We must recognise that many of Greece’s problems were aggravated by the behaviour of the European Union, writes Maria João Rodrigues.
Maria João Rodrigues MEP is Vice-Chair of the Socialists & Democrats Group in the European Parliament, in charge of economic and social policies.
The Greek people have told us in January’s elections that they no longer accept their fate as it has been decided by the European Union. For those who know the state of economic and social devastation Greece has reached, this is only a confirmation of a survival instinct common to any people.
The Greek issue has become a European issue, and we are all feeling its effects. European integration can only have a future if European decisions are accepted as legitimated by the various peoples who constitute Europe. Decisions at European level require compromises, as they have their origins in a wide variety of interests. But these compromises must be perceived as mutual and globally advantageous for all Member States involved, despite the commitments and efforts they entail.
The key question now is whether it will be possible to forge a new compromise, enabling not only to give hope to the Greek people, but also to improve certain rules of today’s European Union and its Economic and Monetary Union. We need a European Union capable of taking more democratic decisions and an Economic and Monetary Union which generates economic, social and political convergence, not ever-widening divergence.
If Europe is unable to forge this compromise, and if the rope between lenders and borrowers stretches further, the risks are multiple: financial pressures for Greece to leave the euro; economic and social risks of continued stagnation or recession, high unemployment and poverty in many other countries; and, above all, political risks, namely further strengthening of anti-European or Eurosceptic parties in their aspiration to lead national governments, worsening Europe’s fragmentation.
What compromise for Greece and Europe?
To begin with, Greece needs to make greater effort to address its long-standing problems: improve tax collection, make public administration more efficient and less corrupt, budget management more disciplined and the economy more competitive through focus on quality, innovation and value-added.
But we also must recognize that many of Greece’s problems were aggravated by the behaviour of the European Union: Firstly, it let Greece exposed to speculative market pressures in 2010, which exacerbated its debt burden. Secondly, when the EU finally managed to build the necessary financial stabilisation mechanisms, it imposed on Greece a programme focused on the reduction of the budget deficit in such an abrupt way that the country was pushed into an economic and social disaster. Moreover, the austerity measures resulted in a further increase of Greece’s debt compared to its GDP.
The implementation of this “rescue package” was entrusted to the “Troika” of the European Commission, IMF and ECB: a technocrat device that blocked any discussion on smarter alternatives and that blurred the political responsibility for policies imposed on Greece – and on other EU countries in similar situations.
What Greece needs now is a joint plan for reform and reconstruction, agreed with the European institutions. This plan should replace the Troika programme, while incorporating some of its useful elements. Crucially, it should foresee a relatively low primary surplus and eased conditions of financial assistance from other eurozone countries, in order to provide at least some fiscal room for manoeuvre for the country.
In return, the plan should set out strategic reforms to improve the functioning of the Greek economy and the public sector, including tax collection, education, employment and SMEs services as well as ensuring a sustainable and universal social protection system. Urgent initiatives are also required for humanitarian aid and for good projects of investment and job creation, with a special focus on young people.
Renegotiation of Greece’s outstanding debt cannot accept write-offs and should rather explore the remaining margins as regards interest rates, maturities and possible deferrals of repayments, for instance by linking capital repayments to growth or output levels. Greece should also be able to rely on financial instruments available at the European level, not only within the European Stability Mechanism but also the European Central Bank. The purpose of such “New Deal” should be to improve the situation in Greece as well as in Europe as a whole, achieving more growth, higher inflation and stronger investment.
This leads us to the more general commitment that Europe needs to forge regarding the future of its Economic and Monetary Union (EMU). The renewed Greek crisis in fact overlaps with the resumption of discussions on completing the EMU, which was intended to be the main subject of the informal European Council meeting on 12 February.
How to complete the Economic and Monetary Union?
A new European commitment to a better-functioning EMU must be based not only on the principles of financial and budgetary responsibility, but also on the principles of economic and social convergence, if we want all member states sharing the euro to have a real chance of continuous development and progress. It should also be based on a proper reflection on the role of macroeconomic policies within a monetary union and the limitations of austerity and internal devaluation as the default response to economic shocks.
These reflections are regrettably still absent from the Four Presidents’ analytical note submitted to the February 2015 summit. In any case, plenty of work remains to make the EMU resilient and conducive to balanced and sustainable growth.
In the EMU’s financial pillar, European banking supervision should now be matched by effective banking resolution and a clear mandate for the ECB to support economic growth. The recently announced quantitative easing is a remarkable step, but comes much too late: the ECB was fearing inflation and ignoring the economy’s weakness for so long until the eurozone is on the verge of deflation.
The EMU’s economic pillar should be strengthened through a large-scale investment scheme, accessible to all Member States and focused at reducing macroeconomic imbalances in Europe. The European Fund for Strategic Investment proposed by Jean-Claude Juncker could represent a modest solution, but even so it faces resistance from many national governments. It is clear, however, that without national contributions to the Fund’s capital, Juncker’s plan will fail to trigger large scale investment in Europe.
At the same time, proper coordination of national economic policies aimed at strengthening internal demand in Europe is being paralyzed by high-surplus countries. Excess savings are not being used through higher wages, investment or transfers, so they end up being transferred outside Europe or held in tax havens.
Meanwhile, social inequalities are rising between and within member states. The need for a social pillar of the EMU is widely acknowledged, so it is high time to move the discussion towards concrete elements. In particular, minimum social standards should be introduced, such as the existence of minimum wages in each country, commitment to universal healthcare access, or full implementation of the Youth Guarantee. Social indicators such as the unemployment rate, household incomes and inequalities also need much more attention in European economic policy-making.
In the EMU’s fiscal pillar, we have managed to achieve more flexibility on the pace of deficit reduction if certain investments and structural reforms are implemented. It is now vital to ensure that such reforms are not understood mainly in terms of cutting labour costs, but aim rather at increasing productivity and reducing social inequalities, starting from better education. Finally, a true European fiscal capacity also needs to be created to help member states deal with economic shocks, despite the constraints of a single monetary policy and the EMU’s budgetary rules. Such fiscal capacity would also require more tax policy coordination.
In short, Europe’s monetary union can only be sustainable if, alongside national efforts, it is equipped with truly common instruments for financial, economic, social and budgetary policies, enabling to maintain convergence between member states and reduce inequalities. The current debate between Greece and its creditors, beyond its specificities, is also an expression of this overall European issue. How the Greek crisis is handled will tell us a lot about the European Union’s character for the years to come.