Economic crisis.
Tough love for the Greeks.
Teetering on the brink of bankruptcy, Greece is proving to be a major headache for the European Union. Writing in La Stampa, economic analyst Franco Bruni argues that to save the credibility of the single currency, the Union needs to centralise policy, even to the point of over-riding national autonomy on economic issues.
Greece’s macroeconomic straits are worrying the European authorities. Its untenable national debt and deficit levels, its trade gap, low productivity and poorly organised public sector, injudicious changes in the wage structure and a whole lot more are making Europe increasingly leery of a country that would go as far as to repeatedly misinform Brussels about the state of its own economy. The fact that Greece is part of the eurozone undermines the credibility of the European currency – and of the authorities that let it join in the first place and then proved unable to curb its excesses.
Still, there are two separate issues involved here. On the one hand, there is the risk that Greece, unable to repay its debts, even those of the government, will go bust. This threat is apparently compounded by the possibility that Greek insolvency could infect the credibility of other European countries, such as Italy, that show similar, if less acute, signs of instability. The latter is a small risk, however: notwithstanding passing fits of panic, the financial markets can still make out the qualitative and quantitative differences between the troubles besetting different debtor countries.
Shortcomings in European economic governance
The real problem lies elsewhere: Greece is a case in point of how, under the EU’s current setup, it can lose control over a member country’s economy for a fairly extended period of time, allowing it to drift too far away from Community rules and standards – despite the single currency and the economic coordination efforts of the European Commission and Council. Greece’s present plight points up serious shortcomings in European economic governance, which has proven weak, distracted, divided, and insufficiently supra-national in scope. Without more assertive and ambitious centralised control, national economic policies, left to their own devices, will engender gaping rifts between the various member states and regions of the Union, as well as disarray and inefficiency in the Community economy, at a moment in time when the global crisis and global competition necessitate sound and concerted action.
So in Brussels as in Frankfurt, policymakers are increasingly alive to the urgent need to tighten the financial reins and economic coordination of the Community as a whole. That becomes all the more plain in any serious attempts to implement the Stability and Growth Pact, with which deficits and national debts are supposed to kept in check at Community level. Greece is far from being the only country that has a hard time abiding by the terms of the Pact: almost all the member states are now subject to the EU’s so-called “excessive deficit procedure”. The Union will have to make an extraordinary collective effort to redress the European balance of payments and put European public finances back on an even and sustainable keel.
Curtailing national economic autonomy
But for these efforts to bear fruit, Europe will have to embrace the ambitious goal of coordinating the planning and implementation of structural reforms. And that means curtailing the autonomy of national economic policies and bolstering Community action and controls. Otherwise, the single market itself and the solidity of the euro will be compromised along with financial discipline. And that would take a heavy toll on the EU, including those very countries that are averse to centralised policymaking because reluctant to give up their autonomy and convinced they have no need of “outside discipline”.
Franco Bruni
Published on January 26 2010 | La Stampa
Published on January 26 2010 | La Stampa
Solidarity
Don’t leave Greece to bleed
In the Guardian, Nobel Prize-winning economist Joseph Stiglitz points out that the selfsame European institutions now excoriating the Greek authorities for their errant economic ways long applied a double standard to public deficits: "one for the big and powerful and another for the small”. A case in point: “When France broke the EU edict not to let debt exceed 3% of GDP, there were strong words, but little else.”
While admitting Athens’ fair share of the blame, the American economist urges its partners to “support Papandreou's efforts in every way they can, not turn their back on the people of Greece […]. Greece is among the poorest of the European family. Part of the basis of the success of the European project is a sense of social solidarity, which entails coming to the assistance of those who are less fortunate.” Which is why, he argues, “for the European Central Bank to delegate judgments about the credit-worthiness of Greek bonds to the rating agencies would be more than just irresponsible; it would be reprehensible”. Instead of, in other words, “delegating effective regulatory responsibility to the rating agencies”, Europe should “reframe the short-run budgetary targets it sets for Greece”. Moreover, he adds, “institutions like the European Investment Bank should undertake countercyclical investments in the country, to offset the deflationary impacts of the budget cuts. Europe should show that it will stand behind Greece, much as the IMF provides support funds for developing countries.”
Don’t leave Greece to bleed
In the Guardian, Nobel Prize-winning economist Joseph Stiglitz points out that the selfsame European institutions now excoriating the Greek authorities for their errant economic ways long applied a double standard to public deficits: "one for the big and powerful and another for the small”. A case in point: “When France broke the EU edict not to let debt exceed 3% of GDP, there were strong words, but little else.”
While admitting Athens’ fair share of the blame, the American economist urges its partners to “support Papandreou's efforts in every way they can, not turn their back on the people of Greece […]. Greece is among the poorest of the European family. Part of the basis of the success of the European project is a sense of social solidarity, which entails coming to the assistance of those who are less fortunate.” Which is why, he argues, “for the European Central Bank to delegate judgments about the credit-worthiness of Greek bonds to the rating agencies would be more than just irresponsible; it would be reprehensible”. Instead of, in other words, “delegating effective regulatory responsibility to the rating agencies”, Europe should “reframe the short-run budgetary targets it sets for Greece”. Moreover, he adds, “institutions like the European Investment Bank should undertake countercyclical investments in the country, to offset the deflationary impacts of the budget cuts. Europe should show that it will stand behind Greece, much as the IMF provides support funds for developing countries.”
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