Mr. President,
Ladies and Gentlemen,
It is a real pleasure to address such a distinguish hed audience on such an important matter as European Solidarity. I believe that debate such as this highlight important issues and raise important questions.
The last few months have been tumultuous for Europe. The financial crisis hit the European shores with clear adverse effects on production, GDP, employment and growth. At the same time, the eruption of the Greek crisis threatened to hit the EU right at its foundation. It tested the endurance of its institutions and the limits of its political will.
It raised questions of trust and betrayal, effectiveness and free-riding, and even the strength of the Eurozone.
I believe that the Greek crisis and European response to it highlighted all kinds of shortcomings but also demonstrated many of Europe’s strengths.
The Greek financial crisis exposed the Greek governments’ chronic deficiency in exercising an efficient economic policy. It exposed its shortcomings both in dealing with important obligations that stem from the country’s participation in the EU’s Economic and Monetary Union, and in exploiting related opportunities for economic growth and restructuring. We were faced with chronic problems of mismanagement, lack of transparency and decreasing competitiveness.
At the same time, however, it also exposed the weaknesses and vulnerabilities of the Eurozone in terms of its structure and functions:
It highlighted the loss of productivity that has characterised some of the countries of the Eurozone; and, it revealed the Eurozone’s inability to deal with this problem through the coordination of national economic policies and financial policies especially, via the Stability and Growth Pact.
The fact that the Eurozone countries mobilized to face the Greek crisis, nevertheless leads to a number of encouraging conclusions regarding European integration.
First, it reaffirms that the creation of the Euro goes beyond narrowly-defined economics and politics. The creation of the Euro has been and continues to be more than an economic project; it is also a political and institutional process of integration aimed at achieving a dynamic equilibrium.
Second, it shows that European integration may be proceeding at a slower or different pace, than before, but it remains constantly on the move forward. Halting that forward movement would have significantly adverse effects of both a political and an economic nature. One need not explain the repercussion, implications and knock-on effects for the entire European edifice.
Thus, in spite of the Eurozone’s structural weakness and the Greek governments’ liabilities for its economic policies, the governments of the Eurozone could not passively accept such a historical defeat of Europe and rose above short term, and short-sighted, political predictions.
Third, it shows that the EU still has the will and the way of providing political answers to pressing economic questions and the ability for further institutional follow-up. As a case in point note how we moved from an extraordinary support package for Greece, to a bail-out fund for the whole of the eurozone and now to discussions about whether such a mechanism should become permanent.
THE GREEK STORY AND THE EU
In the years that followed Greece’s accession to the Eurozone, its economy’s growth rates were impressive and always above the EU average. This growth, however, effectively stemmed from real estate financing, consumer credit and government expenditure. This situation had only partly been identified in the reports and the recommendations made by the European Commission and the Council of Ministers (ECOFIN and Eurogroup). They called upon Greece to proceed with structural changes to strengthen the competitiveness of the Greek economy, but their recommendations concentrated on the need to reduce fiscal deficit and debt. The current account deficit, reflecting the country’s decreasing competitiveness, appeared in practice as a secondary priority, or rather a matter of concern for economists and less for politicians. Why? In short, because it was not part of any country’s direct obligations as regards its commitments towards the Growth and Stability Pact.
In contrast, prior to Eurozone accession, a country’s external account deficit constituted an important political priority as it had implications for its currency reserves and could lead to mandatory borrowing from a foreign currency lender, and governments had an array of tools to address challenging situations (currency devaluations, etc). Conversely, fiscal deficit was a secondary political priority as it could be dealt with through monetary financing. This important switch in priorities had far-reaching implications, eventually leading to excessive public debt on the one hand, and an erroneous perception on the other that competitiveness problems no longer required immediate political reaction. In other words, it was taken out of the daily agenda of political management and referred to only as a matter of longer-term political concern.
Another issue worth noting involves the use of EU economic and social cohesion funding on the part of Greece. The significant inflow of EU funds was mainly directed towards infrastructure. Infrastructure projects across the country have considerably improved quality of life, but only in the long term do they enhance the competitiveness of the economy. On the contrary, investment in human resources, which would have strengthened competitiveness, endogenous growth and tax revenue, was restricted. As a result, growth did not lead to positive fiscal results and Greece found itself extremely weak when facing the international financial crisis.
And then came the crisis.
The problem with the Greek numbers, Greek statistics as we all know them, and the accusations of falsified public finance data at the time of entry to the Eurozone resurfaced and put the reliability of the Eurozone’s modus operandi and, particularly, of the Stability and Growth Pact in question.
The international markets translated this as an indication that Greece would not be able to cover its massive public debt in the future. The adoption of the 2010 budget and the excessive deficit procedure did not convince the markets that there was adequate and reliable political commitment to address the situation and interest rates for financing the Greek debt started rising dramatically and excessively.
Bankruptcy scenarios and their repercussions for the entire euro zone became headline-news as the possibility of bankruptcy of a euro zone country was as unique a development in economic history as was the creation of the euro and the European single market.
Two additional issues should also be noted.
First, a significant portion of the Greek debt is held by banks and institutional investors within the euro zone. Thus, a potential Greek bankruptcy would not only affect the euro’s edifice but it would also directly affect the financial system and the economies of the euro zone member states.
Second, throughout the course of these developments, it was observed that the spreads on the bonds of other euro zone countries also began to rise. Although these countries may not necessarily be accused of having pursued irresponsible financial management, data suggested that their participation in the euro for almost a decade, had coincided with a considerable loss of competitiveness.
At the same time, borrowing meant that the EU's export countries delayed their recessionary problems. The international crisis had significantly raised borrowing needs, while the low levels of competitiveness (in relation to the northern Eurozone economies), posed questions as to their capacity to serve their public debts as well. The Greek “virus”, as the Greek crisis was called, appeared to be threatening other countries too.
One could argue therefore that the real causes of the Greek financial crisis went beyond the mere statistics and involved structural deficiencies at the national and the EU levels.
The last year has been a dramatic process of self-awareness and introspection. We have looked deep into the collective Greek soul and decided to change.
We also envisage radical changes in the structural deficiencies of the past. At the Ministry of Education, Lifelong Learning and Religious Affairs which I am honored to head, we have taken great strides forward in the last year. Following ground-shifting changes in primary and secondary schooling, teacher deployment and content, we set up the first framework for Lifelong Learning in the country. Only last week, I announced the start of the consultation period for the greatest changes in higher education for at least a generation.
Today, Greece is looking ahead with an added belief in itself. It has ridden the financial storm and is preparing for its return to international markets. Debt restructuring is not an option, neither for Greece nor for any country of the Eurozone. One could argue that it never was.
I believe that in 2011 we will start to witness a return to positive growth and to envisage a swift return to markets.
EUROZONE WEAKNESSES
Can the structure and mode of operation of the Eurozone, be blamed for the Greek crisis? If the answer is positive, then where does the responsibility of the Eurozone lay? Are there structural weaknesses within the Eurozone that need to be examined?
We all remember the discussions, around 1991, over whether a single currency could function without a common fiscal policy.
To agree to a common fiscal policy would have been tantamount to a particularly advanced political union. This did not exist at the time of Maastricht, and neither did any other form of fiscal solidarity (this is in effect visible in the “no bail out” provisions, as well as the provisions regarding the “non monetary financing” of member states’ public debt).
Such an advanced political union does not exist today either, nor is it expected to be created any time soon.
A common fiscal policy does not only require important and binding political decisions. It also requires democratic legitimacy either by the continuous concession of all the governments and their parliaments, which is extremely difficult, or by the election and the enactment of a European political leadership under the control of the European Parliament, which is even more difficult.
So the Stability and Growth Pact was adopted as a means to address unfavourable economic situations through restrictions in excessive deficit and public debt.
Its only instruments of enforcement were the ability but also the obligation to impose penalties of a financial nature. It was a curious way of expressing solidarity, and a dangerous one as well, since it could arguably provoke bankruptcy instead of averting it.
Nevertheless, the Euro was launched and for a decade (1999-2009) it successfully disproved predictions of doom.
When the international financial crisis erupted and was eventually followed by the Greek fiscal crisis, the Eurozone had to confront the challenges that highlighted its historical structural weaknesses and deficiencies.
Important decisions were required on two fronts. It had to regain control of developments and face the international markets by effectively addressing the Greek crisis and it had to avert the insolvency of one of its members and the knock-on effects. The danger that the crisis might spread to other countries and their banking systems was prominent and clauses on “no bail out” and “penalties” for non compliance appeared irrelevant in view of the magnitude of the situation and the many inter-dependencies.
A question also arose concerning the evident reality that a fair share of its members had long been experiencing a substantial, and disconcerting, loss of competitiveness.
How did the Eurozone respond?
The eurozone’s first reaction was political underlining the common responsibility in maintaining the stability of the euro zone. This was aimed at appeasing the markets but was not convincing. The international markets turned their attention to the apparent contradiction between the “no bail out” legal provisions of the Treaty and the political declarations of the eurogroup as regards their “bail out responsibilities.” The markets began to question not only Greece’s credit reliability but also the reliability of the entire euro zone system. Pressing decisions were in order for a Union that had just overcome a long lasting institutional impasse and serious difficulties associated with the ratification of the Lisbon Reform Treaty.
In the end, not only was Greece bailed out, but decisions of financial assistance were taken, which went far beyond the Treaty’s “no bail out” provisions. The result was an unprecedented support package of 110 billion euros. It was unprecedented in size and type of support and in the makeup of the supporting institutions which included the IMF.
Moreover, the euro zone ascertained that the Greek “debt virus” was not “particularly” Greek, but one that had affected many euro zone countries to accumulated competitiveness deficits. This led to the creation of a European support mechanism amounting to 750 billion euros.
Thus, the political will to deal with Eurozone’s first structural problem proved to be unfaltering n the end.
The Eurozone governments, including the Greek one, have taken very important decisions that have surpassed initial political predictions. Political leaders, irrespective of ideological affiliation, national interests and public opinion pressures, pooled their political will in order to rescue not only Greece, but more importantly , the whole Euro endeavour.
Through these decisions the Eurogroup governments showed that the concept of solidarity does not constitute a ’moral’ approach of ’good or bad’; rather, it constitutes an approach of political realism. It is equally important that these decisions went beyond the Treaty provisions which shows a certain adaptability.
It would be short-sighted to consider these measures only as emergency decisions taken in the midst of extraordinary circumstance and not to expect that they will take the form of a permanent institutional change.
As is the case with every crisis, the global financial crisis has adjusted and recalibrated the overall functioning of the international economic and financial systems, production and consumption patterns. An effective and lasting reform of the euro zone’s functioning should therefore also be envisaged. As such, the debate on the future of the euro zone and the euro, and indirectly of the Union as a whole, has only just begun.
A number of proposals will be put on the table. As in the past, specific problems provide the impetus for forward movement in the integration process. Something similar occurred in the mid 80s, when again, Greece’s weakness within the single market that was in the making, played a leading role in establishing the Integrated Mediterranean Programmes (IMP), the forerunner of the policy of the Union’s Economic and Social Cohesion policy. It would, therefore, not be an exaggeration to argue, that at times, weaker links may play a crucial role in the overall strengthening of a group: its endurance, its unity and its collective vision.
SOLIDARITY AS A EUROPEAN PHILOSOPHY AND AS A COLLECTIVE REFLEX
The EU is, once again at a crossroad and it needs some new definitions.
And the first word that needs to be defined for the European context is “Solidarity”.
It is first of all a functional word. It does not only represent the help the weak receive from the strong. It represents the common effort when faced with a common goal. The rallying together when faced with a danger from the outside.
In the EU context, this means that member/states must help and be helped if our common project is to move forward. Each must do its best and each must look at ways to add to the collective effort.
In a system such as the Eurozone, this becomes even more important. Our crises are unique crises. Our solutions are also unique.
What we really saw in the unfolding of the Greek crisis and Europe's response is that the greater and the more urgent a crisis becomes, then the real question of collective solidarity comes to the fore. It can be expressed in “punitive” terms like it was at the beginning with the apportioning of blame, or it can be expressed through an examination of the collective well being. We witnessed the latter when the very survival of the Eurozone was at risk.
Europe traditionally demonstrates its strengths at times of crisis. When it was pushed by the markets and forced to demonstrate what it preached, i.e. to put its money where its mouth is, Europe obliged. The EU also demonstrates its ability to provide institutional answers to pressing questions.
The 750 Billion Euro stability facility was as unprecedented as it was unexpected. Now Europe must demonstrate its political commitment, and its ability, to improve economic governance and economic government.
The elements of a “political Union” already exist in many forms: the single currency, competition, military mission, border management among others. The question now is to create the institutions that will support these policies in an effective way.
Ad hoc reactions to known problems are no longer appropriate. Neither is a wait-and-see approach. It was tried in the early phase of the Greek crisis and failed to produce results.
In the current climate of aggressive market practices towards weaker economies, the danger to the collective effort persists.
So we also need fully integrated institutional arrangements that will facilitate economic policymaking and we need to create the structures that will pre-empt crises: Structures that will function with the long-term in mind.
But how we will decide on these arrangements is also important.
The EU, and the Eurozone, are comprised of countries sharing at least two characteristics: They are willing and they are able. Those who are not willing need not be pushed. Political arguments are always available and, in my view, the end result from the markets' attack on its political edifice demonstrated very clearly that politics is still a very important part of the whole endeavour.
Those who are willing but yet unable, should be in a position to receive help if they need it. The global financial vagaries threaten even the most responsible of countries and in a collective such as the EU, a threat to one, threatens all. In this respect a permanent financial stability mechanism, as proposed by Tommasso Padoa-Schioppa recently in the FT, could function as exactly that.
A support structure against the unknown.
The question is basically about survival. Survival and solidarity take a single and peculiar meaning in the European case.
European solidarity and European survival go hand in hand. The Greek crisis and the reticence of some partners highlighted the lack of unequivocal European-ness. Once again, short-termism and national considerations came to the fore. But also once again, in the end Europe stood together because we know that in today's world, one cannot be all alone. National prosperities are also part of European prosperity and vice versa.
Our economic and political fates are so intertwined that growth, prosperity and even survival rely on our ability to demonstrate solidarity.
The EU has built a system of policies, politics and institutions which although far from perfect, have been characterized by an impressive ability to adapt to new challenges. What it may sometimes lack in speed it gains in effectiveness. And although, it may not always be possible to call Europe on the phone, its ability to synthesize different views for the common good remains unrivalled.
The situation we find ourselves in at this point also requires adapting. Indeed, it requires it as quickly as possible.
Europe came out of its long period of introspection just as the world was changing. Again.
I believe that the future of European solidarity lies in successfully combining the short-term with the visionary, the elite thinking (which is mainly about the past and the future) with the lay thinking which is mainly about the present.
I believe in significant processes of inter-societal bargains where solidarity is put in context, combining efforts and results both from the economic and from the political fields.
I believe in staying true to our guiding principles. And solidarity was chief among them.
I believe in constantly combining evolution with revolution.
Because I believe that Europe still makes its own future.
