Greece Has No Good Options Left

John Hudson

The stunning decision by Greece Prime Minister George Papandreou to hold a referendum on the $178 billion European bailout package has laid bare the miserable economic options the country has in front of it. On Wednesday, Papandreou's move to hold the referendum was swiftly rejected by a slew of Greek lawmakers, The New York Times reports, and raises the possibility that he will be removed from power in a no-confidence vote to be held on Friday. Why pass the decision on to the people? Papandreou is casting it as a democratic move, empowering the people. But take a look at the abysmal options Greece has in front of it and you may see why he'd like to punt the decision:

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Accept the bailout Though Angela Merkel and Nicolas Sarkozy would prefer Greece take the rescue package they labored over, Robert Reich, former labor secretary under President Clinton, explains why it's a tough pill to swallow. "If Greek voters accept the bailout terms, unemployment will rise even further in Greece, public services will be cut more than they have already, the Greek economy will contract, and the standard of living of most Greeks will deteriorate further," he writes in Guernica.

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Stay in the euro zone If Greece accepts the bailout, it would likely stay in the euro zone for a number of years. As The New Yorker's John Cassidy explains, that would ensure many more years of austerity and potential hardship. "If the Greeks stay with the euro? Even after the writedowns that were agreed to as part of the latest deal, the country’s debts would be very large: at least a hundred and twenty per cent of G.D.P., and probably more," he writes. "Tethered to the European currency, the only way for Greece to grow and prosper would be by reducing its labor costs—i.e., cutting wages—relative to other European countries and making its exports more competitive. With its fiscal policy dictated by Berlin and Paris, this would involve many more years of grinding austerity."

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Reject the bailout  Ditching the bailout has its downsides as well, explains, Reich. "If Greek voters reject the terms and the nation defaults, it will face far higher borrowing costs in the future. This may reduce the standard of living of most Greeks, too."

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Leave the Euro zone Although not a given if Greece rejects the rescue package, the country may very likely decide to exit the Euro zone and return to the drachma. Landon Thomas, Jr. at The New York Times explains the downsides to that. "Default on the nation’s $500 billion in public debt would become a certainty, depositors would take their money out of local banks and, with a sharp devaluation of as much as 50 percent, inflation would loom. A return to the international credit markets would take years," he writes. Additionally, John Cassidy notes that "the country’s banking system would probably collapse—it’s pretty much a basket case already—inflation would rise, and there would be a period of chaos."