New Governance in Europe and Greece

In the event of the forthcoming European elections, the always-existing scenario of an early Greek general election, the entry of new leaders in the EU institutions in 2014, a possible new Constitutional Convention, I would like to briefly put on the table a series of thoughts that may provoke further discussion.

Let me begin with some thoughts on Europe and the EU.

• According to a recent study by Oxfam, an additional 15 to 25 million Europeans – on the existing 120 million of poor – could face the prospect of living in poverty by 2025. Austerity, a “zombie” idea, poses a direct threat to the social and political fabric of the peripheral European states, perpetuates and exacerbates economic weakness, inequality and joblessness in Europe. By punishing the profligate, the governments of the EU diminish the potential of their middle class to save, invest and maintain a decent level of social services needed to secure social mobility. Moreover, sovereignty as we knew it, becomes more porous. Lack of legitimacy undermines the state’s capacity to maintain its sovereignty and people lose confidence in domestic and international political institutions. The negative implications for democracy are more than evident and I am afraid that they will become bitter in the near future, especially at the forthcoming European elections.
• Arguably, fragmented policy response to the crisis at the EU level has created more hazards and contraction than anticipated. Although we have reasons to believe that the polemic between the proponents of austerity and the ones of neo-Keynesian stimulus might not offer too much in the case of Greece, still, we have no credible answer – and maybe our economists here might help us clarify – why the EU chose the path of “growth friendly fiscal consolidation” against the American ‘recovery’ path after 2008.
• There is an explicit need for a new institutional architecture combining a banking with a fiscal union – the “unfinished building up” as Manuel Cabral ingeniously presented. Secondly, a new political economy for the Union and the member states could be achieved through a more realistic and “customized” new Single Market focusing on technological innovation, the empowerment and the interconnectivity of the SMEs, the provision of incentives for more young people to start their own businesses and for the unemployed to acquire new skills.
• European governments need a redirection of focus from austerity-driven goals towards structural, socially fair and inclusive reforms. I am referring to the provision of technical, political and financial support to the ailing states. For instance the technical support provided to Greece by the Task Force, should not exhaust its potential as another pet project of the European elites and the President of the European Commission, but it should expand its scope and integrate the knowledge and skills of national public administrations, central and regional. Moreover, as George Pagoulatos rightly mentioned, the Troika schema has exhausted its potential. Recorded inconsistencies between the structural reform mechanics and the quarterly IMF objectives systematically derail the role of the administration and hamper strategic execution.  A new vehicle, a new Troika or a new European duo should reconcile the indebted states with European solidarity and the social value of reforms.

What about Greece?

• Greek policies should target unemployment and in-work poverty as well, which is structural, long-term and hits people in their fifties and their twenties. According to our witnessed orthodoxy, countries that implement austerity deregulate their labor markets in order to introduce flexibility. However flexibility in the Greek market is not only associated with the absence of social protection measures but is accompanied with the co-existence of an informal, black economy – as we name it -, plus the erosion of social bargaining systems. What we still experience in Greece is that bank recapitalization has not been – and probably will not be – transformed into bank modernization that will emphasize on a new loan policy adjusted to the needs of the real economy and the competitive SMEs. Today, if you want to start-up a small business, access to seed funding or micro-credit is problematic.  Small businesses’ marginal costs are so high that– even in our favorite tourist sector – they often find no incentives to enter the official economy, pay their taxes and their social insurance contributions.
• A fair distribution of the tax burden is not a parochial claim. According to 2011 data, wage earners and pensioners pay for almost 55% of the overall tax revenues, where the self-employed, professionals and autonomous workers pay for almost 16% accordingly. People at risk of poverty have exceeded 20% of the population, however, the figures do not include home ownership or self-consumption capacity. The most problematic dimension is that there are no data about the distribution of landed property, it is impossible to detect the value of mobile assets and there is a lack of information on real estate and other assets. Finally, unfair income distribution diminishes the ability of the middle class to save and invest.
• Export-led growth. Our current account deficit has been decreased mainly due to the collapse of imports. Now we experience the gradual decrease of our exports as well. Despite our integration in the Single Market, our economy has not been sufficiently diversified, leading to what Antigoni Lyberaki mentioned before, the surplus of non-tradable products and services that perpetuate this – as we call it – entrepreneurship of necessity versus the entrepreneurship of opportunity.
• Times call for a pan-European intergenerational pact; a new social contract founded on the Edmund Burke’s quote that “society is a contract and the state is a partnership between those who are living, those who are dead and those who are to be born.” This call for intergenerational solidarity has various dimensions. Please allow me to focus on public debt. The heart of the matter is that accumulation of debt is on the expense of the younger generation. Only the sums of debt owned in the form of government bonds are calculated, often leaving outside the unfunded liabilities of welfare schemes. Another problem is that golden constitutional rules and fiscal pacts will be easily violated by the propensity of governments to spend. However, new practices in the public sector in the form of publicized balanced sheets and the adoption of globally accepted accounting templates could avert state failures in the future and promote accountability. Of course, the same principle of intergenerational solidarity applies to the privatization of public goods like water or electricity, the industrial policy and growth model, the management of natural resources, the quality of life in the urban centers, the reform of pension schemes and the labor market.
• Finally, please allow me to highlight that a major problem of the European political powers today is the belief, the political conviction that there is no alternative to austerity and the side effects of globalization. Centrist and progressive political powers in Europe have been locked up in an economic and political superstition. In the case of Greece, this superstition leaves room to the unfiltered adoption of measures proposed by international organizations in the absence of an alternative national political plan. Given the current debate on the need to politicize the EU, I cannot avoid referring to the social and electoral retreat of social democracy in Europe. Following half of a century of successful tax and transfer models, expansionary public investment and an inclusive welfare, the social democrats today wake up in a reality where the “social cement”, in other words money, is scarce, the dependents on endowments are vulnerable towards the populists and the public sector still provides Fordist-style services of poor quality – especially in my country. If the progressives in Europe are looking for a new electorate, they need to redirect their focus from the old industrial worker and public sector employee to the educated unemployed, the socially vulnerable, the world of the SMEs and the self-employed, the ones who are frustrated and skeptical with Europe but, at the same time, have the energy, the talent and the enthusiasm to move things forward. The same ambition that applies to Europe, applies to Greece, as well. The mobilization of Civil Society through the means of voluntary associations, social work, social economy, and the newborn networks of social solidarity that flourish in the cities and in our regions are the seeds of a social capital needed to renew the quality of public policies and politics in my country.

Panagiotis Vlachos, Lawyer and Communications Advisor

For the Greek Public Policy Forum, 2nd Annual Chania Forum 2013, 27-28 September 2013