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Winners and Losers in the Greek Crisis

Published on , , Twitter: @euinside

There is something wrong in the way problems are discussed in EU, especially such as the Greek crisis 2.0. The antagonising of winners and losers or of my democracy against yours is a brilliant illustration of one of the biggest problems EU is facing - the sustainability of the Union. It is true that headlines sell but they also form the public opinion and there is nothing wrong with a headline being bombastic but it is a problem if it is untrue. Greece did not capitulate on Friday (20 February). What happened is that SYRIZA's boom went bust. It is a boom resting on misleading election promises. But instead of analysing at national and European level how bad for democracy it is to use non-facts in election campaigns, all of a sudden it was those who want strict sticking to our common rules that have become the bad guys. As the brightest example of the bad guys has been portrayed Wolfgang Schaeuble, the German finance minister, which is also untrue. He was not at all the only one who insisted Greece to stick to its commitments.

Not less determined and firm were the statements of Spain, Portugal, the Baltic nations, Ireland and also non-euro countries like Croatia and Bulgaria. In this vein, the newly infected crisis with Greece is a lesson for all populist parties across Europe that could shake the euro area or the EU at large. Today it is SYRIZA, but tomorrow it could be PODEMOS. They are all basing their success mainly on misleading or even untrue views either due to the lack of competence about the construction of the EU and the eurozone in particular, or this is a deliberate manipulation of the public opinion with the aim to personally gain from the public discontent.

The national vs. the European democracy

And as Greece has been trying to ruff its partners with the democratic trump card, in fact on Friday, indeed, democracy has prevailed. However, not the national one but the democracy of shared sovereignty or the democracy at European level. In the Eurogroup, after the words of Germany Minister of Finance Wolfgang Schaeuble but of other attendees as well, the situation was 18 against 1. This means that Greece was completely isolated in its attempts to elicit unfounded concessions that were not possible for other countries with troubles. In other words, the decision on Greece was taken unanimously which is more than democratic in a format where the ministers of finance of legitimately elected on national level governments are represented.

The Eurogroup is a completely legitimate body founded with Protocol 14 of the Treaty of the EU as an informal format to discuss the specific responsibilities shared by the euro area member states. This means that the decision what to do with Greece was not taken by some supranational institution which has nothing to do with the democratic process but by the ministers of finance of the euro area members which are legitimately elected by their voters. As Eurogroup chief Jeroen Dijsselbloem explained, in the Eurogroup we work with 19 electorates.

The claims that the decision of the Eurogroup does not respect the outcome of the national elections as well as the statements that Greece is fighting for its sovereignty or that the member states have lost sovereignty sound ridiculous because the countries play a major role in the decision-making process on EU level. This is precisely why the updated and upgraded economic governance of the EU does not work - because it is not been applied by the member states no matter that the nationally elected members of the European Parliament voted the changes with a majority - the so called six-pack and two-pack - and no matter that the nationally elected prime ministers, presidents and ministers have approved them too. On this occasion, Jeroen Dijsselbloem said in front of the economic committee of the European Parliament on 24 February that, at the moment, the EU has a lot of leverage for fiscal policy and almost none to make the member states do structural reforms. And hence the paradox - the EU is guilty of all miseries in the member states when they feel like it but the EU in essence is the governments who take the key decisions but some of them choose not to implement them at national level.

On 20 February, when many pronounced Greece's capitulation under the pressure of the Eurogroup and Germany in particular, happened something that should have happened long ago - finally determination was showed against neglecting the shared sovereignty. All who attended the meeting on Friday evening, excluding Greece, had obviously learned well the lessons from the debt crisis in the euro area which has revealed the huge interdependence of the economies who share a common currency and the possibilities for spillovers of problems from a country to country. It is no accident that currently a positive spillover is discussed, which means a spillover of positive effects from structural reforms, for instance, according to the formulation of Italy Finance Minster Pier Carlo Padoan. That is why, most of the ministers were explicit that compromises should no longer be made with the rules agreed at European level. And what happened on Friday was that the new Greek government, represented in the Eurogroup by its minister of finance with Marxist views Yanis Varoufakis, has understood how big the gap is between the promises they made to the Greek voters and the common European realities. A true clash between the national democracy and the common European one.

Greece is a member of the euro area since the very beginning and no referendum was held for the membership. Instead, the then Greek government presented consciously false statistical data about the country's preparedness for membership. In this case, the blame is shared equally by both the European Commission and the Eurogroup for turning a blind eye to this substitution. It is curious that a year after Greece adopted the single currency, an opinion poll by Eurobarometer showed that Greece was the country with the highest share of people who are not at all informed about the new currency. This questions the quality of a democracy based on lack of information. To the question whether a year later they consider themselves well informed in the process of preparation for the introduction of the single currency, 63 per cent say they were well informed while 36% respond that they were not at all informed. This is the highest share of badly informed people in the entire EU.

The lowest this share was in Luxembourg. The worst informed countries in this poll were Greece, Germany and Portugal as Germany is the big surprise here. Another curious opinion poll by Eurobarometer, but from 2014, shows that half of the respondents in Greece, Italy, France and Spain disagree with the claim that successful reforms in other member states have facilitated the reforms in their own country. This, in itself, deserves deeper analysis bearing in mind that now there is sufficient information to compare. The Baltic states, for instance, often quote their own experience, especially Latvia which currently presides over the Council of the EU, to show that reforms, no matter how painful, if done fast and with determination lead to good results. The analyses of the Commission and international organisations provide irrefutable evidence in support of that thesis.

The result of the Eurobarometer poll in the most resistant to reforms countries puts Mr Padoan's idea about the positive spillovers of structural reforms to the test. Ireland, too, is often given as an excellent example that reforms work and also Portugal which is not the best performer but is also a brilliant illustration that the success of reforms depends on the efforts - the smaller they are the more modest the success is. However, all arguments lose meaning in a strongly populist environment and this has become painfully clear during the clash between Greece and the Eurogroup. It is an interesting detail that in the countries where deep structural reforms have been done and the results are visible, as a general rule, there are no populist or eurosceptic movements. Such political forces appear in countries where the resistance to change the status quo is the strongest.

Lexis is important to populists whilst to non-populists its content that matters

The main reason for the new Greek-European conflict is that the new Greek government led by Prime Minister Alexis Tsipras has launched a large scale attack on everything agreed with the European partners and the IMF by previous governments in exchange for low-interest-rate loans that keep Greece from default on its debt. The attack was without arguments, without a reasonable analysis of the alternative and without any prior consultation with the partners and creditors. It caused a sharp reaction on behalf of the Eurogroup because such an arrogant attitude to agreements that affect all the other 18 members of the currency club questions the very survival of the club. Greece announced the end of the programme and of the institutions that monitor its implementation (the famous Troika), but this is a delusion because Athens has never formally asked to break the agreements. The debates took place mainly through the media which are a feeding ground for populists. Moreover, in Greece media are not famous with their independence and impartiality. This forced the French commissioner for economic and financial affairs, Pierre Moscovici, to call for logic and against ideology.

On Friday evening, however, when an agreement was finally reached how to resolve the situation, the Greek finance minister announced that Greece had succeeded to combine logic with ideology and democracy with rules. As if it is possible democracy to exist without rules! The agreement envisages an extension of the current Greek programme by 4 months and not six as Athens requested, against a firm commitment for specific reforms. In the beginning of the meeting, the Greek finance minister seemed under great pressure and had lost his usual self-confidence and extravagance, but at the briefing after the end of the meeting he seemed to have returned his confidence. It is worth noting that unlike the previous Eurogroup meeting, he preferred to speak in Greek first. This was a very clear signal that he was addressing the Greek electorate first.

In what language will the briefing be is especially important and strongly underestimated in multilingual Europe. Generally, in the EU everything is translated, if not in all EU languages, at least in the 3 main ones. This, however, does not apply to the national briefings after the various ministerial formats. In some cases, there is translation on the spot but not for watchers online. In this way, it is very difficult for understand the positions of key players - be it the German finance minister or his Greek counterpart. This is a serious problem for the common European democracy. When the eyes of taxpayers across Europe, investors, creditors and analysts are focused on the Greek finance minister it is somewhat ridiculous not to be able to understand what he is talking about.

After his statement in Greek, Mr Varoufakis reproduced it in English. The key message in it was that from now on Greece will decide alone on the reforms it will be doing, not someone from the outside. This did not entirely match the developments later when it became clear that the list the 18 euro area ministers demanded Athens to present by the end of Monday (23 February), was compiled in close coordination with the Eurogroup and the European Commission. This was confirmed by Commission spokesperson Mina Andreeva. According to Yanis Varoufakis, the talks showed that sometimes it is possible to say "no" to proposals "which you don't have the moral right to accept". He also announced the end of Greece's isolation in the Eurogroup which lasted for five years. All things which, when said in Greek, definitely provide only part of the truth.

The other part is that neither the programme is over nor the bad troika is in the past. From the Eurogroup statement from 20 February it becomes clear that the reforms list should be based on the current arrangements, which means on the existing programme. Are they in line with the current programme will be verified by the "institutions". As a matter of fact, it is worth pointing out here that since crisis 2.0 broke up, officials in Brussels have started to consciously avoid the word 'troika" and, instead, they speak of the "institutions", which is ridiculous, too, because this is simply a lexical substitution of the same content. It is no accident that in the Brussels corridors one can often hear jokes about this. In the statement, it is also said that the extension of the second bailout aims to assist the completion of the review of the programme implementation and, as a next step, the approval of the remaining tranches. What is new is that Greece is no longer in control of the spending of the money in the HFSF buffer (10.9 billion euros). The Eurogroup has decided this money to be used for recapitalisation of Greek banks because the mass withdrawals of savings, provoked by the hard clash between SYRIZA and the Eurogroup, threaten the stability of the bank system.

At midnight on 23 February, the Greek government presented a list of reforms which, however, evoked mixed feelings. Although it has been approved by the "institutions", this happened with many reservations. In her letter to the Eurogroup, IMF chief Christine Lagarde expressed concern that the list is not sufficiently specific. In addition, in some areas there are no clear assurances that the government of Greece "intends to undertake the reforms envisaged in the Memorandum on Economic and Financial Policies. We note in particular that there are neither clear commitments to design and implement the envisaged comprehensive pension and VAT policy reforms, nor unequivocal undertakings to continue already-agreed policies for opening up closed sectors, for administrative reforms, for privatisation, and for labour market reforms. As you know, we consider such commitments and undertakings to be critical for Greece’s ability to meet the basic objectives of its Fund-supported program, which is why these are the areas subject to most of the structural benchmarks agreed with the Fund", Ms Lagarde's letter says.

Mario Draghi, the European Central Bank's chief, also expressed discontent with the fact that many of the reforms on Athens's list differ from the commitments in the programme. Nevertheless, all participants in the Troika have approved the list as a "good starting point" for negotiations. The list, which was leaked to some media, indeed is a comprehensive one, which means that it covers many areas, but it is quite general and without specific deadlines. This is probably Yanis Varoufakis's little victory who said after his first participation in the Eurogroup on 11 February that it was not realistic to expect Greece to do a lot in just a few months (as long as the extension lasts). Among the commitments is a reform of the tax system aimed at improving tax collection, the fight against tax evasion, abolishing tax immunity and tax exemptions, etc. What impresses a lot is that many of the reforms the EU and IMF expect of Greece are the same that are expected of the enlargement countries.

Those are fight against corruption and organised crime, reform of the administration with the aim to ensure transparency. As a matter of fact, in the EU enlargement strategy for 2015 the reform of the public administration is outlined as a major priority. Greece commits to reduce the number of ministries (from 16 to 10), the number of "special" advisers in the government, to cut the privileges of the members of the cabinet and the parliament. Another of the Greek commitments that coincides with the EU's expectations toward the countries that aspire for EU membership is an improvement of the legislation on political parties and especially their funding. What has caught my eye while reading the list is the commitment related to media.

The Greek government announces that it will activate "immediately" the frozen legislation that regulates the revenues of media (electronic and press). The aim is to ensure that the media will pay the state the market prices for the used frequencies. It is promised to prohibit the activities of media that are constantly generating loss and which have no transparent process of recapitalisation. The creation of a transparent and electronic institutional framework for public procurement is another commitment that can be found as a recommendation in the reports on the implementation of the conditions in the Cooperation and Verification Mechanism with which Bulgaria and Romania have been let to join the EU.

Not a Grexit but a Grestay

The main conclusion that can be drawn from crisis 2.0 is that it is deeply systemic because it reflects the insufficient preparedness of some member states to be part of the EU and the euro area in particular. Ultimately, the clash between Greece and the Eurogroup was based purely on values. Last year, the Serbia first deputy prime minister and minister of foreign affairs, Ivica Dacic, noted that if some EU members were to be subjected to the same accession criteria, they would fail. He even proposed, to some extent jokingly, all member states to pass regular health-checks every ten years. Against the backdrop of the Greek situation, his idea seems worth discussing because the Greek drama shows that there are not only countries that are striving for EU membership but also countries that are striving to stay in the Union.

During Jeroen Dijsselbloem' hearing in the European Parliament many of the MEPs asked him about Greece possibly leaving the euro and eventually the EU. His response was that too much capital (mainly political) has been invested in the monetary union and a lot of work has been done so far to allow an exit. This is especially valid for countries where the public opinion is supportive of staying. I cannot stop thinking about Mr Dacic's words, though, because they reveal something very important - the thesis of the European power to transform problematic societies is strongly eroded by cases like Greece (and not only). If the EU is not determined to respect its own rules, it risks to break down into its building blocks many of which are a potential threat to the others because they have failed to transform completely and therefore some of the most dangerous political phenomena find a breeding ground there. So, for now it seems the weapons are put down but the Greek crisis is far from over. The negotiations on Greece's future after the end of its current programme are yet to begin.

How will they pass will echo strongly in the countries where the populist movements are most influential. This is precisely why the EU must be relentless and should not allow exceptions without very solid arguments. And it is high time to put an end to the clash between national and European democracy. During the election campaign in Greece, it was often spoken that no one should interfere in it which is why representatives of the Commission did not meet with the then opposition SYRIZA. This was a mistake because there is hardly a need to present evidence to prove what is obvious that the election results in one member have an impact on the others. As a guardian of the treaties the Commission has a duty to tell voters what irresponsible politicians prefer to conceal or simply do not know. The direct impact of one national election on others is not a side effect but a consequence to be expected from the fact that the member states had agreed to share their sovereignty in good and bad times. This is precisely why the rules are so important.

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