost six times more than the whole country earns in a year.
Most of Iceland's debt was owed to banks in Holland and England. Their governments saved their banks and asked the Icelandic government for reimbursement. The Icelandic government agreed as the Greek government has agreed to the terms set by the rest of Europe.
To the shock of just about everybody, however, Iceland's President Olafur Ragnar Grimsson vetoed the debt-payment bill in response to a petition begging him not to pay. This bought time for the people of Iceland to vote the bums out; the tab, which the voters had never signed up for, was never paid.
The people of Iceland saw a profound truth that the entire free world needs to pay attention to: No government has a single cent of its own. Every last penny comes out of the hides of taxpayers; no government has any right to spend money that voters don't approve. When the referendum was voted down, Iceland refused to pay because Icelanders refused to pay.
The bottom line was that the choice belonged to the people and not to the elites. That is the truth which we believed that Prime Minister Papandreou had recognized when he planned to take the issue to the people.
In the event, Iceland's economy has been doing decently of late. They're not back to where they were before the crash, but they're a lot better off than they would have been if they'd tried to pay back a debt six times the size of their annual economy. We suspect that they're doing better than the Greeks will do if they try to meet the terms and conditions of the new bailout agreement.
The Irish government got itself into a similar situation. When their banks failed, the Irish government listened to the pleas of their fellow elitists and promised to use the taxpayers' money to pay off all the Irish bank debt. The Irish economy cratered, the government was voted out office, and the Irish are still struggling. Unlike Iceland, the banks were bailed out out and the taxpayers are on the hook despite never agreeing to it.
This brings up a question - why should the taxpayers be on the hook for the sins of a private bank? Bank management and stockholders racked up dividends and bonuses during the good years. When things turned bad, why should the taxpayers have any obligation to bail them out? Why should Icelandic, or Irish, or Greek citizens be on the hook for the sins of banks who lent to their banks?
Democracy has its good points and its bad points. The phrase "Vox populi, vox dei," which means, "The voice of the people is the voice of God," is often used as a justification for listening to the man in the street. Instead of a paean to the joys of people-driven democracy, however, this phrase was embedded in a much longer quote:
And those people should not be listened to who keep saying the voice of the people is the voice of God, since the riotousness of the crowd is always very close to madness. [emphasis added]
It's one of the ironies of history that a quote which its author intended as a condemnation of democracy has been turned into a justification for listening to the voice of the people. Our modern elites seem to be convinced that ordinary people not only don't know what they want, they can't manage their lives without messing up, and should therefore be roundly ignored. This attitude permeates the Obama administration, the British government, the French government, and just about all the governments we know.
It's far from clear that the governing elites have any better idea what to do about the financial situation than anyone else. Everything they've done to improve the economic outlook has failed ignominiously and often made matters worse. The elites will never admit that, and they'll try to keep ignoring what their voters think too. Their response to criticism of their failed ideas is to double down and spend even more money.
In the end, of course, the people have a final veto over whatever the elites decide. As the Economist put it:
... a country’s finances are not defined by markets alone. Rather the limits of solvency are tested by people’s willingness to accept tax rises and spending cuts. A government runs out of political capital long before it runs out of things to tax. In the end, won’t pay matters more than can’t pay. [emphasis added]
We don't know what will happen in Greece; neither does anybody else. We expect the Greek elites to do whatever they have to do to get the next big block of European money and then force a new election, after which anything could happen - most Greeks are pretty well fed up with all things government. As in the United States, it's very hard to cut spending once people get used to getting something for nothing. We'd bet on default now that Italian finances are looking even shakier, but everyone involved in government hopes the problem can be held off just a few months longer.
The longer default is put off, the worse it will be. When the euro falls, will all the king's horses and all the king's men be able to put Europe together again?