E.M.E.R.G.E. - European Mobility Enabling to Reduce th Ground of Exclusion - European Project hosted by Istituto Sturzo in partnership with ESA and FCASEC

GREEK CRISIS – A NEW BEGINNING OR THE BEGINNING OF THE END?

A debate on the consequences of Greece crisis between Bulgarian researcher Nikolay Anachkov and Italian research coordinator Pietro Celotti

Eurozone represents the second largest economy in the world. On the first decade of existence Euro became the second largest reserve currency after the U.S. dollar and surpassed the U.S. dollar’s circulation. The Euro appeared to be very strong, so it is understandable that when the debt crisis started to affect the Eurozone, Member States' citizens reacted differently. If some of them truly believe that European Union is a powerful organisation and the crisis will pass, others can already see the end of the Union.   

Nikolay Anachkov: In 2009 it became clear that something in the Greek financial system is not so all right. Actually, Greece’s economy has not been in balance for years, but everyone in the European Union preferred not to raise this question, maybe hoping that it should solve all by itself. It would be very nice if that happened, but as we know, in real life things like this never happen. If you want to cope with some problem you should try hard to solve them. But what European Union did was just the opposite.

Pietro Celotti: I catch your personal disappointment but it seems necessary to focus on the actual institutional responsibilities. It is right that Eurozone was seriously affected, but Greece’s debt crisis was produced mainly because for some years they have covered up their bad economic performances by officially presenting better economic figures than it was the case. Although the Commission has the responsibility for monitoring statistical data, they do not directly compile statistics or control their production, but it depends largely on the data compiled and reported by the member states, as well as the administrative ability, good will and loyal co-operation of the respective national authorities. In this sense, European Union could not intervene with objective measures, even if the reliability of Greek government deficit and debt statistics has been the subject of continuous and unique attention for several years.

Nikolay Anachkov: Greece joined the Euro in 2001 and one of the obligatory clauses is that the budget deficit can not be more than 3%. Since Greece joins the Eurozone it should be certain that its deficit is below 3%. However, in 2004 it becomes clear that the country has not actually met the conditions to join the Eurozone. Greek government admits that its deficit has never been under 3%. And that is how we reach 2009 when the deficit grows to 6% of GDP. For 2010 even 12-13% is mentioned.

Pietro Celotti: We have to consider the historical development. At the time when Greece joined Eurozone the general governmental deficit was 3.7%, so not far from the rule established by the Maastricht Treaty. During the last years the governmental deficit in Greece suffered many oscillations. In 2007 it was 2.8%, but in 2009 it reached 13.6% (Source: Eurostat). Eurostat (European Statistical System) could never certify the quality of the data reported by Greece, so these data can not be considered correct. Regarding the other convergence criteria, at the moment of joining the Eurozone, Greece had officially achieved a high degree of sustainable convergence by reference to all four criteria (Council Decision 2000/427/EC).

Nikolay Anachkov: And what did European Union do during all these years when things were just getting worse and worse? Is it so easy to lie the European Union and the European Commission? If somebody can lie so easily for such a big and important thing like its budget deficit, what about many other smaller and less important issues? Who is the one to be blamed for all that mess – the Greek government and its statistics that lie, or the European Union’s institutions that let to be lied so easily. According to me, it is the European Union that is mainly guilty.
Pietro Celotti: To say that the entire Union is responsible for the problems that Greece and other Eurozone member states are facing today is very easy, but first it should be considered the way these countries acted during last years. If strong economies from European Union responded more positively to the global crisis, it means that some economies were fragile even before. The Euro is a crucial factor, of course, because it removes the option that countries might once have taken: currency devaluation, in theory making exports more competitive. This was one of the disadvantages that influenced Greece’s economical situation, but worse were the decisions that the Greek government took during last years. Of course European Union should have been taken some actions towards the problems from Greece a long time ago because only one economy of the European Union can influence the entire economy, but the Greek problems were very well hidden. On the other hand, countries expressed their will to be a part of European Union and their honesty towards the Union has never been considered. This is in my opinion the point. After the crisis there will be more need for Euro and more need for European control on the Member States. This is not the ideal process of institutional enhancement for euroenthusiasts, but we have to consider that European Union will be strong if based on strong interests.

Nikolay Anachkov: What does represent the European Union at the present moment? It is a group of twenty seven countries with different social, economical and cultural status. We have rich and we have poor countries. Each country has its own interests and tries to implement them. And in many cases this fact harms the common interests of the Union. We have a lot of examples about that and the Greek crisis is the most recent and obvious.

Pietro Celotti: The motto of the European Union is “United in diversity”. It means united even if language, economy and social status are different. This is our starting point, it would be abstract to pretend a different historical reality. It was one of the goals of the European Union to build a concept where all different countries can act together for the good of the Union. Of course, every country has its own needs and interests, but this does not mean that the goals of the country are considered more important than the European Union and the most relevant example can be the case of Greece, which nowadays is helped by all other European Union countries in order to escape from the crisis that affected the country lately.

Nikolay Anachkov: EU has many institutions – Commission, Parliament, Council, etc. Can we say, from the position of European citizens that even one of them works effectively? I can not say that. It takes so much time just for a single decision to be taken. The procedures are so difficult and slow. This reality should be changed if we want to build a stronger and better working Union. That is why now it is a turning point for the EU. There is a very important decision that has to be taken. And the question is as follows: Can the Greek crisis become a new beginning for the EU or is going to be the beginning of its end. Maybe this sounds too extreme, but it is easy to prove it. What are the facts that we have at the moment?

Pietro Celotti: I do not see the end of European Union, even if the tragedy of Europe goes far beyond the case of Greece. The problem lies deeper and it extends to all member countries, or will eventually. You are right when you emphasise that this is a turning point for the European Union and a change should take place. But you risk to forget that during the last decade the Euro has successfully protected Europe against exchange-rate risks, and it is a useful step towards further European integration. Regarding the functioning of the institutions, I do not want to defend in general terms all the bodies because this argument risks to be just ideological. I can report my personal experience and say that the European manner of managing the structural funds has given an important contribution to the improvement of the administrative capacity of the Italian regions. My impression is that in many cases European institutions work more and better than the national bureacracies. If you look at results, it seems difficult to deny that countries having properly exploited European funds like Portugal and Ireland have created significant infrastructures thanks to the Union.

Nikolay Anachkov: The Eurozone collapses; there are voices for excluding Greece and even other countries that could cause future problems. The Euro reached its lowest levels. Other members like Spain and Portugal are going in Greece`s steps. They have rising debts and deficits. The economy and GDP contract, while unemployment grows very fast. If we analyse the Eurozone, as a whole, the government debt stands at 85% of GDP at the end of 2009, and the Eurozone is miles away from a possible debt crisis. Things are different in some individual countries, in Greece in particular, a country with a weak political system that has been adding government debt at a much higher rate than the rest of the Eurozone and that in addition has a debt level exceeding 100% of GDP. So, while the Eurozone as a whole is no closer to a debt crisis than is the US, some of its Member States have been moving closer to such a crisis. What can be the decision in this situation?

Pietro Celotti: Greece can not afford to withdraw from the European Economic and Monetary Union, the single-market currency union for the Eurozone, because this means that Greece also has to leave the European Union membership, according to ratified law.
For 2009, the government debt as a percentage of GDP for 2009 is 73.6% for the whole European Union and 78.7% for Eurozone (Source: Eurostat). It is right that this level is much higher than the limit established by the nominal convergence criteria, but this is also the highest level registered for more than last 10 years, so it means that the global crisis affected the European countries. This is a real problem of the European Union and it is studied very well lately in order some changes to be made for achieving a secure level.

Nikolay Anachkov: To my point of view, EU needs to get more rights and powers. The Lisbon Treaty is a step in this direction, but it is a very small one. The present situation needs bigger steps for handling its challenges. I think that the Union should faster walk its way to a supranational confederation. Only a centralized Union can guarantee a stability and development for its members. Of course, a supranational EU means less national sovereignty, which is always a hard decision to be taken. Country members however should see through the perspectives and realize that the situation in Greece is going to repeat sooner or later. And EU will not always be able to spend hundreds of billions of Euros just to solve every nation`s problems. In my opinion, the Greek crisis could hardly happen if the role of the EU in national finances and budgeting of its members was stronger. Even more, as a supranational structure the EU will be much more powerful player in the world scene. Of course, this includes common foreign policy, common military policy, etc. This transformation of the Union needs a long period of time to happen, but now it is the right time to build the bases and put a new beginning. The position of the EU in the present moment can affect very strong its future existing.

Pietro Celotti: Our analysis is different but it seems that we converge on the same conclusion. Right now for the European Union a crucial point has come and a proper decision should be taken. The future of the Union cannot be a simple “Europe of nations” with strong virtuous states able to manage the economic globalisation and a second group of weak, guilty countries. Time has come to complete the Economic and Monetary Union with a real Economic Union and the European Institutions are thinking of two parallel reform processes: the reform of the Stability and Growth Pact, limiting budget deficits to 3 percent of gross domestic product, and the reform of the EU Budget. A fiscal union, where budgets and taxes are decided centrally, would prevent member nations from running up big deficits and allowing money to be diverted across the bloc as needed.

Nikolay Anachkov: More than ever before EU needs Euro optimism from its citizens. And the only way for this to happen is if the EU citizens see honest and determined actions. People want to see how EU can get better of its challenges. And present structure and functioning showed that there is much space for change and improvement in this direction. After all, EU can not always exist like this. It should be developed; otherwise it can lose its conception and identity. If we assume that this is some kind of transitional period, we should ask the following question: which is the next moment of its development. Since there are not so many options, I think that the one upper mentioned is the best one.

Pietro Celotti: More than simple optimism from its citizens, European Union needs citizens respecting its significant political and economical achievements and giving a democratic contribution to its evolution. Participation in the European Parliament elections and then capacity to elect active and long sighted representatives is, in my opinion, the first step. There is no reason for panic, and every reason to stay calm and wait for the new equilibrium to emerge. “Now is the time when Europe needs to speak as one voice,” said Simon Tilford, chief economist at the Center for European Reform in London. “The crisis should lead to political unity, but it could just as easily lead to a divided Europe.” A renewed pact between the citizens of the Union, establishing the principles for a new fiscal responsibility and solidarity is compulsory. In order to reach this historical agreement, national parliaments must be involved in the reform process, alongside the European Parliament, the European Commission and the national governments. Hence, the European Parliament should promote an Inter-Parliamentary conference aiming at benefiting from the full potential of the Treaty of Lisbon and proposing the rules for an effective governance of the European economy. If we respect, trust and give inputs to our European institutions, we can continue to enhance the European Union.