Between hope and coercion: Greece’s support for the EU and the unforeseen Consequences of the Euro

Pola Zafra-Davis The Greek referendum of 2015 has been watched eagerly by the world. But essentially critiques of fiscal responsibility to Greece’s future transcend mere economic analysis. The real question is if Greece’s present debacle stems from an ill-guided hope when first entering the European project or if its bailouts are a result of political coercion into an ill-suited currency many decades’ ago. The economic issues and answers to be provided are both explicit and implicit. Explicitly, the referendum vote was on whether Greece should accept the latest in bailout packages from Brussels. This would entail budget cuts and another round of austerity. Implicitly, many media reports murmur that the consequences of the referendum are around Greece’s political standing in the EU and its economic fate of staying or leaving the Euro and the Eurozone. One report is that in anticipation of a “no” vote on consenting to the new bailout terms, the EU will proactively take away Greece’s membership of the euro. Economic analyses of the euro and how Greece was doomed are commonplace on the internet. Essentially, the argument is that the Euro as a single currency relies on a widely varied economies [1]. The economies that make up the EU include the powerhouses such as Germany with an unemployment rate of 5% compared to Greece’s 2015 unemployment rate of around 27%[2]. The inflexibility of a single currency basically impairs a weak state like Greece to be in control of inflation and the purchasing power of its population. The rationale for the Euro is that while countries with a lot of the currency exhibit high stability and low inflation, those that need to earn more (such as Greece with the austerity packages) would actually benefit form a less strong Euro via external international investment through the now cheaper currency.But when investment is low and there is low confidence in an economic system known for its tax evasion (Source) and corrupt finance system[3] as is the case of Greece, the benefits of the euro are lost. Questions of fairness have become apparent. Is Greece being irresponsible or is the EU being unfair? Is the EU under the control of Brussels and/or Germany in its influence and is this influence earned? Is Greece responsible for its own economic destiny and did it have a choice in joining the euro (no)? To help us spectators get to the roots of these questions is to get to the heart of the motives of development of the eurozone. This includes roots of the 1970s economic monetary system (EMS) up to Greece’s 1999 adoption of the euro. The story of the creation and adoption of the euro by non-great power states should be seen as a historically-based experience between political hope and coercion. One that is in a sense European as well as Greek. Hope in a sense that the EMU and the Euro was a European project that promised integration and an increased voice for smaller states as well as much needed regional aide. Coercion in the way that economic terms were agreed upon without immediate consultation for the bargain of immediate, and not future, Greek economic and political entitlements. Hope: Economic Monetary Union and Political Integration Economic crises in the geographic area of the eurozone isn’t new. What is new is Greece’s popular response holding political clout as the EU continues to search for a cohesive identity. This may be due to the history of the EU and Economic Monetary Union (EMU) being a discussion outside of the purview of a majority of its members in a show of high politics. In response to the collapse of the Bretton Woods System due to unstable exchange rates, the 1979 EMS formed the European Currency Union (ECU) as a means to combat inflation. In times where one country may fall too behind or one country would advance too far, a divergence indicator was implemented. The divergence indicator allowed supranational authorities to practice diversified intervention policies. The structure of ECU, while convergent in a sense that it included a multitude of currencies to calculate its value, it was not wholly integrated. The EMS has acknowledged that Germany formed an anchor to the system under the Exchange Rate Mechanism (ERM). All currencies were to be pegged with a fixed exchange rate from the Deutsche-Mark in order to import the Bundesbank’s low-inflation successes[4].  The nature of ERM strengthened domestic political actors to further control their domestic economies with anti-inflationary policies. Yet domestic control of economies was not enough to stem the tide of crisis. The ERM crises of 1992-1993 was a result of political externalities rather than purely economic mismanagement or market-reading-errors. This was indicative of an increased sense of interdependence between economic and political integration. The push for the euro came after the fall of the Berlin Wall and was proposed by Francois Mitterand as a means of deepening German economic integration into Europe[5]. The purpose of EMS to EMU was to cut off domination of the Bundesbank in other states’ economic policies in favor of a more collective sovereignty in steering European wide economic policy. France in wishing to secure political integration in the future, made a proposal during the Intergovernmental Conference that the final Stage III of the Delors plan was to begin in 1999 and Germany would be unable to opt out. This combined the political motivation of EMU with the economic guidance of German low-inflation. As a testament to political factors in determining the structure of the EMU, it was accepted that it would have to satisfy German concerns, meaning that the European Central Bank (ECB) in structure would have to resemble the Bundesbank. The ECB would acquire protection from political interference and concentrating on price stability[6]. The actual imposition of the ECB signaled the coming of true EMU, especially since it would have a single currency to work with. The creation of EMU was economically motivated due to the simplicity of demands as a mode of Regional Integration. Yet, the European project is political in nature since its days of the Economic Coal and Steel Community where the belief of economic integration was a key feature to bringing a lasting peace upon Europe following the devastation of the world wars. EMS and EMU were therefore hopeful in their initial ends despite their high politics means of keeping smaller states out of the bargaining table. Coercion: Political and Economic Bandwagoning for Survival At the time of Greece joining the EU, Greece was experiencing a period of political instability in between 1981-1989. This was paired with a deep economic failure that resulted in the EU Commission President, Jacques Delors to express that Greece’s problems were becoming a serious cause for concern on the development to EMU [7]. Greece entered the EU during the second wave of enlargements in 1981. When the Euro was adopted, Greece along with Ireland, Portugal, Spain and Italy, saw their interest rates immediately drop. Every state that was in the EU by 1999 were obliged to join, except the UK and Denmark whom had special exemptions.  Yet since 1984, Greece’s stance has been pro-European despite their economic difficulties. Greece has viewed the EU as a forum where different discussions and ideas can be brought together[8]. This had led to Greece adopting a pro-European stance on most issues except foreign policy. After its membership into the EU, immediately Greece gained a financial flow from the Community budget topping almost 5% of its GDP[9]. Politically, gains were also felt as its political bargaining power increased and it acquired a regional voice. But in the context of the late-1980s EMU, Greece was and was politically weak and economically dependent[10]. There were thus in no position to make any suggestions to the process. Greece’s acquiescence to the process was based on avoiding isolation as a result of EMU, the allowance of negotiating a cohesion fund for poorer regions and hopes to gain influence in other matters such as foreign policy[11]. Considering how the EU was designed, it is of no surprise that present media analyses of the Greek Referendum have become hairy with Germany’s participation as key. The ECB was designed through political negotiations and entails elements of the Bundesbank being adopted. A sense of betrayal is then evident as for a small state, Greece has been in favor of the European project despite the economic integration difficulties that befell the country during the early years of its admission into the European club. It is an instance of “buying the whole cow” when Greece was not part of the initial EMU talks but rather a state trying to prove its worth to gain membership amidst political and economic turmoil in the 1980s. A Barometer of a Generation Yes and No votes have been cast along generational lines. Those that consent to the package are willing to weather out the storm and delay inevitable economic collapse. Contrast members of the ‘No’ camp who are young voters that feel that they have nothing to lose, are risk taking, and are aware that they will remain as the true consequences of their choices unfold in the next coming decades. However, the hindsight of historical experience may not be what is needed in the latest round of EU financial packages. What is being experienced now in Greece is similar to what Europe has experienced in its long hard road to EMU amidst crisis after crisis from the collapse of the Bretton Woods System tied to the US. Only this time, Greece contents with a block of countries rather than a united country (like the US) that stands at a precipice on if it acts as one voice, or follows on the voice of the “powerful” countries. What we must remember is that the EU and the development of the Eurozone especially was a Franco-German project with considerations of the role of Europe, and not its individual member states, on the world stage. This mismatch in history between scenarios and priorities showcases the problems that occur when Greece and any small country finds itself as part of a unique case that fits unwell with recent history and experience of the EU. The start of Maastricht in 1992 and later EMU in 1999 was a signal that in order to function at an equal level, it was necessary for Europe to take part in political integration with the convergence of state infrastructures not only in cooperation but the recognition of a new supranational entity, the ECB. Experience in the flaws of the ERM further spurned decisions towards a supranational EMU to better coordinate and spread stabilizing economies than relying on exchange rates in the hands of individual state governments. The rise of the euro is a story laced with hope but tempered by the weight of political compromises towards Germany. It is thus not surprising that Greece’s “no camp”, in a globalized economy, is feeling tethered to a plan not of their own making. [1] http://www.vox.com/2015/7/2/8883129/greek-crisis-euro-explained-video [2] http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics [3] http://www.theguardian.com/world/2014/dec/03/greece-corruption-alive-and-well [4] Artis, Mike and Bladen-Hovell, Robin “European Monetary Union” in Artis, Mike and Nikson, Frederick ed.s The Economics of European Union: Policy and Analysis 3rd ed. (New York: Oxford University Press, 2001)  Pg 299 [5] Apel, Emmanual “European Monetary Integration 1958-2002” (London: Routeledge, 1997) Introduction: An Ever Closer Union, Pg. 15 [6] Verdun, Amy, “The Institutional Design of EMU: A Democratic Deficit?” Journal of Public Policy, 18, 2, 1998, Pg 112 [7] Featherstone, Kevin. “Greece and EMU: Between external empowerment and domestic vulnerability.” JCMS: Journal of Common Market Studies 41.5 (2003): 923-940. [8] Hanf, K., & Soetendorp, B. (Eds.). (2014). Adapting to European integration: small states and the European Union. Routledge. Pg.94 [9] Plaskovitis, I. (1994). EC regional policy in Greece: ten years of structural funds intervention. P. Kazakos and PC Ioakimidis, IEF Working Paper, (9). [10] Op. Cit. Featherstone Pg. 925 [11] Ibid.

Pola Zafra-Davis recently received her PhD in International Politics from Aberystwyth University and is based in Aberystwyth, Wales. She currently teaches core modules at University College London’s European Social and Political Studies Department. She can be reached via twitter @PolaZafraDavis or her personal website polazafradavis.co.uk

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s