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Photographer: ANGELOS TZORTZINIS/AFP/Getty Images

A Referendum on Greece's Contradictions

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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After five tortured months of proposals, counterproposals, insults and hostility, the moment of truth is hopefully in sight for Greece's troubled relationship with the euro. All sides in this sorry mess -- the Greek government elected in January, the so-called troika of lenders to the near-bankrupt nation, and the guardians of the common-currency project -- need to seize this opportunity to finally cauterize the wound that threatens to destroy the euro. The only thing Europe can't afford is yet more wearying months of directionless debate. 

The diplomacy of the European Commission and its officers in the face of Greek intransigence has suffered somewhat for its relative opacity. Every missed deadline and every extra euro spent propping up Greece's insolvent banks has made it harder to tell just how far backward the euro region was willing to bend to accommodate its errant affiliate. The Greek government's position, meanwhile, has the dubious merit of complete transparency, revealing its own schizophrenia: It wants to stay in the euro without donning the straitjacket its creditors have tailored for its economy.

QuickTake Greece's Fiscal Odyssey 

But, provided Prime Minister Alexis Tsipras permits relatively straightforward wording on the July 5 referendum ballot, Greece's voters will have the opportunity to resolve their own government's conundrum by either accepting the terms of the latest bailout agreement and remaining a part of the single currency, or voting against the proposed economic reforms and taking their chances outside of the euro zone. 

Tsipras's weekend referendum announcement was characteristically combative:

Greek citizens, I call on you to decide -- with sovereignty and dignity as Greek history demands -- whether we should accept the extortionate ultimatum that calls for strict and humiliating austerity without end, and without the prospect of ever standing on our own two feet, socially and financially. We should respond to authoritarianism and harsh austerity with democracy -- calmly and decisively. Greece, the birthplace of democracy, should send a resounding democratic message to the European and global community. And I personally commit that I will respect the outcome of your democratic choice, whatever it may be.

The choices available, though, can't include the Greek government's current paradoxical posture of yes-to-euro-but-no-to-more-austerity -- unless Angela Merkel decides she really doesn't want to go down in history as the German chancellor who presided over a rupture in the grand project. She could yet concede defeat and write what would effectively be a blank check to immunize the euro, but that seems increasingly unlikely. 

Related: Greece Default Watch

Perhaps Tsipras and his finance minister, Yanis Varoufakis (a game theory expert), were hoping to coerce their creditors into abandoning their demands for austerity by implicitly threatening to capsize the entire euro ship. But, in that case, today's market reaction to Greece's imposition of capital controls should be a wake-up call. European stocks are down only 2 percent, the euro weakened by less than 1 percent and Italian and Spanish 10-year borrowing costs climbed by fewer than 15 basis points. If Tsipras was banking on market vigilantes to ride to his rescue, the sound of hooves is too faint so far to frighten his opponents into acquiescing.

At the start of the euro crisis in 2011 -- yes, it really has been going on that long -- the then Greek Prime Minister George Papandreou announced plans for a referendum in November. He wanted to ask the electorate whether it assented to the economic austerity program he was being obliged to implement in exchange for Europe's bailout money. Germany and France, though, were adamant that the vote would have to ask Greeks whether they wanted to leave the euro; Papandreou shelved the idea, not wanting to risk an anti-euro backlash that could threaten his country's common-currency membership.

That same month, in an off-the-record briefing with a senior European Union official, I asked what was wrong with asking the Greek people whether they agreed with the coming austerity program. "Because they might give the wrong answer," was the reply. More flexibility from the EU almost four years ago might have averted the slow-motion car crash that's now brought Greece to the edge of the insolvency cliff. 

Recent polls suggest the Greek people would rather stay in the euro and accept the bailout terms that Tsipras has essentially rejected on their behalf. Forthcoming polls will hopefully point to a consensus on whether the electorate backs his approach, or is in fact willing to make additional economic sacrifices to stay in the currency union. What's already clear is the right answer to this weekend's referendum cannot be the contradictory one Tsipras has tried to offer until now.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net