Many of us predicted that investor euphoria over Thursday’s Eurozone deal would soon fade. But few thought it would explode this soon.

Greek premier George Papandreou stunned everyone by calling for a public referendum on whether to accept the bailout and the accompanying straightjacket. The vote will almost surely be No—the measure is wildly unpopular—and his government may well collapse before a vote can be held.

Paul Mason, the economics editor for BBC’s Newsnight, believes that without the bailout and haircut, “Greek debt spirals out of control and the country goes bust.”

Key indexes have already lost the gains made Friday and Angela Merkel and Nicolas Sarkozy are once again scrambling to find a way to save the deal. If they can’t, Mason sees a wild ride:

The euro leaders will be faced with the option of a forced transfer of taxpayers’ money to shore up the entire Greek economy with no surety, and no “local representatives” as currently planned. Or Greece leaves the euro.

Most political economists I speak to believe this has been the logic all along, and brave though it has been for Prime Minister George Papandreou to try and buy time to do a proper structural reform of Greece, the implosion of Spain and Italy has robbed him of that time.

Greeks – even those fiercely opposed to Pasok from the left and right – are resigned to the fact that the country faces years of painful restructuring. The real question at issue is a) under whose control and b) in whose interest?

It is for this reason that, while the Greek CP wants out of the euro, the growingly influential far left parliamentary group SYRIZA does not, and neither does the hard-right religious party LAOS. Everybody can see that an external devaluation will be chaotic, painful and cause its own kind of social unrest, just as the attempted internal devaluation is doing.

Why would Greece take a complete default rather than a half one—and risk bringing down the entire Eurozone if not the entire global economy with it? To save their country.

Another potential reason is capital flight. Anecdotal evidence suggests that the Greek elite are buying up property in London just as fast as they can find berths in Poole for their yachts. They are voting with their spinnakers, on the basis that the game is up. In any future Greece on offer, they will have to start paying taxes and they do not want to.

One banker told me the Greek super-rich have mostly left.

The one thing governments have that investment banks do not is intelligence services with the power to wiretap people. If you ever wonder why serving politicians go grey so quickly, it is in part because they see the intelligence. So Mr Papandreou may have looked at the file and said, I can’t sell this to my party, nor to my voters, and the business elite are emigrating en masse, so throw the dice.

Referendums are, always, basically a coin-toss, an all-chips on the black romantic gesture. Right now, the scale of EU-level mobilisiation to dissuade Mr Papandreou is huge.

But if Greece votes no – and goes for euro-exit – there are several plans in the process of being published that explain what you have to do. Close the banks for days, ration food and energy, institute strict capital controls – with most probably a few fast patrol boats at Glyfada harbour to check every departing yacht for cash and bonds.

Later, you get massive devaluation, with inflation; your non-sovereign debts become instantly doubled so you cannot pay them (i.e., the stock of Greek private debt to external lenders, for example, or, intra-corporate debts).

Finally, you get the chance to become competitive again. (I base this on SOAS professor Costas Lapavitsas‘ upcoming document, which he has verbally outlined to me).

However, despite this very, very unappealing prospect, you are at least in control of your own economy and you do not have foreign civil servants dictating what ministers can do.

Not exactly cheerful stuff but, frankly, understandable. As much as the Germans and French resent having to bail out profligate Greece, the Greeks resent having their core political decisions dictated from Paris and Berlin even more.

Naturally, this will push virtually everything else off the agenda at the Cannes G20 summit, which kicks off Thursday.

On Tuesday, Robert Zoellick, president of the World Bank, summed up the views of many policymakers when he said that the eurozone crisis threatened knock-on effects across the entire global economy, including the emerging markets – the bank’s main clients – and that it was up to European authorities themselves to deal with the problem. “Europeans are going to have to be the principal agents in solving Europe’s problems,” he told reporters.

Mr Zoellick said that a “multi-speed” global economic recovery before the summer, in which the emerging markets if anything were in danger of overheating, was quickly weakened by a combination of renewed tension in the eurozone and the debt ceiling debate in the US. “The events in August in the eurozone, and to a degree the US, showed the effects on financial markets flowed quickly to the developing world,” he said. As for the Greek referendum, which as he noted was a eurozone rather than a G20 issue, “to me it looks like a roll of the dice”.

The agenda items that France has tried to push during 2011 – notably reform of the international monetary system and trying to reduce volatility in commodity markets – seem likely to result in no more than symbolic announcements or incremental steps, despite claims by the organisers that they will have concrete progress to report.

The G20 may make a vague promise to add the renminbi at some point in the future to the basket of currencies that make up the Special Drawing Right, the International Monetary Fund’s unit of account, or at least to look at the criteria for inclusion. The IMF may also announce tweaks – described by some experts as a “rebranding” rather than a reform – of some of its lending instruments.

But this is a long way from the challenge to the dominance of the dollar envisaged by Nicolas Sarkozy, French president, when he announced the drive to reform the international monetary system last year. And some promises for better information about agricultural production and food stocks will not fundamentally change the nature of the Anglo-Saxon commodity markets.

While predicting the twists and turns of international finance is outside my comfort zone, I’m actually quite sympathetic to George Washington University political scientist Henry Farrell‘s view that, on balance, this is all good news for Europe, if not the global economy.

[P]erhaps this is the best news that the European Union has seen in two years. At the very least, it’s the first time that we’ve actually seen citizens actually being asked about what they actually want (elections in which they kick the bastards out to see Tweedledum replaced by Tweedledee implementing pretty well the same austerity agenda, despite pre-election promises, don’t actually count).

To put it differently, I imagine that the strong likelihood is that the Greeks will vote ‘No’ to the proposed austerity measures. But I’m not at all convinced that this will result in disorderly default. Instead, I suspect that it will result in people running around in panic for a few weeks, grave pronouncements from senior European politicians about how horribly the Greeks are betraying their European vocation, and then efforts to stitch together a deal which might actually make sense (e.g. enough aid to prevent the economy from crashing as horribly as it is doing, as a quid-pro-quo for genuinely intrusive reformation of the Greek tax collection system). This might in turn provoke an actual real argument over what EU politics should look like post-crisis (because make no mistake – the system that is being articulated on the fly at the moment is likely to have profound long term consequences for the shape of the EU).

Or, to put it differently again, the European Union is at a point where it actually has to start taking enormous – and explicitly political – decisions about what kind of entity it wants to be.

It’s a long essay, previewing a longer one that he’s about to publish elsewhere, but the upshot is that European integration has been achieved through stealth and technocratic maneuvering on the part of elites, quite frequently bypassing the clear preferences of the ostensibly democratic populations in various countries. The passing of so much authority to the European Central Bank and to appointed officials in Brussels has been inexorable, with little input from the European publics and often against the expressed wishes demonstrated via referenda. 

Farrell is perhaps too sanguine about the costs of implementing this vision when he allows, “I don’t know whether there is a European Union that could be affirmed (after long and painful debates) by both the Greek and German publics. I think that there is, but I’ll grant that these are not the most propitious times for finding out. Then, there rarely is a propitious time for finding out – when things seem stable, no-one has an interest in upsetting the balance.”  After all, the expert consensus seems to be another round of global economic calamity if the euro doesn’t hold and a Greek default is followed by others.

On the other hand, there is a strong minority view that the elite demand for austerity is exactly the wrong course of action during a global depression. Given that the people are going to have to live with the consequences, it may well be that they ought to have a stronger voice in choosing their poison. 

James Joyner is managing editor of the Atlantic Council.

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