Is the ‘European Dream’ crumbling? | Roderick Pace

Last weekend’s election in Greece seems to indicate a widening gulf between European institutions, and an often disenchanted and frustrated European population. Roderick Pace, director of the Institute of European Studies, looks at the implications for the EU

raphael_vassallo
Raphael Vassallo
1 February 2015, 10:00am
Considering that ‘democracy’ is ultimately a Greek invention, it may make sense that it had to be Greece to remind the rest of Europe what the word actually implies. 

Last weekend’s election did more than just emphatically propel Syriza – a previously all-but unelectable left-wing party – to power. It has also been interpreted as an explicit rejection by the Greek people of an austerity programme many felt to have been imposed upon an unwilling country by the power brokers of Brussels. 

Incoming prime minister Alexis Tsipras intends to challenge the EU’s economic policy direction for Greece. It remains to be seen whether (or to what extent) he can, in fact, force a policy rethink onto the so-called ‘Troika’ – the European Commission, European Central Bank and the International Monetary Fund – but the Greek prime minister is also echoing the view of many independent economists, who argue that ‘austerity measures’ are not the answer to the crisis engulfing the Eurozone. 

Multiple questions inevitably arise. Greece’s current predicament, six years after the beginning of the recession, seems to confirm that the conditions imposed by the troika for multiple bail-outs have not reversed the current stagnation. And as the election result indicated, there seem to be clear divergences between the policy-makers in Brussels, and the European voters who are affected by those policies. 

This tension directly challenges the principle of democracy upon which the EU is supposedly founded. Can the EU keep insisting on a policy that has been rejected by the electorate, and continue to describe itself as ‘democratic’?

Nor is this the only conundrum. Greece might have voted against austerity, but it remains a fact that the county still owes a debt of over 200 billion euros. Can the democratic principle nullify such a debt? If not: is it fair that the burden of repayment should fall on a population that is not – in itself – directly responsible for the financial mismanagement that led Greece to this pass in the first place?

One person who has been following developments very closely is Prof. Roderick Pace, of the University of Malta’s Institute for European Studies. I meet him in his office with a view to finding out if what we are looking at is the start of an unravelling of the European Union.

But first off: is it correct to interpret this result as a rejection of austerity? And if so, how likely is it that this will force a rethink of such policies on the part of the Troika? 

“Yes, there is no doubt that the Greek election result is a clear rejection of austerity,” he begins. “But more than enforce a radical rethink in Brussels, I think it is likelier to result in further adjustment of policies: which let’s be frank has already started…”

Pace reminds me that, following the MEP election last year (which likewise indicated widespread disenchantment among Europeans) and the appointment of the new Commission, there has been a €350 billion stimulus package. 

“Just a few days ago the European Central Bank started the Quantitative Easing process, which is meant to put more euros in circulation...”

Quantitative easing involves the ECB electronically generating money specifically to kick-start sluggish economies. It is considered an unorthodox tool, and generally indicates that the Eurozone, on its own steam, cannot overcome current problems without outside ‘help’.

“Both measures have been criticised,” Pace goes on. “The first for being too little and somewhat late; the second for being too late.”

Nonetheless, he adds that they have had a noticeable impact. “The situation in the Eurozone is now more stable and this has renewed a measure of confidence, although we are not yet out of the danger zone. There are signs of recovery even in Greece, and now – with the benefit of hindsight – there is a better appreciation of where the excesses of the troika may have been. Hence, there is hope for some improvements…”

But how fair are these measures on the Greek people? One argument that characterised the election campaign concerned the perception that the Greeks were being made to pay for the ‘mistakes’ made by others: including a wealthy and largely untaxed minority of oligarchs, but also the EU in accepting Greece as a member of the eurozone without the necessary checks and balances. How justified is this anger? 

“I agree with both interpretations. Greece was not ready for membership of the eurozone… nor were France and Italy, for that matter. In the case of Greece we now know that the statistics on which the decision to admit her was based had been cooked…”

This, he argues, points towards an underlying problem in the initial approach to establishing the eurozone. “A fundamental mistake was made to treat the European Monetary Union (EMU) as primarily a political project, with lesser emphasis on the fact that it is an economic project….”

Ordinary Greeks therefore have a right to be angry with austerity. “Their country was ruined, not by a single policy failure, but by decades of economic mismanagement. There are countries in Europe, and Greece is their prime example, which pick and choose what to implement from the market economic model. In general, in the southern European states, good governance plays second fiddle to politics, and debilitating practices such as tax evasion, corruption and protectionism in several economic sectors are given less attention…”

Pace argues that while austerity measures have been rejected, Greece cannot expect to turn its economy around by going back to old habits either. 

“Let’s be clear: it was the Greek government which approached European institutions for a bail-out when the problem first came to light. The EU agreed to a package of aid, but there were conditions attached. And given the extent of the problem, these conditions seemed reasonable at the time…”

But this creates a Catch-22 situation. Even if the problem was caused in part by overspending, it cannot be addressed merely by cutting expenditure. “Productivity, education, innovation, research & development and public sector reform are all necessary for economic growth. Crony capitalism does not benefit growth. Nor do inefficiencies and waste.”

By the same token, cutting back on investment in those crucial spheres will also hold a country back. “Ultimately, social stability is necessary for economic growth. But this is what was missing from the picture. In Greece and Italy, youth unemployment is around 50%. It is 55% in Spain. We speak of a lost generation. This is both a result of economic collapse and austerity…”

Ultimately, much of the problem might have been avoided had the necessary structural reforms been effected sooner.

“One lesson that must surely be learned from this recession is that the longer countries postpone reforms the greater the danger they run. The problem is that the EU has few powers to force recalcitrant governments to act before it is too late. It is their citizens who have to do that. People get the government they deserve …or elect.” 

But like many observers, Roderick Pace finds it hard not to sympathise with the plight of the ordinary Greek citizen caught up in this desperate situation. 

“When economies encounter problems, authorities turn the screw on ordinary citizens with increased taxation, deep cuts in pensions and spending on education and health. The ordinary man in the street who depends on these services will be the hardest hit. Some workers and their families lose not only incomes, but their homes because they cannot afford to pay their rents anymore. Even bank savings can be poached, as happened in Cyprus. These victims do not have anything to fall back on, no millions stacked overseas to turn to. I expected stronger measures in their favour than was the case. Can we blame the suffering people who turn to radical parties like Syriza?”

At the same time, there are considerable doubts as to whether Syriza will actually make a difference in the long run. Many of its electoral promises have already been dismissed as ‘impossible’ to deliver, and there is a chance that by further straining relations with the rest of Europe, Greece might be forced into an antagonistic position within the Union. How does Pace predict the situation will unfold?

“It all depends on how the Greek government plays its cards. The governments of the EU member states which stood by Greece in its darkest hour are not likely to compromise their voters’ trust and taxpayers’ money. If Syriza has a legitimate obligation to its electorate, so have the governments of the other member states...”

Naturally that includes Malta, which contributed to the Greek bail-out fund, and expects its loan one day to be repaid. This is now extremely doubtful… and so is Greece’s continued membership, if not of the EU, at least of the eurozone. Already we are seeing sabre-rattling between the two sides, with Greece singing from a different hymn book when it comes to the EU’s shared policy towards (for instance) Russia. Does this suggest the differences may be too deep to be amicably resolved?

“I do not think that Tsipras wants to lead Greece out of the euro or the EU. I am not exceptionally alarmed that Greece has broken ranks with the rest of the member states vis-à-vis Russia over the Ukraine. Greece and Russia share cultural affinities that have frequently drawn them together in the past. Greece’s stand may be used as another bargaining chip in the negotiations which will take place on its debt…”

Much now depends on how far Tsipras will be willing to up the ante. “If what we are seeing really is a radical policy shift, then Greece may cause a major crisis which will heavily rebound on it. But I think after the initial victory euphoria, Tsipras will be smart enough to begin acting like a government leader. The political rhetoric will not abate. But the confrontation may not happen either. Only time will tell us how accurate my assessment is…”

Coming back to the rejection of austerity: could it also be that not enough time was allowed for the policy to have its desired effect? As Pace has already observed, there were already indications of a turnaround in the Greek economy, which registered growth in 2013. Does this indicate that the ‘tough love’ approach might work in the long term, even if it translates into hardship in the immediate present?

“Greek economic performance has turned the corner, definitely. It is still fragile, though, and that is why the Greek government needs to tread carefully. I agree that ‘tough love’ has some therapeutic qualities. But I also hold that those who suffer some kind of loss or deprivation as a result of austerity will never be compensated when economic growth returns. Growth, in itself does not signal an end to suffering. It is going to take some more years for unemployment to decline to more acceptable levels in the worse affected countries. With the advantage of hindsight, I think that some measures forced on Greece were too tough and actually made the recovery more difficult…” 

Meanwhile, moving further afield from Greece: the EU is often criticised for forging ahead with its own agenda regardless of resistance by European people. Is there a disconnect between Brussels and the European man in the street? What does this tell us about the Union’s democratic credentials?

“There is a level of disconnection between the EU institutions and citizens, yes, and it has been there for some decades now, despite the fact that the EU has tried to close the gap. At the expense of sounding like an apologist for this dismal state of affairs, sometimes I wonder whether this is a peculiarity of the EU or a condition that exists in all large political entities… such as the USA, India and China. Physical distance and remoteness from the centre tends to disconnect citizens from the institutions.”

But Europe is a unique animal in many respects, and may be more prone to such internal tensions on account of the way its various strata are gelled together.

“In Europe we face the additional phenomenon that national politicians blame the EU for policy failures and unpopular decisions, but take credit for the things that work well. Despite the perceptions, decisions in the EU are taken by the governments of the member states and the directly elected European Parliament, no more, no less…” 

As such, the ‘European Union’ is not a separate entity, but very much part of ourselves: being made up of democratically elected governments.

“So when we say that the EU goes ahead with its own agenda we must not lose sight of who dictates that agenda….”

There is also evidence, he adds, that this mistrust of the EU is slowly ebbing. “The EU has a democratic deficit no doubt… only 42% claim that their voice counts in the EU, while 52% say it does not. But Eurobarometer surveys have shown that European citizens in general have less trust in their national governments and parliaments than in the EU institutions…”

Yet there are also indications that discontent is by no means limited to economic considerations. Even outside the eurozone, there is broad disagreement over policies including immigration (the UK springs to mind) and fiscal harmonisation, among others. Is the ‘European Dream’ beginning to crumble?

“Discontent always raises its head when things are not working as they should be. At present it is highest in the countries facing the worst hardships. In those member states where the economy is still doing well there is less.”

At the same time Pace reasons that some of the angst fuelling euroscepticism may also be misdirected. “Some of the things which we blame the economic malaise on are not the real culprits. Immigration, for example: given the EU’s aging population, immigration can boost its economic prospects, not hurt them…”

Rather than blame the EU for failing to manage this crisis, Pace argues that it would be more helpful for individual countries to get their own act in order. 

“I think that we need to focus more on governance and long-term planning. The member states with the highest governance scores are the ones which perform better economically, and surely this is not coincidental. Citizens need to demand more from their governments. We also need to focus on long term questions – what are the forces which will shape the world in the future, how will the EU cope with these challenges and where will our country fit in the whole scheme of events?”

Meanwhile, the danger that the EU may disintegrate remains a real possibility, even though Pace himself doubts it will happen.

“Regarding the ‘European dream’, it is very hard to say whether it is crumbling or not. Europe is not new to crises. Crises help political systems evolve. The present crisis may be helping to reshape Europe – which is what I believe is happening – or destroy it. Time alone will tell…”