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Direct democracy returns to Greece

It appears that Greek Prime Minister George Papandreou has decided to call a referendum on the European debt plan as opposed to working a solution through parliament.  The politics of referendums aren’t discussed enough in my opinion but luckily, political science can help us predict voting behavior in direct democracy.

Vote choice in referendums is unique in advanced democracies because it allows voters to weigh an issue directly, sometimes without concern for party loyalties.  The model of political parties described by Bawn et al. shows that voters primarily take cues on most issues from elite signalling within political parties. So should this method of issue support carry over into plebiscites?  In Referendums on European Integration, Simon Hug and Pascal Sciarini, discuss how different variables about a referendum affect vote choice. Examining data from fourteen European integration referendums, the authors claim that issue saliency determines voting behavior.  In important “first-tier” elections, voters make a decision by weighing the actual issue.  On less important “second-tier” elections, voters may base their decision on their assessment of the ruling party.  This comes in the form of voting against the wishes of the government if one is dissatisfied, and voting in favor if one is supportive. I think Hug and Sciarini would agree the Greek vote represents a “first-tier issue.” We should expect then, that confidence in the government should have minimal impact on voter preference.

Hug and Sciarini’s model has been tested recently, when Iceland faced a somewhat similar situation, twice in the past two years.  You can read the details here, but the basic story is that twice the Icelandic government attempted to push a loan repayment deal through plebiscite, and twice voters rejected the deal, known as the “Icesave Bill.”  In that situation, the ruling coalition of the Social Democratic Alliance (SDA) and the Left-Green Movement came to power after Iceland’s financial collapse that triggered the need for the referendum. While most voters approved of the new government, the public push by the SDA was not enough to convince voters to cast “yes” ballots.

The Icesave Referendum

On April 9, Icelanders will head to the polls for a special referendum regarding a loan guarantee to Britain and the Netherlands. This is the second time Iceland will vote on the issue; last year, voters overwhelmingly rejected a similar ballot initiative.

In October 2008, the Icelandic bank, Landsbanki, collapsed, and with it its online Icesave branch, and the investments of 400,000 British and Dutch savors.  Iceland’s Depositors’ and Investors’ Guarantee Fund lacked the funds to compensate its investors and the Icelandic government initially refused to take responsibility for the failure of a private bank.  After consdierable negotiations, Iceland agreed to insure the liabilities of Icesave, while the British and Dutch governments  provided a 3.8 billion Euro loan to cover the deposit insurance obligations for their citizens.  In August 2009, the Icelandic parliament, the Althing, passed a bill setting out terms of repayment to the two countries for the loan. President Olafur Grimsson, however, refused to sign the bill, forcing a nationwide referendum on the issue. In March 2011, Icelandic voters overwhelmingly voted against the measure, with 93 percent casting “no” votes. The rejection resulted in severe diplomatic tension between Iceland and both Britain and the Netherlands. It also caused a downgrading of Iceland’s bond ratings.

On February 16, 2011, the Althing passed a new Icesave bill, with terms considered more favorable for Iceland. The new terms were the result of negotiations with the British and Dutch, and included lower interest rates on repayment as well as a revaluing of the debt. Once again, however, President Grimsson refused to sign the bill, meaning voters will once again be given the chance to weigh in on the issue.  While initial support for the referendum started out strong, recent polls have shown the gap narrowing. A survey taken on March 17 revealed that a bare majority, 52 percent, were planning on voting “yes”, while 48 percent planned to once again reject the proposal. The most recent poll, taken on April 5-6, shows that 55 percent of respondents planned on rejecting the referendum, while 45 percent would approve it.

It’s easy to criticize Icelanders (and indeed I am right now!) for not insuring their own banks, but I understand where they are coming from.  Think of the uproar over our bank bailout several years ago.  Now imagine if we were being asked to bail out AIG so we could pay back the bad investments of a bunch of British and Dutch! Different scenario yes, but the politics are similar. Furthermore, unlike our bailout, Iceland basically knows how much this will cost the average citizen.  Given the relative small size of the country, coupled with the high price tag  for the loan, the average Icelander is expected to shell out – not all at once of course – around 6,000 dollars.  Of course saying “no” will downgrade Iceland’s debt to junk bond status, and cripple EU membership talks.  It’s a bad situation to be in and the average Icelander is not to blame. Rich bankers in their country over-expanded, bad investors in other countries weren’t careful with their investments.  Now they have to share the loss.

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