Is Greece the most powerful country in the world?

Until now, Germany held all the best cards to a solution to the Greek debt crisis. But has Greece's promised referendum on the eurozone bail-out package turned the tables?

The idea that Greece should have a referendum to decide on whether or not to accept the bail-out package from the rest of us has clearly come as a bit of a shock to the politicians who like to think they run the eurozone. So far, absolutely no democracy whatsoever has been introduced to the bail-out process and that, I daresay, is how they expected things to carry on. But the bail-out package comes with nasty conditions- public sector pay cuts, tax rises, lower pensions and the like that it is hard to see any nation accepting without something of a fight.

So it makes sense for the Greek government to give the people the final say on the deal. If they don't, they are bound to lose power soon anyway this just gives them something of a chance of hanging on. You can't have severe austerity without consent of some kind from your electorate. As John Redwood puts it: "In reality, there was no ability to deliver their preferred policy without some means like a referendum of getting people to accept the chosen course of action." The fact that the Greek government seemingly alone among Europe's governments is prepared to recognise that big events of this sort need discussion with their populations as well as with the euro elite is actually rather heartening.

But the fact that markets are diving this morning should tell us one more thing. Greece has all the power. The talk around the bail-outs is usually about what Germany is prepared to do rather than what Greece is prepared to accept. Germany is assumed to have the power. But Greece has now shown the markets that it just isn't so. If the Greeks decide they don't fancy the terms much and announce a disorderly exit, it is game over for the euro, for Europe's economy and for Germany's weak-currency driven export boom.

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Time for everyone to start being a bit more polite to Greece. A senior member of Angela Merkel's government has noted that he is irritated: ""Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece," he says. I suspect that if they don'twant to have tostart staving off the next banking crisis, they might have to make a few more.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.