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Speech at the Oslo Policy Network: A New Political Economy of the Centre-Left and The Greek and European contexts

The financial crisis hit the European shores with clear adverse effects on production, GDP, employment and growth. The eruption of the Greek crisis threatened to hit the EU right at its foundation. It tested the endurance of its institutions and the limits of its political will.

It raised questions of trust and betrayal, effectiveness and free-riding, and even on the strength of the Eurozone. But, I believe that the Greek crisis, and European response to it, highlighted all kinds of shortcomings but also brought to the fore many of Europe’s strengths.

The Greek financial crisis exposed the Greek governments’ chronic deficiency in exercising an efficient economic policy. It exposed its shortcomings both in dealing with important obligations that stem from the country’s participation in the EU’s Economic and Monetary Union, and in exploiting related opportunities for economic growth and restructuring. We were faced with chronic problems of mismanagement, lack of transparency and decreasing competitiveness.

The Greek crisis was three-pronged:

It was a financial crisis stemming from massive expenditure, particularly at the non-central level, tax evasion and low growth.

It was also a competitiveness crisis.

Following entry into the Eurozone, competitiveness became a much harder proposition, and the limited scope of the structural reforms that were implemented increased that difficulty. At the same time, the global competitive environment intensified which, coupled with the lack of monetary instruments at the hands of the Greek government led to increasing current-account deficits. At a time when the EU focus through the Stability and Growth pact was on reducing debt and deficits, the situation was not adequately identified and addressed. The policies and government spending for improving competitiveness at the time, focused more on developing many crucial infrastructures and less on creating the human resources who would compete, generate endogenous economic growth and eventually provide the necessary tax revenues.

Thirdly, the Greek crisis was a crisis of credibility.

The Greek image of being Europe’s weaker link was not adequately countered by the realities on the ground. At the political level, Greece was the land of the exception and the asterisk, while the latter period before the crisis it was virtually absent from European debate. Of course, the greatest factor affecting our credibility were the, now-infamous, Greek statistics.

The Greek financial crisis coincided with the elections and the victory of PASOK. The pressures have been enormous and often justified. During the last 18 months, the Greek government has implemented an enormous number of measures aimed at curbing the public deficit and in turn, reduce the heavy burden that is the national debt.

The massive challenge the government faced was to address all three crises at the same time, and at great speed.

Spending was reduced. Wasteful spending was particularly targeted and a new budget system was introduced to closely follow every Euro.

On the revenue side, tax evasion is being actively tackled but until that fully bears fruit, some regretful tax increases were also imposed.

On the structural side, a wide, condensed and complicated structural reform program is in full swing. Following the legislative process, the onus, and great challenge, is now on implementation of these reforms.

There have been reductions of up to 30% in salaries and pensions of public administration employees, rises in direct and indirect taxes, a virtual freeze on hiring in the public sector, significant reductions in the financing of virtually all sectors but, notably, also health and education. In education alone, we have reduced by 30% the funding of higher education. This means that we have had to think of new ways of doing things with less.

All of the above may stem from a need for rationalization of spending but they also seem to contradict many of the social democrats’ basic principles.

In short, the dire financial reality we were faced with along with the harsh, but necessary measures, which the government immediately undertook combined into a significant shock to the public system and the people. This shock is hard to swallow and digest by society and has significant difficulties in implementation.

At the same time, it undermined the confidence of the Greek people who felt betrayed by a political system which had taken advantage of them for decades and who felt, what they thought was, the brunt of European pressures for repayment, measures, schedules, etc.

Nevertheless, there is a feeling of necessary sacrifice which permeates society.

The financial crisis has also created the need to assign responsibility. Whether to the financial services sector, the oversight mechanisms, or governments themselves, the taxpayers which are called to bear the brunt of the measures need answers and they need to feel that this cannot happen again. At this juncture, social cohesion is under threat and the centre-left must create a road map for the future. We have let the genie out of the box and must find ways to get it back in there.

The powerful and unexpected resurgence of state intervention has reinforced the truism that without the state, market economies would not be able to thrive. Without public authorities capable of exercising legitimate coercion, capitalism would be impossible. Public intervention and regulation have historically played a decisive role in the institutional separation of society into an economic and political sphere by providing a supportive framework in which markets can prosper.

A crucial question that needs to be answered is how do we protect the weaker parts of our society. How do we design and implement the necessary measures which go beyond taxation. The question is crucial because, although the answer is “Growth”, we must discover its qualitative elements which mobilize and empower. Otherwise we may risk cutting it back and actually hurting the potential for growth.

A second crucial question relates to convincing the people that the same mistakes will not be repeated. Here, the key lies in the model and processes of governing itself; a system which systematically demonstrates its respect for taxpayers’ money and wishes. A new kind of politics is needed, based on engagement and debate between citizens and government, building consent for tough and painful decisions. Social democracy must not concede this territory to the centre-right. This means that we must take full advantage of the instruments at our disposal and move towards decentralized solutions, a combination of top-down and bottom-up approaches and a system of constant, constructive dialogue about the future.

The problem is that neither “Trust” nor “Time” are readily available at this juncture. Much political capital has been squandered in recent months both at the national and the EU levels in support of policies which have not yet demonstrated the fruit they bear. Political pressures and populist approaches (from the Left and the Right) hamper discussions. Societies which are under constant pressure are as we all know, susceptible to such approaches.

The financial strains and unemployment, coupled with insecurity about the future, loss of identity, migration and a weakening of the concept of community are harbingers of the extremes.

At this point we must also protect the weaker parts against any new ‘bubbles’ like the financial bubble. The first time round, an argument could be built that we did not know, and could not foresee the negative implications of our actions. This time around however, no such excuses can be presented.

Chief among the new “bubbles”, as I will call them, is the protection of the environment and the fight agaisnt climate change. It is crystal clear that continuing to ignore the environmental problems in our growth-creating processes is another meltdown in-the-waiting.

Another element for the building of trust involves the radical improvement of both global governance and global legitimacy. The reaction last year against the Greek crisis, had both, but the light that shone seems to be going out. We must not let that happen. Extrovert solutions are the only ones that do not appear naïve in today’s climate, and I believe that, despite cries to the contrary, the people want more cooperation and more decision-making mechanisms.

It seems as, after decades of building goodwill and trust within the EU, we have spent it in a few months: Trust, Single Market functioning, Border control, Trade and Development are all now undermined and in danger of extinction. So the question inevitably arises (notably in Italy and even Finland) what is the use of the EU?

Is it to help anyone who is in trouble, including those who have only themselves to blame?

The EU is, once again at a crossroad and needs some new definitions.
And the first word that needs to be defined for the European context is “Solidarity”.

It is first of all a functional word. It does not only represent the help the weak receive from the strong. It also represents the common effort when faced with a common goal: The rallying together when faced with a danger from the outside.

In the EU context, this means that member/states must help and be helped if our common project is to move forward. Each must do its best and each must look at ways to add to the collective effort.
In a system such as the Eurozone, the issue becomes even more important. Our crises are unique crises. Our solutions are also unique.

What we really saw in the unfolding of the Greek crisis and Europe's response, is that the greater and the more urgent a crisis becomes, then the real question of collective solidarity comes to the fore. It can be expressed in “punitive” terms, or it can be expressed through an examination of the collective well being.

Europe traditionally demonstrates its strengths at times of crisis. When it was pushed by the markets and forced to demonstrate what it preached, Europe obliged. The EU also demonstrated its continuous ability to provide institutional answers to pressing questions.

The 750 Billion Euro stability facility was as unprecedented as it was unexpected. Now, Europe must demonstrate its political commitment, and its ability, to improve economic governance and economic government.

The elements of a “political Union” already exist in many forms: the single currency, competition, military missions, and border management among others. The question now is to create the institutions that will support these policies in an effective way.

Ad hoc reactions to known problems are no longer appropriate. Neither is a wait-and-see approach. It was tried in the early phase of the Greek crisis and failed to produce results.

In the current climate of aggressive market practices towards weaker economies, the danger to the collective effort persists.
So we also need fully integrated institutional arrangements that will facilitate economic policymaking and we need to create the structures that will pre-empt crises: Structures that will function with the long-term in mind.

But how we will decide on these arrangements is also important.
The EU, and the Eurozone, are comprised of countries sharing at least two characteristics: They are willing and they are able. Those who are not willing need not be pushed. Political arguments are always available and, in my view, the end result from the markets' attacks on their political edifice, demonstrated very clearly that politics is still a very important part of the whole endeavour.

Those who are willing but yet unable, should be in a position to receive help if they need it. The global financial vagaries threaten even the most responsible of countries and in a collective such as the EU, a threat to one, threatens all.

And this is a very social democratic characteristic as well: We believe in creating support structures against the unknown.
The question is basically about survival. Survival and solidarity take a single and peculiar meaning in the European case.

European solidarity and European survival go hand in hand. The Greek crisis and the reticence of some partners highlighted the lack of unequivocal European-ness. Once again, short-termism and national considerations come to the fore. But also once again, in the end Europe will stand together because we know that in today's world, one cannot be alone. National prosperities are also part of European prosperity and vice versa.
Our economic and political fates are so intertwined that growth, prosperity and even survival rely on our ability to demonstrate solidarity.

The EU has built a system of policies, politics and institutions which although far from perfect, have been characterized by an impressive ability to adapt to new challenges. What it may sometimes lack in speed it gains in effectiveness. Its ability to synthesize different views for the common good remains unrivalled.
The situation we find ourselves in at this point, also requires adapting. Indeed, it requires it as quickly as possible.

Europe came out of its long period of introspection just as the world was changing. Again.

I believe that the future of European solidarity lies in successfully combining the short-term with the visionary, the elite thinking (which is mainly about the past and the future) with the lay thinking, which is mainly about the present.

I believe in significant processes of inter-societal bargains where solidarity is put in context, combining efforts and results both from the economic and from the political fields.

I also believe that the above can form a new agenda which will mobilise, a new politics that will be trusted, and a new approach to growth-creation that will inspire and enrich.

Finally, I believe that it is only the Social Democrats who can achieve it.

Thank you

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Anna Diamantopoulou, 2012. Content is distributed with a CC A-NC-ND-Gr-3.0 licence

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