A colossal error in Greece

Perhaps it is hardly surprising that, after 24 months of attrition due to the growing demands of austerity laid upon his country's citizens, the Greek prime minister is now attempting to recover his dilapidated legitimacy. Unlike some other EU leaders, George Papandreou has shown political courage and personal determination in addressing his nation's crisis: his sin has been his slowness in carrying out the promised legal reforms. Yet his proposal to call a referendum to approve the second tranche of the European bailout for his country is an error of colossal dimensions. It is too risky.

True, the Greeks can hardly aspire to a better deal than that reached in the recent summit, which in principle cancels half the Greek public debt in the hands of banks. Yet it is hard to bring these reasons to bear in a binary vote, exposed as it is to every sort of populist demagogy, such as a referendum. Particularly if the people vote no, not so much to a concrete measure, as to two years of sacrifices which have exasperated Greek society. The experience of other referendums in countries such as France, Ireland and the Netherlands shows to what extent public irritation is likely to prevail over serious discussion of the matter in hand.

But if Papandreou's aim is to send a message to his EU partners, so that they will not further augment the heavy load of austerity laid upon his country, in this bluff he is playing with fire. If it happens, it may lead Greece not only to a disorderly bankruptcy, but also cast doubt on the other elements of the bailout package approved in Brussels, of direct interest to all Europeans: bank recapitalization and the beefing up of the bailout fund; thus placing the whole Union on the brink of the abyss.

The damage that this mad initiative may inflict on the EU and the future of Greece is incalculable; the sooner it is withdrawn, the better. It obvious that such situations, in which the whole Union hangs on the thread of one country - its popular vote, its parliamentary majority or its constitutional court (as now in Germany) - happen too frequently. In this case, what's more, it punishes both the errant member state and those who are struggling to save it.

To further upset the markets, on Tuesday the Greek folly was aggravated by the impact of the collapse - for speculating with European sovereign debt - of the American brokerage firm MF Global, the eighth-largest bankruptcy in US history.

The beneficial effects of the latest EU summit lasted barely 24 market hours. The vagueness, the delay, the postponements and internal rifts affect prices more than the agreements. Europe cannot afford much more of this. The warning issued by the OECD, that growth in the euro zone in 2012 will fall to 0.3 percent, rather than the forecast two percent, confirms that there is no time to waste. All the more so in the case of Spain, at zero growth since the third quarter, as the Bank of Spain has just certified. The hour is a grave one.