Wednesday, May 23, 2012

(Opinion) Greece: Victim of a Dream

Type 'Greek Crisis' in your browser of choice and you will find many explanations that detail the causes and consequences of Greece's financial turmoil but few will deal with ideas that have instructed the integration of  Europe from the end of the second world war to the present day.

Greece has been a (and surely not the last) victim of a dream , a dream deeply held in some quarters in Europe and reviled in others, namely the establishment of a united Europe. Borne out of the horrors of the second world war, the drive to a united Europe has been the heart of the EU project with further integration and growth in numbers among its member states on a level unseen in the history of international politics.

The euro was seen as crowning moment for proponents of a united Europe as seventeen EU member states sought to ditch their long established currencies for the euro overseen by the ECB or the European Central bank. However, for all the gains made by those in favor of a united Europe, the project could not escape it's biggest flaw, the utter divergence in economic, and especially, political interests. 

This flaw was masked by the initial success of the euro competing competently with the dollar and the pound so much so it became a national debate in the UK of whether the pound should be ditched for the euro, a country renowned for its Euroscepticism .Poorer states in Southern Europe saw an influx in investment and cheap money which saw a boom in the EU area until the party ended abruptly.

The poorer nations in the euro-zone were hit hard by the financial crisis such as Portugal, Ireland, Italy, and Spain, but especially Greece. Greece suffered from an economic nightmare made up of large debt, a high cost of debt, high unemployment numbers, credit downgrades (which contribute to the cost of debt), but all this worsened when markets started questioning not only Greece's likelihood of and commitment to staying in the euro-zone but of other euro-zone members commitment, especially Germany (a nation committed to the united Europe project) to keep them in it.

The markets doubts were confirmed as Germany initially refused to bailout Greece despite Germany involvement in the euro being the reason why investors poured money into Greek bonds. Germany's early position of no bailout was based on the lesson provided by the failure the exchange rate mechanism, the first dalliance among proponents of the united Europe ideal of a single currency, which made Germany consider the cost of  tying its fate with other EU member states despite its long stated support of a united Europe.

Finding that it could not find a market solution to their financial problems, Greece sought help from the EU and the IMF who put together a rescue plan that many analysts thought would do some good but nowhere near enough.the most compelling insight of Greece's plight is that it could have been avoided or at least would not be as bad as it is.   

Some of Greece's and other Southern European euro-zone members problems could have been avoided if the clearly stated rules for entry into the European Monetary Union (EMU) were followed as these nations regularly shirked the rules required to join and with there being no real process for dismissal for breaching EMU rules, no one could stop them. 

This fact alone explains why France and Germany were pushing for a fiscal pact which made EU members in and out of the euro-zone follow strict rules regarding monetary policy.But this again reveals another major flaw with the EMU, its major democratic deficit. The fiscal pact limits the policy choices of elected officials and turns into glorified errand handlers for EU fiscal policy. 

The political class in Greece would have a larger set of policy options if Greece was not in the euro-zone and may have helped cool the heated political climate as the political class would be more independent and the debate over what to do next is not a horrible choice between paying the price to stay in the euro-zone or face financial oblivion. The political dynamic over the last three to four years in Greece has been tumultuous to say the least with riots, largely over EU advised austerity measures, and numerous changes in political leadership culminating into a nationwide ambivalence towards the unified Europe project altogether.

In conclusion, Greece's political leadership cannot avoid blame for the financial problems it finds itself in and choices it will have to make but Greece has fallen victim to the interests of a political ideals that at once lacked political will and fiscal commitment and has a nation state at a crossroads where both choices require major changes in policy, and, more importantly, in politics.  


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