George Papandreou, the Greek Prime minister, proposed calling a referendum on the European Financial Stability Facility (EFSF). This action is questionable as all negotiations with the other members of the Euro Zone, and the resulting agreement last week by all concerned parties, did not call for a public referendum. Therefore this action is a new proposal by the prime minister after the fact.

The Greek people are hurting under the proposed austerity programs because the government has raised taxes. The Greek people should turn their attention to controlling government spending without raising taxes. Smaller government is the only way to lighten the tax burden.

Under the current proposal, Greece has the added benefit of having other countries help with their budget problems. The two most obvious advantages are: Payments to meet cash flow requirements, lower interest rates on new debt due to EU17 guarantees. Greece is better off under the EFSF because a default would create an environment where the government would be unable to fund its obligations to foreigners, Greece would have leave the Euro currency and to start to print its own money. The Euro currency has been a valuable instrument in increasing standard of living. Therefore this event would lower the standard of living for Greek citizens.

Why would there be a need for a referendum?

There are several possible scenarios I can think of, the most interesting are: 1) The people of Greece would not be able to complain about the necessary austerity measures if they have a say. 2)The CDS instruments written on Greek debt are currently not exercisable under the EFSF. The people of benefit of a default might be applying influence. 3)It will scare the financial markets and maybe improve the terms for Greece.

The end scenario

As long as the country of Greece is getting funds from the other countries, and as long as they can spend more under the agreement because they are receiving funds at a lower cost, it is in their best interest to agree to the EFSF.

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