The Greek crisis and the Eurozone: a cure worse than the disease?

Greece needs a “peaceful revolution” to overcome the current crisis, said Loukas Tsoukalis, professor of European integration at the University of Athens and president of Hellenic Foundation for European and Foreign Policy (ELIAMEP), while speaking at the conference: ‘The Greek Crisis and the Eurozone: a cure Worse than the Disease?’.

The meeting took place in the media room of the Monte dei Paschi di Siena bank in Rome on 6 March. Organised by the Istituto Affari Internazionali (IAI) and the Centro Studi sul Federalismo (CSF), the conference was convened to speak about the Greek crisis, the EU’s response to it and the possible courses of action available to the country’s leaders.

The themes of the conference were introduced by Ettore Greco, director of IAI, and debated by the discussants: Lorenzo Bini Smaghi, former member of the executive committee of the ECB, now visiting senior fellow at IAI; Fiorella Kostoris, professor of political economy at Sapienza University in Rome; and Alberto Majocchi, professor of financial science at the University of Pavia and advisor to CSF.

Tsoukalis sees Greece as the “catalyst country” which initially contributed to transform the international financial crisis of 2008 into a Eurozone crisis. This situation was caused by the combination of three deficits that affected the country: its balance deficit (in 2009 it was 15.4% of GDP), the current account deficit (about 15% in 2008) and a credibility deficit (the country doctored its accounts to give the impression that it was respecting the parameters of the Maastricht Treaty in order to join the euro).

The current budget cuts, austerity and fiscal rigidity are aimed at resolving these three deficits. To avoid their worsening, structural reforms targeting labour, pensions, privatizations and liberalizations are necessary, combined with cuts to public spending and austerity measures which, however, have already accelerated Greece’s recession.

The ineptitude of most of the Greek political class – Tsoukalis maintained – combined with the inconsistencies of the European political system and the defects of the EU’s economic and political strategies have caused much suffering in Greece. This situation caused a partial implosion of the political system, pushed Greek society towards the precipice of collapse and encouraged the birth of extremist movements. By mid-2012, the coalition government chosen by elections accelerated the execution of the reform programme but – the professor says – the risk of upsets and spoilers remains very high.

Greece therefore needs a “peaceful and democratic revolution” to convince the population to accept a reform programme which cannot be imposed from abroad. Greece needs time, money and a more favourable external environment for its youth. This environment will only arise in Europe in the context of a new grand bargain, that includes a banking and fiscal union, the articulation of common tools capable of ensuring the sustainability of public debt and – no less important – the emergence of a climate of trust among Eurozone countries.