More effective economic coordination to stabilise the Eurozone

A.D. Papagiannidis and Nikos Frangakis
The acute debt crisis that Greece experienced in the first months of 2010, a crisis that almost brought about default for the country, has dominated public life and monopolised the interest of public opinion. The EC/ECB/IMF agreement[1] for a 110 billion Euro support package, with an extremely strict programme of fiscal retrenchment and structural change, was greeted with huge relief since it followed weeks of unprecedented aggression on part of the financial markets. This assault against Greek bonds caused their spreads to rise to over 400 basis points, while Credit Default Swaps (CDSs) for insurance against Greek default also soared, thus effectively shutting Greece out of the markets.[2] But the days of negotiation of the EC/ECB/IMF package deeply scarred public opinion, since they associated the sense of helplessness and risk at the hands of the markets with an abrupt reversal of deep stereotypes (according to which the IMF was “the scourge of peoples”, etc.) and with a feeling of quasi hostility on the part of “Europe” or from segments of “Europe”.[3] The position taken by Germany on the Greek issue – both from political circles and from populist media, if not from wider public opinion – constitutes the source of a deep change in Greece regarding the notion of European solidarity.[4] As soon as the extent of the budget cuts and of the labour law-and-pension reform included in the EC/ECB/IMF programme was realised, social unrest came to the surface. Not only the political left (the strict Communist Party of Greece – KKE and the ex-Eurocommunist Synaspismos – SYN) but most remarkably centre-right New Democracy voted against the EC/ECB/IMF package – with the result of being aggressively criticised by members of the European People’s Party (EPP) in the European Parliament.
Both public sector and private sector unions are opposed to the stabilisation attempted. The tone of demonstrations in Greece gets more and more bellicose, while a firebombing of a bank has already claimed four victims. All the while, public opinion watches passively but unrest simmers just under the surface.[5]
The extreme prejudice that the debt crisis brought to Greece, a country that operated for almost a decade as a member of the Eurozone and under the Stability Pact, caused the realisation that more effective economic coordination would have to be established, if the Eurozone is to survive. Thus, the notion of “economic governance” is winning favour, notwithstanding the fact that the Greek economy would have to undergo even deeper structural change (and submit to closer scrutiny) in the future. The concept of “economic governance” supported by France is often discussed, but its effective content is construed in diverging ways according to the audience targeted.[6]

The Lisbon Strategy of 2000-2010 used to be cited as an important EU achievement in Greece, since it would lead to “the most competitive knowledge-based economy in the world”. The fact that the Strategy had been derailed since the mid-2000s received little attention, partly because Greece constantly ranked near the bottom in “Lisbon achievements”. Now, the wave of the financial crisis (and the specific impasse that Greece faces) has shifted attention to more pressing matters. Still, the perspective of a Europe 2020 Strategy is again greeted positively, since, due to the EC/ECB/IMF conditional assistance, the extensive, structural overhaul that will be undertaken makes it possible that, this time, the Lisbon approach will work for Greece.[7]

[1] Agreement between the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF).

[2] See among others R. Someritis, in: TO VIMA, 25 March 20010; K. Iordanidis, in: KATHIMERINI, 25 March 2010; K. Botopoulos, in: METARRYTHMISSI, Vol. 35, May 2010.

[3] See A.D. Papayannidis: Europe “After Lisbon” and Greece as a Companion of Fate, in: International and European Politics (Vol. 17), p. 49; Eliza Papadaki, Before Greece defaulted it was the Institutional Framework of the Euro that Defaulted, p. 28.

[4] See G. Bakatsianos: International and European Cooperation in front of the financial crisis and Greece [in Greek], in: From Bush to Obama: International Politics in a Changing World, Papazissis, Athens 2010, p. 319.

[5] See, among many others, S. Kalyvas: Three (comfortable) myths about violence [in Greek], in: KATHIMERINI, 16 May 2010. Here a distinction is made between public unrest and violent acts perpetrated by small marginal groups who rely on the improbability of being arrested and punished.

[6] See G. Gounaris: Europe after the economic crisis: Institutional Reform and Strategic Options [in Greek], in: From Bush to Obama: International Politics in a Changing World, Papazissis, Athens 2010, p. 330.

[7] The topic raises an increasing interest among academics and a small circle of politicians and opinion makers on the occasion of various colloquia. EKEME organised on 14 May 2010 a symposium: From the current Crisis to Europe 2020: The EU and Greece in front of the Challenge of Economic Governance, with eminent speakers, including Defence Minister E. Venizelos and J.V. Louis.