The situation in Greece has brought up an interesting economic conundrum that we see play out in many situations, including in South Africa. When large economic decisions need to be made there are two distinct groups involved. First, there are the country’s leaders and their advisors, who are educated in economic matters. Second, there is the general public.
The general public on average, is not trained to foresee the implications of economic decisions, but they are the ones that have to deal with the consequences. And therein lies the conundrum – who should be the decision makers when a matter of national importance is at stake? If we could trust the economic leadership to have the interests of the people at heart then there would be no problem – those most equipped to make decisions would do so on behalf of everyone. But too often this is not the case.
When deciding whether to accept a bailout deal or not, Alexis Tsipras, the Prime Minister of Greece, threw the vote to the hands of the Greek people. On Sunday they voted “no”, yet there is still some doubt as to whether people knew exactly what their vote meant.
The question read: “Should the plan of agreement be accepted, which was submitted by the European Commission, the European Central Bank, and the International Monetary Fund in the Eurogroup of 25.06.2015 and comprises of two parts, which constitutes their unified proposal? The first document is entitled ‘Reforms For The Completion Of The Current Program And Beyond’ and the second ‘Preliminary Debt Sustainability Analysis’.”
Voters were able to seek further information, but that was all it said on the ballot paper. It is understandable that a sovereign state and its people don’t want to be told how they should spend their money. But if the democratic referendum votes against outside rule, what inside leadership is being voted in to replace it? It’s all very well to vote against funding that has conditions attached to it, but Greece faces a major tax collection problem suggesting that not even the Greeks want to fund the government spending.
There are only three options: borrow money and accept the creditors’ conditions, pay for your own spending, or stop spending as much. So far Greece has voted to do none of these and is betting on the creditors changing their conditions.
Consequences
On the 20th of July, Greece will owe e3.5 billion (R48bn) to the European Central Bank (ECB). If it does not pay – and assuming that no new deal is struck – then the ECB and its members will need to decide whether to continue supplying the Greek banks with euros and effectively ignore Greece’s debt. This may be the best solution for the short-term stability of Europe, but it sets a nasty precedent for all economies owing money to the ECB and may cause further defaults to unfold without countries taking responsibility for their economic mismanagement.
If the ECB does not supply euros, Greece will have to start reprinting its own currency and effectively leave the euro zone.
Economic leadership should always represent the best interests of the general public and Greece has laid out an interesting experiment to achieve this. When economic decision making is left to the popular vote, are voters willing and able to accept responsibility for the consequences of the democratic outcome? Or is the general public ill-equipped to make the decision that will be best for it?
* Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein.
** The views expressed here are not necessarily those of Independent Media.
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