As Winston Churchill famously remarked once, “democracy is the worst form of government except all those other forms that have been tried from time to time”.  Certainly, last night’s announcement by the Greek Prime Minister to hold a referendum on the latest bailout package does strike one as (at best) high-risk.  The general consensus amongst both political scientists and politicians is that you only ask people to decide things when you already know the answer they’ll give: right now, it’s not at all clear either how people will respond or what answer Papandreou would like.  So why do it?

Let’s discard the obvious: he doesn’t have to do this.  Indeed, there is a question mark over the legality of holding a referendum at all and whether its decision would be binding.  Given the lack of consultation that took place and Papandreou’s determination to pursue this line of action, not to mention the complete shock that has greeted the news, we have to assume that this wasn’t a mistake or slip on his part either.

The leading contender so far is that it’s blackmail: this was the Telegraph‘s line today.  By putting a huge obstacle in the way, perhaps the Greek government hopes to secure more favourable terms for the bailout that is still in negotiations, a classic nested game.   There is certainly something to this logic, but it seems a rather reckless way to proceed (as might be noted by some politicians in the UK): at best, it secures some benefits for Greece, at the cost of much of the little goodwill that remains amongst its European partners; at worst, it blocks the only vaguely viable rescue package in town, topples the government, possibly resulting in Greece’s removal from the eurozone and generally high levels of collatoral damage to the European Union as a whole.

Some eurosceptics discern a silver lining here: that Greeks are being given a chance to rescue their currency and their sovereignty, but again this is illusory. Autarky is not now (if it ever was) a vialbe economic and political strategy – you have to engage with others and doing that through an institutionalised framework such as the EU provides any number of guarantees of sovereign interest as compared to simple market interaction.

Overall, it is hard to see anything positive that will come out of this news for anyone, with the possible exception of financial markets betting on Greece’s ejection from the Euro.  The bailouts many not be pretty or costless, but they start to look rather better than the alternatives now on display.

UPDATE 1539:  The German Bild newspaper takes yet another perspective, of sheer disbelief.  Its headline (roughly) ? “Is the Greek PM taking the piss?”