2nd Annual GPPF Chania Forum 2013: Executive Summary

“‘Muddling Through’ or ‘Breaking Through’? 

New Challenges for the European Project”

2nd Annual GPPF Chania Forum, 27-28 September 2013

Executive Summary

The Greek Public Policy Forum organized the 2nd Annual Chania Forum 2013 titled “‘Muddling Through’ or ‘Breaking Through’? New Challenges for the European Project” on September 27 and 28 at the Kiani Beach Resort in Chania, Crete. The Forum was kindly sponsored by Decidenci Consultants, the Regional Development Fund of Crete – Region of Crete, Europe Direct Region of Crete, CALPAK S.A, and the E. Apostolopoulos Law Firm. The two-day event was further supported by the ELIAMEP Crisis Observatory, the Hellenic Alumni Association of the London School of Economics, and the Economic Chamber of Greece (Department of Western Crete).

The 2nd Annual Chania Forum aimed at continuing the discussion we started one year ago on how Europe and its member states are changing because of the crisis. At our first meeting in Chania (September 2012), we examined these questions from a multidisciplinary perspective, focusing on the comparative dimensions of the crisis and primarily the division between ‘North’ and ‘South’, ‘Core’ and ‘Periphery’. This year we tried to maintain the multidisciplinary character of our discussion with a particular focus on the supranational level and its effects on the domestic political environment, and examine how, despite the rise of euroskepticism, extremism, and populism, the on-going crisis may become a catalyst for deeper political and economic integration.

The First Session, titled “European Integration, (Supra)national Democracy, and the Nation State: An Inescapable Trilemma?”, focused on the future of European integration with the participation of Prof. Renaud Dehousse (Jean Monnet Chair in European Union Law and Political Science and Director of the Center for European Studies at Sciences Po), Mr. David Earnshaw (CEO at Burson-Marsteller), and Dr. Albert Sánchez Graells (Senior Lecturer in Commercial Law at the University of Leicester). The panelists debated the perceived ‘democratic deficit‘ in the supranational political process, the overall need for democratization, and the inherent tension between supranationalism and national sovereignty.

Prof. Dehousse discussed whether the politicization of the political process at the EU level could help address the so-called ‘democracy deficit‘. He started by pointing out that, despite the perceived resurgence of intergovernmentalism at the EU level at the expense of supranationalism (also known as the traditional Union method) as a consequence of the Eurozone debt crisis, we do in fact witness a de facto and de jure strengthening of supranational structures (rule-based governance). He provided as evidence the strengthening of the Commission’s role in the surveillance and enforcement of the austerity programs and stability mechanisms, the assertion of moral authority on the part of the European Central Bank, as well as the attempted extension of the role of the EU’s Court of Justice in the field of fiscal policy. This has inevitably led to a polarization between the ‘AAA’ economies of the North and the ‘Club-Med’ member states. At the same time, the political context is characterized by the emergence of centrifugal forces at the national and subnational levels. In such an environment, the topic of Europe tends to be put under negative light by national political actors. This has led to what can be termed as ‘negative Europeanization‘. Prof. Dehousse concluded that any discussion about the democratizing effects of direct elections of European officials and institutions will be meaningless, unless it is accompanied by a change in the distribution of powers within the Union.

Mr. Earnshaw discussed the proposition that the upcoming European Parliament elections in May 2014 may amount to a democratic (r)evolution in the European political process. The key aspect of these elections has to do with the new rules that European Parliament parties will follow in the selection of their respective candidates for the office of President of the European Commission. For the first time, the President of the European Commission will be selected mainly through EP party (instead of member-state) negotiations. What is more, among prospective candidates for the office one can find politicians with substantial national political experience at the highest levels. This may indicate a move towards higher politicization of the European Commission. Furthermore, the selection process may undergo even further democratic transformation as indicated by the example of the Greens who are setting the pace in 2014 by organizing primaries. Yet, according to Mr. Earnshaw, there is still a rearguard battle launched mainly by UK political parties regarding the automaticity of the candidate selection process used by European political parties.

Dr. Sánchez Graells used the example of regulation in the area of public services as a way to explain how the European Commission uses ‘soft-law‘ instruments in order to de facto usurp powers from national governments and to limit their discretion in the implementation of EU rules and regulations. He suggested that, even if thistechnocratic approach leads to more efficient governance, the lack of democratic political scrutiny at the national or EU level is a significant cause for concern.

The Second Session, titled “An ‘Ever Closer Union’ in the Midst of Ideological Polarization? The Impact of the Eurozone Debt Crisis on National (Party) Politics”, focused on the political implications of the crisis both at the European and the national level. Prof. Catherine de Vries (Professor of European Politics at the University of Oxford) painted a gloomy picture in terms of the popular appeal of the EU. The EU enters the political arena mainly as the synonym of transnationalism, primed by the losers of domestic party competition. It cuts across the dominant ideological cleavages within national party systems, generating a curvilinear bell-shaped pattern of support: extreme political forces politicize the issue of the EU by questioning the normative underpinnings of the project. Mainstream political elites use the EU to justify unpopular policies and by doing so kindle even further Euroskepticism. In short, the EU operates like the economy; it becomes news when things go wrong, but fails to get credit for economic and political outcomes during periods of prosperity.

This view was also shared by Ms. Gisela Stuart (Member of Parliament for the UK Labor Party and Vice-President of the Praesidium of the Convention on the Future of Europe), who focused on the distinction between transnationalism and national identity. Quite paradoxically, according to Ms. Stuart, the discussion about the EU is not so much focused on the implications of economic integration – the EU’s building block – but on issues of identity. The division between cosmopolitanism and national identity largely accounts for disparate attitudes towards the EU in Britain and other EU member states. Consequently, rather than focusing on potential economic achievements or discussing the technical details of the EU decision-making process, support for the EU can be more effectively fostered by strengthening the pattern of social interactions between EU member states. Ms. Stuart ended with a quote from di Lampedusa’s ‘The Leopard’, namely “if we want things to stay as they are, things will have to change”.

Finally, Prof. Antigone Lyberaki (Professor of Economics at Panteion University) provided a very eloquent chronicle of the collapse of the Greek party system from early 2010 up until the 2012 elections. Such instances of radical party system transformation are indeed rare among established liberal democracies. The primary reason for this development was the successful attempt by political elites to shift the debate from the roots and causes of

the crisis to its actual management by the incumbent Socialist party (PASOK). In an environment of increased ideological polarization and widespread distrust of political elites, the government, the EU, the ECB, and the IMF all became popular scapegoats. As the crisis deepened, the constellation ofpolitical turmoil and economic deprivation facilitated the rise of new political alternatives. The most successful ones where those openly embracing populist discourse and practices. Interestingly, in such instances of anti-systemic populism, social capital is not necessarily a positive phenomenon. Instances of mass mobilization, as reflected by the Syntagma Square protests, bolstered support for the neo-nazi Golden Dawn party and contributed to the destabilization of the political system. Strategic exit from mainstream parties by reelection-seeking politicians opting for new populist alternatives with better electoral prospects facilitated this gradual shift from a centripetal to a centrifugal democracy.

The Third Session, titled “Who is Going to Foot the Bill? Fiscal Union and Attitudes towards Redistribution”, featured Prof. George Pagoulatos (Professor of European Politics and Economy at the Athens University of Economics and Business), Dr. Bob Hancké (Reader in European Political Economy at the London School of Economics), Dr. Hector Solaz (Lecturer in Economics at the University of Birmingham), and Mr. Antonis Kamaras (Chief Advisor to the Mayor of Thessaloniki and Research Associate of ELIAMEP). The panel dealt with issues such as the institutional set-up of EMU, the strengthening of redistribution mechanisms in the context of a common monetary policy, and the use of fiscal policy at the supranational, national, and subnational level.

Prof. Pagoulatos and Dr. Hancké both concluded that the crisis, seen both as a systemic and an endemic phenomenon, came as a result of the weak enforcement and poor implementation of EMU fiscal rules, profligate fiscal spending, failure to pay down national debt at times of high growth, and failure to address burgeoning macroeconomic imbalances. So far, the policy response to the structural flaws of Eurozone governance has been short-termist and fragmented; it has been the outcome of inflexible and fragile intergovernmental agreements with the aim of gaining time for the establishment of more effective institutional tools and response mechanisms. Adhockery has been the main characteristic of the crisis response modality (‘muddling through‘) with crucial decisions being subject to national vetoes in an intergovernmental context.

Prof. Pagoulatos remarked that the Greek adjustment program has been far too heavily front-loaded, pro-cyclical, and ambitious within a recessionary environment. The Troika has outlived its usefulness as an instigator of necessary reforms, insistent as it is on the short-term fulfilment of specific quantitative targets, while the EU is still moving at a very slow pace towards the creation of a true banking union and a deposit insurance guarantee system.

Dr. Hancké emphasized the need for a new Marshall Plan, since fiscal integration may not materialize in the absence of a stabilizing redistributive program of capital transfers from the surplus countries of the European North to the deficit countries of the European South. The Fiscal Compact is not going to work without redistribution and fiscal discipline and coordination are not sustainable without a simultaneous policy of transfers in a heterogeneous union of incompatible models of capitalism.

At the same time, according to the findings of an experimental study conducted by Dr. Solaz, wider popular support for fiscal transfers across European member states and contribution to a common European budget are predicated on a common space of reciprocity, solidarity, and mutual trust between governments and electorates, taxpayers and recipients, lenders and borrowers. Finally, Mr. Kamaras highlighted the need forlocal government to boost its revenue-raising and fiscal autonomy and to wean itself further from central government. He added that the new comprehensive and universal property tax may potentially help contribute towards the direction of fiscal decentralization with the ultimate aim of boosting regional growth.

The Fourth Session, titled “Financial Integration as Boon or Bane? Banking Union and the Elusive Quest for Growth”, featured Prof. Rodrigo Olivares-Caminal (Professor in Banking and Finance at Queen Mary University of London), Prof. Manuel Caldeira Cabral (Professor of Economics at the University of Minho), and Prof. Ioannis Kokkoris (Professor of Law and Economics at the University of Reading). Prof. Caldeira Cabral opened his remarks by observing that the EMU is still a work-in-progress, whose main pillar should consist of a full-fledged banking union. When it comes to growth and development, he noted that the indebted countries of the European South should not just rely on a singular export-driven growth strategy for the following reasons: i) the extant export base of these countries remains rather limited, ii) so far, as a result of the ongoing crisis, their export markets are still characterized by low aggregate demand and consumption, and iii) the ECB’s monetary policy has yet to generate cheaper credit and lower interest rates.

Prof. Olivares-Caminal analyzed the different facets of the Eurozone debt crisis by noting that in countries such as Greece and Portugal the roots of the crisis lay in profligate public spending and unsustainable deficits, while countries such as Ireland, Cyprus, and Spain suffered from an over-leveraged banking system. He also highlighted the urgent need for the creation of a banking union among Eurozone countries and concluded that that the only way to move towards the next stage of economic and monetary integration is the complete elimination of financial controls and constraints on the movement of capital within the Eurozone.

Finally, Prof. Kokkoris focused on the variety of crisis-management policy instruments at the disposal of EMU noting that state aid and bank recapitalization may generate moral hazard and distort effective market competition. There remains the danger that temporary exemptions and suspensions of competition rules may jeopardize sustainable development, while at the same time raising questions of democratic legitimacy, efficiency, and social equity with respect to the use of public funds and tax revenues for the bailout of banks.

In its Final Session, the Forum convened a Roundtable Discussion, titled “Looking Ahead: Governance and Policy Responses” and chaired by Ms. Xenia Kounalaki (Head of Foreign Desk at Kathimerini), to discuss the current situation in Greece. The table benefited from insightful comments and remarks by Mr. Pantelis Kapsis(Deputy Minister of Public Radio/Television), Mr. Haris Theoharis (General Secretary for Public Revenues, Greek Ministry of Finance), Dr. Dimitris Katsikas (Head of the ELIAMEP Crisis Observatory), and Mr. Panagiotis Vlachos (lawyer, communications advisor, and 

member of the political movement “Forward Greece”). The local MP, Mr. Manoussos Voloudakis, also intervened. A common point of departure among panel participants was the tone of reserved optimism they gave about the progress that has been achieved thus far in Greece. Yet, this was also complemented with a certain degree of skepticism regarding the depth of the required reforms, the long-term consequences of the crisis, and its underlying structural causes (such as corruption). Asecond take-away point coming out of the discussion was that the absence of reliable scientific data (largely owing to the chronic underfunding of research in Greece) hinders the design of effective and practical policies to exit the crisis. In similar terms, the effectiveness of such policies is hugely undermined by the lack of political will and awareness about the need for reforms, regardless of whether these are suggested by the Troika or not. Time is running out and room for the development of a truly ‘national’ reform strategy is shrinking. This has led the country to implement a set of painful and highly ineffective policies. For instance, while the public sector is now less costly for Greek taxpayer, it is by no means more effective. To boot, Greeks keep ignoring what public interest should dictate in many other areas (such as the media), thereby allowing individual and corporate vested interests to outweigh the collective one. All this results in delaying the necessary change of course. Despite this negative picture and although progress is not linear or steady, significant improvement has been achieved. The OECD endorses this position, revenues have increased, and the newly achieved primary surplus will soon provide more flexibility in the utilization of resources and the achievement of fiscal and broader reform goals. Finally, panel discussants went on record in expressing their satisfaction with the effectiveness of Greek public authorities in their fight against extremism (namely, the Golden Dawn party). The overall assessment was that, whatever tricks and tactical maneuvers this organization may resort to, it will not be allowed to undermine the proper functioning of democratic parliamentary institutions.