Greece: The sick man of Europe
5-2-2010 | Economic news
It has once again become clear in recent weeks that Greece is the sick man of Europe. After the country got off scot-free after fibbing its way into joining the eurozone, it now turns out that the Greek government’s conduct and financial position has not improved one iota. Rabobank Chief Economist Wim Boonstra expresses his view.
The Achilles heel of European integration is that countries can misbehave without being punished. A country that flouts European agreements has nothing to fear apart from a few angry words from foreign politicians. This is a shame because it undermines public support for the European Union. It reveals that no effective sanctions can currently be invoked against a country that fails to comply with the agreements laid out in the EU Stability and Growth Pact.
It is naturally also the case that when one large country does not adhere to the agreements, the agreements themselves are quickly disregarded and pushed aside. This lack of effective sanctions ensues from political unwillingness. Because it is actually incredibly simple to put a sanction system in place that is effective.
No EU subsidies
It is, for example, conceivable that a country that does not adhere to the agreements would immediately lose its eligibility to claim EU subsidies. This would be a clear and effective system since it would be easy to implement. In addition, a country that misses the mark with its government finances and flouts the rules will immediately lose its voting rights within the European Central Bank.
Central bankers will undoubtedly raise objections to this proposal because in their view central bankers are by definition politically independent regardless of their nationality. However, in taking this stance, they do not take into account the fact that central bankers are also appointed by politicians.
So there clearly is political influence at play after all. This means that, when deciding on the monetary policy to be followed, Greek interests can in some instances weigh heavier than European unity. It reflects the fact that a slight increase in inflation just happens to be a much easier route to reducing government debt than the highly complex approach based on budget surpluses and real debt reduction.
Revoking voting rights
And if a country’s conduct really oversteps all the limits, other sanctions could be considered such as revoking the voting rights within the Council of Ministers and European Parliament and suspending the country’s commissioner. These are, however, very severe sanctions that should be applied with restraint. It is, however, vitally important for the effectiveness of the EU that all the countries adhere to agreements that have been reached democratically.
Because at the end of the day an effective EU is of decisive importance for all of us. The world is changing at a whirlwind pace and the economic and political weight of emerging markets such as China and India is increasing rapidly. Countries such as Brazil, and probably Indonesia and Turkey in the somewhat longer term, are developing into influential countries. These countries will demand their place in international forums and the established powers will consequently have to make room. While we are then referring to both the US and European countries, it will be primarily Europe that will have to surrender a great deal of power, whether we like it or not.
Fragmented
The EU will only be able to continue to exercise its influence on the world stage if it succeeds in speaking out on the key issues with a single unified voice. Should, however, Europe continue to remain politically fragmented, it will be marginalised. But in order for Europe to be taken seriously, it first has to take itself seriously. The initial step involves realising solid mutual agreements democratically and ensuring that, once they have been made, they can also be enforced. It is important to remember that a European Union that does not take itself seriously will ultimately become the laughing stock of the international community. And that is not in the interest of anyone, not even the Greeks.
Dr. Wim Boonstra, Chief Economist Rabobank Group
Dr. Boonstra has published numerous articles on banking, financial markets, international economics and business cycles.
