Monday, February 22, 2010

What to do in the case of Greece? Some lessons learned as well

Since a couple of months already, Greece is facing a debt deficit problem. Greece is an EU member and its problems are directly or indirectly affecting the whole European members of the Union. In the same time, the situation, including from the point of view of the history of the relations between Bruxelles and Athens, is offering lots of warnings regarding the future expansions of the European Union.
These relations are concerning the trust between the Hellenic national institutions and the European bodies. The politics of expansions are decided on the basis of various factors: from strong lobby - political, individual, economic - from the part of the candidate countries, from political interests - as it was the case after the end of the Cold War, with so many countries once part of the other side of the Iron Curtain reclaiming their right to be "Europeans", or economic interests. The weights of these interests are varying and are not always very clear.
The final decision for entering the EU is took in accordance with the level of fulfillement of the so-called "Copenhagen Criteria", laid down at the June 1993 European Council in Copenhagen. Shortly, these criteria are requiring to the candidates countries: functional democratic governance, respect of the rule of law, respect for human rights and the protection of minorities, fulfilling the criteria for a functional market economy, legislative alignement with the communitarian legislation. More or less, these criteria are imposing various subjective definitions and, probably, should request careful rephrasing on the basis of recent lessons learned. But, by now, there were the main standards followed in deciding the fate of a candidate.
The annual progress of the candidate countries are evaluated in detailed reports, benchmarks for the local political decision makers. The reports are made in accordance with the information provided by local institutions - in the area of judiciary, or economy - as well as non-governmental association and individuals directly involved in the political processes. The key-word for gaining respect is reliability of the sources. Without reliable and transparent information you cannot build policies and, the degree of openness of various public institutions is an important denominator for the free societies, in comparison with the attitudes encountered in totalitarian states.
As for the member states, the need to respect rules and criteria continue, mainly regarding the economic standards. One of the most important set in this respect are those set by the art. 121 (1) of thee European Community Treaty, the so-called Maastricht criteria of convergence. These regulations are available for the EU member states to enter the third stage of the European Economic and Monetary Union (EMU) and to adopt the euro as their currency. Greece wanted among the first to join the EU, hoping to tranfer the responsibility for some internal problems to the European Central Bank. The candidacy was kept in check for two years, but soon after Greece joined the euro, in 2001, it emerged that the Greek government lied about its deficit.
The EU opened its first investigation into Greece’s deficit in 2004 after a revision of data revealed that, contrary to previous indications, the deficit had exceeded the EU ceiling every year since the country adopted the euro. But, at stake it was a more serious matter, one of national pride: the gap reached a euro-area record 7.5 percent that year was swollen by costs for hosting the Olympic Games in Athens.
- The inflation rate should be no more than 1.5 percentage points above the rate for the three EU countries with the lowest inflation over the previous year; Budget deficit: This must generally be below 3% of gross domestic product (GDP)
- The national debt should not exceed 60% of GDP, but a country with a higher level of debt can still adopt the euro provided its debt level are falling steadily
- The long-term rate should be no more than two percentage points above the rate in the three EU countries with the lowest inflation over the previous year
- The national currency's exchange rate should have stayed within certain pre-set margins of fluctuation for two years.
But, as the case of Greece already showed, some serious loopholes could be open by the possibility to alternate the responsibility in terms of separation of monetary and fiscal politicies. Greece enjoyed monetary stability - enforced by the strength of the other EU member countries - but lacked completely a coherent fiscal policy. And, again, the matter of trust intervened: Athens authorites lied again about the budget deficit. Added to a national debt of 113 percent of the GDP, a huge lie of a deficit of 4 percent, instead of the real one, of 12.7 percent of the GDP, in 2009. The limit set is of 3 percent.
What to do?
The question is not so difficult: what EU should do in this respect? Plus: what is to be done in the next future, giving the fact that Greece is not the one and only country facing this kind of problems. In fact, with the exception of the big industrial countries, all of new members - from the Baltic to the last two Eastern European countries members Romania and Bulgaria, plus Spain and Portugal - could be exposed to serious economic risks.
As in the case of Greece it is more about serious system problem, but about accountability, helping Athens in this situation will risk to let unsanctioned a behavior creating serious problem to the economy of the European Union.
On the other side, what consequences to follow at the level of the Union if Greece will not benefit of the required help?
The EU informal summit from February 11, set a couple of lines concerning the "Greek file". According to the French President Nicolas Sarkozy, the European Union will monitor Greece's fiscal actions on a monthly basis, as the country bids to cut its massive public deficit. The objective set for 2010, according to Sarkozy, is to reduce the deficit by four percentage points of GDP.
A potential aid package might be delivered as well, with a German contribution of almost 20%. In this situation, apparently, a situation was already found. Greece will be saved and, maybe, due to the strict monitoring system announced, it will be able to correct the not-telling-the-truth-attitude in respect with the EU institutions. In the same time, strict and clever mecanisms of control and reporting, mainly in the area of economic parameters, are more than necessary. New countries from the Western Balkans are making small but strong steps to get closer to Bruxelles. Some of them are inheriting serious system disfunctionalities dued to the lack of institutional cultures. Greece could be a start for redefining and reanalysing the general and particular policies. Including regarding building trustworthy relationships among member countries.

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