My response to the debate’s question is that yes, Greece will exit its crisis, all the more if Europe itself decides to address its own crisis. Greece is an integral part of the European Union and an important constituent of the European vision of unity. Today, the European experiment of prosperity, social cohesion, convergence and a common currency are in question. Europeans can surmount the challenges and reinvigorate the vision only if they act together with a common sense of purpose.
The strict austerity program imposed on Greece in order to deal with the crisis has led to an unemployment rate of 20% and has taxed social cohesion to the limit. A still suffering Greece now faces the additional challenge to implement the terms of the 2nd MoU, to adopt additional measures of debt reduction and to re-launch growth.
The priorities established by the 1st MoU were wrong. The program demanded a big and socially extremely painful fiscal adjustment, while relegating structural reforms to the second row. It was a grave misreading of Greek political and social realities. It is true that because of its client politics, the Greek political system found it difficult to implement structural reforms that tackle the power and benefits of special interest [group]s. Instead, Greece opted for –and the Troika accepted– horizontal measures that hit all alike. With foresight, as early as November 2010, we, at the Hellenic Federation of Enterprises, had suggested to the European Commission a change in emphasis. Fiscal adjustment should be slower, in exchange for faster and more intensive structural reforms. This would have had several benefits: less social pain and hence greater acceptance of the program by the people, a sounder base for fiscal reform, the timely creation of the prerequisites for export and investment-led growth.
Our arguments are belatedly reflected in the 2nd Memorandum of Understanding, which gives priority to structural reforms –but still, crucially, leaves growth outside its preview.
In a first stage political response, a new prime minister was called upon to manage the new MoU with the support of the two major parties.
This cooperation is a rare occurrence in Greek politics and it may well signal the beginning of deep and important changes in the political system. At the same time, the process of adjustment has created a deep political and social division. The coming elections will see the clash of two blocks. On the one side those who support the reforms which will keep Greece as an integral part of Europe. On the other side those who fight to maintain the status quo and their privileges and thrive on criticising the MoU.
A European problem
Greece’s case is not a crisis in isolation. Rather, it is symbolic of the problems inherent in the creation of the euro. The contagion to other European countries is a reflection of the world financial markets’ belief that the Euro zone is unable to meet asymmetrical threats because it lacks a lender of last resort, as well as the ability to set standards for risk at a pan-European level. The euro is no longer regarded as a truly sovereign currency. Instead, markets are treating the Euro in reference to the country of issue and not to the Euro zone as a single economic entity. This challenge has to be met by Europe.
In the case of Greece, the country risk has remained at a prohibitive level even after the PSI. This has brought the economy to a standstill and has suffocated the healthy private sector of the economy –which bears no responsibility for the crisis. In this respect it is imperative that Greece returns to high growth rates and this will not happen unless it adopts TARP-like or Eureka-like plans to reduce its debt below the razor edge levels that the present program sets and the markets effectively reject.
One-dimensional austerity programs to fight deficits create havoc in societies and endanger the European Union’s social cohesion. The EU was built on the promise to its people that it would protect social security systems and that it would promote prosperity. Instead, the EU is slowly degenerating into a Union that primarily fights inflation. Within this framework, the critical –and decades-long– issue is whether the burden of adjustment should be shared by surplus countries as well. This is an additional challenge that needs an immediate response.
Sharing of the burden of adjustment across Europe
The EU has progressed significantly in recent years. However, it remains a weak economic entity and an even weaker political entity. Many instances of national fiscal laxity, disregard of rules, delays in the implementation of EU directives, provision of inaccurate data, predominance of economic and political nationalism have contributed to this direction. At present, progress towards a broad and stable European power is slow and patchy at best. Europe is trying to re-invent itself at its own pace and time, while the world is changing rapidly and radically.
European leadership needs to address in a coherent and non-ideological way the two challenges of European Central Bank’s role as lender of last resort and of the sharing of the burden of adjustment. And they need to start formulating growth enhancing measures of a pan-European nature. The future of the euro –if not of the EU itself– depends on these decisions.
Beyond that though, the Union must speak not only to the markets but to its people as well. Otherwise, the road ahead will become very bumpy for social cohesion and European solidarity. If Europe is to surmount its existential crisis, it needs to express a new bold vision for its future and re-engage its citizens in it.