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Brussels Fiddles While Athens Strikes

The EU is taking its time in deciding what real policy actions to implement regarding the crisis over Greek finances and the eurozone, but publics in Greece and elsewhere are not waiting to express their disenchantment with national and supranational elites.

Greece's budget deficit amounts to 12.7 percent of GDP, which is over four times the limit allowed by EU norms. The matter came to a head in January when the European Commission condemned the country for falsifying statistics concerning its public finances. A European summit on 11 February failed to arrive at specific recommendations to help sort out the resulting crisis.

Then early this month, the government in Athens announced a €4.8 billion austerity program comprising tax hikes and spending cuts, designed to win support from Brussels. These additional measures came on top of an initial austerity budget that had already frozen public sector wages, increased the retirement age and introduced a series of other unpopular measures.

In response, a one-day general strike was called in Greece and was widely respected, particularly in the transportation and public services sectors, building upon a previous one-day general strike declared on 24 February and also other sector-specific strikes, all invoking resistance to the measures proclaimed in Athens.

Institutionalized indecision

The EU's Eurogroup, which manages eurozone policy over the single currency, met on 15 March in the margin of a meeting of the Council of the European Union. Luxembourg's Jean-Claude Juncker, who heads the group, stated to the press his confidence that Greece would not need any of the help now being designed. A regular EU summit scheduled for 25-26 March in Brussels is to look at and possibly approve a draft of the assistance plan, but details of any mechanism have still not been specified.

According to Austrian Finance Minister Josef Proell, amounts of eventual assistance have not even been discussed. One apparent development, however, is that any aid from the EU would be offered not bilaterally to Greece from individual countries, as once suggested, but rather as a bilateral loan from the 16 eurozone members collectively.

On 7 March, German Finance Minister Wolfgang Schäuble had suggested the creation of a European lender of last resort for eurozone countries, styled the European Monetary Fund (EMF). His own prime minister, Angela Merkel, responded that this would require changes to the EU's Lisbon Treaty, a process for which no one would have any stomach for some time; however, other politicians and technocrats disagree.

'Inherent tensions'

Jenik Radon, a teacher on the faculty at Columbia University's School of International and Public Affairs, explains to ISN Security Watch that there are "inherent tensions" in the eurozone "that a country such as the US does not have with its own states," because the eurozone "does not have support of an established and strong ministry of finance or a real functioning powerful central bank with authority that a national central bank should have."

Consequently, he said, "institutional, political and economic tensions" manifest when any one country runs into problems and "the process becomes politicized rather than being managed."

These tensions became evident a few days after the Council meeting, when Merkel said in a speech to the Bundestag that the European rules had to be changed to allow countries to be expelled from the eurozone.

In reply, Greek Prime Minister George Papandreou raised the stakes by saying Greece cannot manage if the cost of borrowing remains as high as it is, at present about 6.3 percent for the country.

He threatened to go to the International Monetary Fund (IMF), saying, "We have taken today measures that the IMF would have asked us to take. … However, we don't have the facilities that the IMF could give," giving Greece the "the worst of the IMF and none of the advantages of the euro zone."

Increasing social unrest

The earlier-mentioned labor unrest is not limited to Greece. Another government in Latvia is now threatened with collapse, despite the fact that it has fixed 1 January 2014 as its target date for entering the eurozone.

Strikes over the last few months at Total in France, at Lufthansa in Germany and elsewhere, even in other countries firmly ensconced in the eurozone, betray a generalized popular mistrust of political elites and increasing concern, sometimes bordering on despair, over real material hardships.

The German-born Radon, who is also an international attorney advising on foreign investment and principal in New York-based law firm Radon & Ishuzimi, ties the social and labor unrest not only to the austerity measures being imposed by governments but to the very manner in which economic life is conducted.

"Europe," he says, "although it has had solid economic prosperity, has not had job growth for many years, in part because of dependence on overseas markets that no longer drive demand as strongly as they once did."

Because "new companies are really not created in Europe," Radon continues, the economy "relies much more on state support and on traditional long-established and existing companies. … Frustration and, sadly, social unrest," result from this absence of "a positive perspective and outlook" and lack of "an inspiration for what the future offers."

He concludes on the need for Europe to find "a new economic philosophy that encourages, supports and easily permits the formation of new companies, and does not penalize either failing companies or innovative thinking."

This will indeed have to be a pan-European change. At its mid-March meeting the EU Council not only put Greece on further notice concerning its precarious situation but also issued 'recommendations' to Lithuania, Malta, Romania, Latvia, Hungary and Poland on measures they should take to correct excessive government deficits under the EU's "excessive deficit procedure."

But it is the core countries of the eurozone that Radon's observations most directly characterize, and they are the ones managing the process of setting the rules for the decisions affecting others. It remains to be demonstrated that the representatives of these countries, having achieved the positions that they hold, are capable of thinking outside the box.

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This page contains a single entry from the blog posted on March 19, 2010 4:40 AM.

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