In its new series Wide Angle, Touteleurope.fr will interview each month a different expert, politician, historian or artist about a topical european issue. For the first interview in the series Touteleurope.fr spoke to Loukas Tsoukalis, a greek politicial scientist about his country's economic woes and about the future of European social and economic policy.
Greece is experiencing one of the most difficult economic crisis in its history. Why is Greece so badly affected by the global economic crisis?
Greece has a dual deficit: a budgetary deficit and a current account deficit. They are both large and unsustainable. They also precede the global economic crisis. For some time, consumption levels have exceeded the productive capacity of the economy. They have been largely financed through public borrowing. In other countries, the bubble had been created mostly through private credit.
What is Greece doing to tackle its economic problems? In your opinion, will these measures succeed?
The measures already announced by the Greek government are in the right direction: cuts in public expenditure, an aggressive policy directed at widespread tax evasion, and selective tax increases. The key question remains whether measures to tackle Greece’s fiscal deficit, which has been piling on top of an already very big public debt, will be accompanied by structural measures aimed at a sustainable improvement of the competitiveness of the Greek economy. The intention seems to be there. Delivery will require strong political will.
Greece in figures Year of EU entry: 1981
Political system: Republic
Capital city: Athens
Total area: 131 957 km²
Population: 11.2 million
Currency: euro Budget Deficit: 12.7% National debt: 110% of GDP
Jurgen Stark, member of the Directorate of the European Central Bank, has said that the EU will not bail out Greece. What was the purpose of the visit of the recent visit of EU officials to Greece ?
Bailing out is not the object of the exercise, nor it should be. Greece needs to take the appropriate measures to bring its public finances back on a sustainable path, and it has begun doing so. EU officials have been collaborating closely with their Greek counterparts in view of the submission of Greece’s growth and stability programme as envisaged by the treaties. The provisions made in Art. 126, par. 9, of the Lisbon treaty apply in this case. The final responsibility for the programme lies with Greek authorities. After its submission, the European Commission will have to evaluate it and recommend accordingly to the Council.
Loukas Tsoukalis is special Adviser to the President of the European Commission, Jean Monnet Professor of European Organisation at the University of Athens and President, Hellenic Foundation for European and Foreign Policy (ELIAMEP). He is the author of many books on European politics, including What Kind of Europe? in 2005.
Do you think that there should be some form of economic solidarity between Member States of the eurozone?
The Maastricht architecture provides for a single monetary policy, a rather loose coordination of national fiscal policies, and a highly decentralised political system to back up the euro. For some people, this is the kind of architectural design that defies the laws of gravity. It was the product of its time reflecting economic orthodoxy (as it was then) and the limits of political feasibility. The crisis forces us to think again: we need a stronger framework for macroeconomic coordination that aims to combine both growth and stability. Measures to reduce budget deficits in countries such as Greece should be combined with further boosting of domestic demand in Germany. Coordination should not be viewed as a one-way street.
Is the Greek population ready to make the sacrifices necessary to rebalance its public finances?
It is encouraging that the majority of Greeks now recognise the gravity of the situation and the need for painful measures, although of course the proof of the pudding will be in the eating. Organised groups of interest will resist, and this is where the government’s determination will be tested. The reform announced is radical, and so are specific measures relating to public revenue and expenditure. The question remains whether and how they will be implemented.
Would a collapse of the Greek economy endanger the euro? Would Greece be obliged to leave the eurozone if its economy collapsed?
This is a hypothetical scenario with low probability attached to it. Of course, there is a real problem, but I believe that Greece will finally succeed in dealing with it effectively with the encouragement and support of its eurozone partners. On the other hand, financial markets often overreact. Even the most naïve believers of the rational market hypothesis should know that by now. Yet, if the crisis has helped to strengthen the determination of the Greek government, and Greek society as well, to tackle problems that have been around for long, while also helping to push the euro slightly down against the dollar, that was all for the good!
Towards a new economic strategy, Europe 2020
The Spanish Presidency has called for greater regulation and stronger mechanisms of economic governance at EU level, what can be done in this regard?
The Spanish Presidency realises that soft coordination of national economic policies can only deliver so much, which is too little especially when it relates to the governance of the euro. We should have learned this lesson from experience. But are we politically ready to take the next steps, notably in terms of stronger common regulatory mechanisms for financial markets, more effective coordination of tax policies and macro policies more generally? The future of the European project hinges on the kind of answers to be given, the further development of the eurozone even more so.
This year the Lisbon Strategy will come to an end. What priorities and what changes or improvements should the EU introduce in its new Strategy Europe 2020 for it to be a success?
The economic situation is different from what it used to be ten years ago. Our priorities therefore need to adjust also taking into account the limitations that have become apparent in the application of the open method of coordination. We shall need a different mix between liberalisation, rules and solidarity – there has been too much emphasis on liberalisation at the expense of the other two. We shall also have to recognise the need for more differentiated approaches towards common goals given the wide diversity of EU-27.
Loukas Tsoukalis is also one of the authors of the report 'An EU fit for purpose in a Global Age - Can we rise to the challange' published by the Policy Network which examines how the EU needs to evolve to face the challenges of the 21st century.
In the report of the Policy Network in which you participated it states 'the last decade has been dominated by a spirit of anti-regulation' do you think this has changed in the aftermath of the financial crisis?
Still, more in rhetoric than in deeds. We are in a transitional phase: the social and political consequences of the crisis are in the process of unfolding. It is not only the financial crisis that has caused a big disruption in the real economy, which has in turn brought back the state in a rather big way. The transition to a low carbon economy also requires state regulation. Markets need more than the invisible hand.
In your report you call for more effective forms of solidarity and redistribution at EU level, what form would these take?
Cohesion policies are already there and they perform a very useful function. They need to be constantly re-assessed and adjusted accordingly. The same applies, even more so, to the common agricultural policy. I believe there is also room for more EU measures that are complementary to national ones and with an added value of their own. Turning the European Globalisation Adjustment Fund into something more than a pure symbolic gesture would be a good example: an instrument addressed at the losers from globalisation with the emphasis on adjustment instead of mere compensation. Establishing a more direct link between EU payments through the budget and the meeting of targets that have been jointly agreed at the EU level is also something that needs to be developed further: financial incentives, in other words, serving to promote common goals. Investment in trans-European networks, also in the knowledge area, and (why not?), a European recovery plan partly financed through the issue of Eurobonds.
Social democratic parties are experiencing difficulties throughout Europe. Do you see the regeneration of this political grouping coming from European level politics and policies rather than the national level?
This might be a logical conclusion to draw for political parties that have always defended an important role for the state as a provider of public goods, a guarantor of macroeconomic stability and the main vehicle of solidarity and redistribution in our societies. In a world of growing interdependence (and globalisation, if you prefer), the role of the nation-state becomes increasingly constrained. The EU is by far the most advanced, and also successful, regional institution for the joint management of ever growing interdependence – it is really about shared sovereignty, if you are not scared by the term. But this is only part of the story. In several European countries, losers and potential losers from globalisation and rapid change look for protection and thus turn their back to the usual discourse on the need for adjustment proffered by the modernising, cosmopolitan wing of social democracy. The EU has been seen mostly as a vehicle for liberalisation and change, while the nation-state bears the responsibility for welfare and redistribution. This implicit division of labour is unstable, particularly in times of crisis, and increasingly difficult to defend for social democrats. If it is indeed true that the economic crisis marks the end of an era, it is still difficult to imagine the shape of things to come. We are in a transitional period. European social democracy will need to redefine itself in a rapidly changing environment.