Home > News > Greece isn't the first country to have a debt referendum. Does Iceland provide useful lessons?
160 views 8 min 0 Comment

Greece isn't the first country to have a debt referendum. Does Iceland provide useful lessons?

- July 5, 2015

A man begs next to “No” campaign posters ahead of Sunday’s referendum on July 3  in Athens. (Photo by Christopher Furlong/Getty Images)
A small, peripheral country becomes ground zero for Europe’s economic crisis. Banks are insolvent, the sovereign is pursued by foreign creditors, and political leaders issue a rare call to citizens to approve creditors’ repayment terms—or not—via a national referendum.
Greece in 2015? Yes. But, also, Iceland a half-decade earlier.
Before Greece’s bailout referendum Sunday, the only direct democratic votes on sovereign debt resettlement occurred in Iceland in 2010 and 2011, as citizens went to the polls. As it happened, both times they rejected their foreign creditors’ terms. Both times we surveyed voters to assess the factors shaping their views toward the “Icesave” debt resettlement.
Now, Iceland is not Greece. Besides being a microstate of only 400,000 citizens (compared with Greece’s 11 million), Iceland is not a European Union member state. Furthermore, it has continued to use its national currency, the krona, while Greece replaced its drachma when it adopted the common euro currency in 2001. But since debt referendums are “rare events” providing us with few useful historical analogies, we might nevertheless ask about the lessons of Icesave for the Greferendum.
First, despite the fact that the vote is nominally about economics and Europe, domestic political factors drive individual choices regarding international policy outcomes, especially when the exchange rate is involved. Given that voters have been presented with a complicated and ambiguous question, they will rely on ways to simplify their decision about how to vote. They will likely follow the parties they support. The ruling party Syriza, its governing coalition partner the Independent Greeks, and the far-right Golden Dawn all advocate a no vote, while the center-right New Democracy and socialist Pasok parties endorse the yes. Attitudes toward the incumbent Syriza government of Prime Minister Alexis Tsipras and his team may be the most important factor shaping how voters behave.
Second, symbolic attachments also matter, especially when it comes to attitudes to Greek national sovereignty. Nationalists are more likely to vote “no” on the proposed repayment terms to foreign creditors, while cosmopolitans more likely to vote “yes.” Most especially, citizens who favor Greek EU membership will be more likely to support the proposed deal, egged on by European officials and politicians who have said that euro zone membership, at the least, is on the line.
Third, citizens may try to vote their pocketbooks, but mapping the effects of a “yes” or “no” vote to one’s personal economic circumstances is no easy cognitive feat. Those with domestic savings and high household debt should probably be especially keen to vote yes, to minimize chances of a default-Grexit scenario which would leave them with worthless new drachmas. The calculations for pensioners and others dependent on fiscal outlays are not so clear, because while the repayment package would hurt them, it’s not clear that they would do better (and they might do worse) if Greece doesn’t repay the money it owes.
The stakes are high. They are perhaps higher for Greece than they were for Iceland. While at the time the cost of accepting the repayment terms was quantifiable for Icelanders (calculated as approximately $17,000 per person), there’s no easy way to know what voting either way will mean for Greeks. The choices being put to them are costly either way and, sadly, Greece’s economic woes seem unlikely to be resolved anytime soon — even if voters say yes in the referendum. Icelanders said no to their creditors and seem now, four years later, on a sure enough economic footing again that they deliberately withdrew the application for EU membership they submitted in the midst of the Icesave crisis. Yet Greece faces a much larger, longer economic battle, even if it yields to the current bailout conditions.
Further complicating matters, the question being posed to voters is relatively uncertain. As many are emphasizing, the referendum’s wording is extremely difficult to understand.[2] Whereas most Icelanders had a pretty good idea what the referendum was asking, Greeks are unsure what voting one way or the other really means, which makes it that much harder for them to discern the ultimate consequences of their votes. The barrage of media messages in which they are now surrounded constitute a much noisier decision-making environment than Icelanders faced. While we found that there wasn’t any difference in how more politically sophisticated people and less politically sophisticated people voted in Iceland, the, the context in Greece seems significantly more confusing for voters.
There are way too many differences and unknown factors for us to use the Icesave referendums as a straightforward guide to how people vote in the Greferendum. But, as Willie Sutton is said to have robbed banks “because that’s where the money is,” they provide the only available alternative case for thinking about how citizens might vote in a debt settlement referendum. We suspect – although we cannot be certain – that EU and euro zone membership will make a key difference, and that Greeks will choose continuing austerity as the price required to continue as effective members.
Amber Curtis is an assistant professor of political science at Clemson University.
Joseph Jupille is an associate professor of political science at the University of Colorado, Boulder.
David Leblang is a professor of politics and public policy at the University of Virginia.
Read more about Greece and the euro at the Monkey Cage:
Nikitas Konstantinidis: Has Greece always wanted Grexit?
Joshua Tucker: Why the Greek referendum is like a badly designed game of three dimensional chess
Melissa Schwartzberg: What ancient Athens can and can’t teach us about the Greek referendum
Manuela Moschella: Rescuing Greece means rescuing Europe too
David Steinberg: Will Greek voters say goodbye to the Euro on Sunday?