Stalled Europeanization in Post-Sovereignty EU? Greek Politics in Hard Times /Egemenlik Sonrasi AB'de Duraganlasan Avrupalilasma mi? Zor Zamanlarda Yunan Siyaseti.

• Author: Lavdas, Kostas A.
• Position: Essay

Introduction

In the literature on Europeanization, the Greek policy context has been considered reform-resistant (1) due to its limited reform capacity. (2) If we approach Europeanization as an interactive process of policy and institutional change, policy impact, and policy feedback, the roles of domestic institutions and politics are crucial in influencing--often determining--policy reform. There has been considerable emphasis in the policy literature on the ways in which Greece's limited reform capacity hinders Europeanization. In this context, Featherstone and Papadimitriou explain that the systemic nature of the main problems identified in their own case studies is ultimately linked to interest politics and the structural power of key domestic actors. (3)

In this paper my focus is on Europeanization that stalled and on the restart of Europeanization as a sluggish but ongoing process with asymmetric results reaching a crossroads due to new, unexpected and particularly demanding challenges. The use of ambivalent reform in the paper is in the sense recently reformulated by Daniel Tichenor (4), i.e., as a set of significant, transformative yet contradictory policies with asymmetric and often self-defeating results.

The background is well known. In Greece, a series of bail-out packages consisting of reforms in exchange for low-interest rate loans from the EU, the ECB and the IMF has become the largest such program in modern financial history. Aimed at keeping Greece in the euro while preventing the debt crisis from spreading through the eurozone, the program proved a necessary rescue tool but also a mixed blessing for a number of policy areas in Greece.

A Tale of Postponed Adjustment to a System in Transition

In its 2017 special report on the European Commission's intervention in the Greek crisis, the European court of Auditors provides succinct and often critical insights into the saga of EU--Greek relations since 2009. As the report states:

As of mid-2017, Greece still requires external financial support and we found that the objectives of the programmes were met only to a limited extent. Overall, the programmes' design did make the progress of reform in Greece possible, but we found weaknesses. [...] From the time of its entry into the euro, Greece benefitted from an economic boom fuelled by easy access to borrowing and generous fiscal policy. But the 2008-2009 global financial crisis exposed the country's vulnerabilities: growing macroeconomic imbalances, large stocks of public and external debt, weak external competitiveness, an unsustainable pension system and weak institutions. These combined with revelations about misreporting of official statistics impacted international confidence. The price which Greece had to pay to borrow on the financial markets became unsustainable and in April 2010 the country requested financial assistance from the Euro area member states and the IMF.' (5) It hardly needs stressing that Greece's predicament was the combined result of several factors. To begin with, Greece's own erratic and in some ways irresponsible career in the eurozone. Having adopted the euro, Greece largely failed to benefit from real opportunities such as an improved regional environment for foreign investment, reduced transaction costs and cheap credit--while managing to make (almost) every mistake in the book. Public sector kept swelling, public debt kept accumulating, every government accused the previous ones of fiscal and logistical sleight of hand, wrong signals were sent to the international markets, and so on. On the other hand, the eurozone was--and still is--a unique and in many respects admirable experiment in search of a direction: the lack of effective economic policy union and the difficulty in negotiating a political union has left the eurozone in a state of perpetual transition.

In this context, the recipe on offer for eurozone members in need (Greece, Ireland, Spain, Portugal, and Cyprus) was often one-sided and poorly tailored to meet the particular demands of specific economic and politico-administrative systems. Policy reform produced success in certain areas but it also led to reactions as well as side-effects, policy being implemented in some ways in spite of itself. As the European Court of Auditors finds in its special report on the Commission's intervention in the Greek crisis, there were weaknesses on the EU side as well regarding the design of reform packages.

For example, "insufficient consideration [was] given to the administrative capacity to implement the reforms", and while "financial reforms ensured short-term stability in the sector, [...] a number of structural weaknesses were not comprehensively addressed or were included late in the programme." (6) As the special report explains, "by participating in the three Economic Adjustment Programmes, Greece avoided default. However, the achievement of the programmes' objectives--fiscal sustainability, financial stability and a return to growth--was successful only to a limited extent." (7)

As the ECA notes:

Poor macroeconomic performance, coupled with financing costs on previously accumulated debt, mean that Greece has been consistently increasing its debt-to-GDP ratio throughout the programme period (except in 2012 due to the PSI). It was also unable to finance its needs on the markets. In the immediate post-programme period, Greece will have to repay substantial amounts of debt and the programme's assumption is that they will be fully funded from the primary surplus and market financing. On the financial side, the programmes ensured the short-term stability of the financial system, but were unable to avert a sharp deterioration of the banks' balance sheets primarily due to adverse macroeconomic and political developments. (8) In its response to the ECA special report, the European Commission does not shy away from the fact that there were problems and misconceptions on the EU side. However, as the Commission argues:

The absence of political stability created challenges of ownership of the reform agenda over time; this constitutes one of the key elements to be kept in mind when assessing policy outcomes in this area. Greece experienced recurrent protracted periods of political instability that reignited uncertainties regarding the policy course, commitment to reforms and their effective implementation. However, Greece tapped the markets in April and July 2014, following a period of a steady reform, successful conclusions of reviews, and improved growth prospects. This clearly demonstrates how effective reform implementation is conducive to increased confidence among market participants and a successful return to the markets. (9) We will turn to the domestic front in the next few pages. But the role of perceived wisdom in the EU needs to be briefly explored. In the EU, economic thinking and economic policy have resulted in 'stagnation by design' in an attempt to boost exports, strengthen competitiveness and clear up the economic scene. (10) Irrespective of one's assessment of that attempt, the 2008 global financial crisis and its implications that were felt in the eurozone more intensely after 2009 highlighted--among other, more general issues--the vulnerability of the eurozone's weakest members.

It was therefore not surprising that the crisis that tarnished Europe after 2009 was largely portrayed by mainstream commentators as the result of different national problem-stories, the role of the incomplete economic union was ignored and the debate over Eurobonds was quickly sidestepped. Matthijs and McNamara (11) make the point well:

Of the multiple narratives EU policymakers could have chosen at the onset of the euro crisis, why did austerity and structural reform win out over other plausible cures for member states' problems? Arguably, sovereign debt pooling or more federalized economic governance would have been a solution to member states' national deficits and competitiveness woes. [...] Alternative views of the crisis could paint a functional picture of governance as the major issue, where a single currency disembedded from the standard historical institutions of nation-states would create serious problems no matter what the policies of the individual member states were [...] Instead, the theory effect that unfolded in the Eurozone crisis was situated squarely in the vision of ordoliberalism and neoliberalism that has illuminated the German public policy sphere throughout the postwar era: [...]...