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Lessons from Greece

The origins of the crisis facing the EU in its relations with Greece date back to the launch of the euro in 1999. Everyone knew that Greece did not satisfy the entry criteria but the figures were massaged and the country was allowed to join on the grounds that the discipline imposed by the Growth and Stability Pact would provide a framework for long term structural reform bolstered by a strong currency. Unfortunately the commission, with the connivance of the member states, failed to apply the discipline and successive Greek Governments were permitted to flout the rules for a further decade while protected from the consequences of it own profligacy. The results were a dysfunctional tax system, endemic corruption, a bloated and inefficient public sector and massive state debts. The Greek people who have seen their economy contract by 25% in five years must take some of the blame because they continued to vote for tribally based parties who bought them off with short term populist bribes; however the member state governments are equally because they permitted the situation to continue and were afraid to enforce agreed rules against a sovereign government. Euro-sceptic commentators blame the euro but it was not the system but the way it was managed that brought Greece to its present pass.

The embryonic banking union and greater autonomy for the ECB offer some hope as far as the Eurozone is concerned provided everyone accepts that a single currency area requires a single set of enforceable rules with no exceptions. As far as Greece is concerned it is right that the EU accepts its share of responsibility for what has happened and offers some relaxation of the terms for continuing to bail out the Greek economy. Relaxation must however be tied to the kinds of reform that were envisaged in the first place; namely establishing an effective and transparent taxation regime, bearing down hard on corruption and financial chicanery and restricting the size and scope of the public sector. Some of this should be acceptable to Syriza if not to its coalition partners. The Greek Government then will have a clear choice either they remain part of the Eurozone and accept the constraints it imposes in return for a long term and sustainable recovery or they try their luck outside and risk a financial and political melt down.

There still can be a good future for Greece as part of the EU and a good outcome for all concerned but only if they have the humility to acknowledge and learn from past mistakes.



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