The Memorandum that Greece signed with the IMF and the other member states of the EMU in 2010, while including a set of essential administrative and market reforms, was problematic from a macroeconomic standpoint. However it consisted of the only offered alternative at the time. Putting Greece on a fiscal and monetary ventilator kept the economy of the country alive, albeit in a recessionary spiral. The Greek society initially accepted the terms of the plan, with the tacit hope that as time progressed, necessary modifications would be made that would render the plan more viable. For instance, the plan did not begin with a debt haircut. However debt forgiveness did eventually take place for a part of the Greek debt, in the form of the recent Private Sector Involvement (PSI) agreement. Nevertheless, recession was proving to be worse than expected, quarter after quarter, and new fiscal measures, translated in wage and pension cuts and tax hikes, kept on being introduced, without a clear picture about when this process would end.
Democracy needs time, trust, institutions and structures. None of these elements was in place in the previous years, mainly due to long-term structural weaknesses, but also because of the war-like political climate. Greece has the obligation to move forward with further reforms, with the goal of fully reconstructing its production model.
However, does anyone really believe that Greece, constituting of only 2% of the EMU-wide GDP is the only issue? The question is rhetorical, and despite the national symptoms, this is no national crisis. In effect, it is a structural crisis of the single currency, with different symptoms from Greece, Spain, Italy, Portugal and Ireland – or even for the other member-states. The core of the problem lies at the lack of a proper institutional response.
Selective meetings between 2, 3 or 4 EMU member states lack an institutional rationale. Nonetheless, it might be advantageous to accept that due to the gravity of the circumstances the biggest member states should have some flexibility in their decision-making process – as long as they realize the political responsibility that they are de facto assuming. The preparation for the June 22 Summit in Rome between Italy, France, Germany and Spain requires a first step towards a radical, out-of-the-box agenda. The period of half-measures is over. It’s not only the markets but also the citizens of Europe that require a clear signal of political will instead of further «kicking the can down the road».
Solutions are there: political and fiscal integration, an even more activist monetary policy on behalf of the ECB (with the acceptance of a higher inflationary target), an EiB chapter for the economic development of the crisis-striken South (effectively, a South European Investment Bank), european credit rating agencies. Their adoption – far from being a zero sum game between the North and the South - will send the strongest possible message: that Europe, with its bigger and smaller nations, with stronger and weaker national economies, will further integrate and will stand on its feet once more as a powerful collective global player, instead of a one-country show.
This is an SOS moment for the people of Europe. Our only way is forward.