The eurozone’s response
The first reaction was political. The heads of state and government of the member countries have been extremely eloquent in expressing their common commitment to maintaining the stability of the euro area. Their aim was to reassure the markets, but they were not convincing enough, also because the only tools at their disposal were the aforementioned ‘assistance through sanctions’ mechanisms. International markets have pointed out the obvious contradiction between the legal system of the Treaty’s no-bailout clauses and the political statements of the Eurogroup on the granting of guarantees and have begun to question not only the reliability of Greece’s credit rating., but also the credibility of the entire eurozone system.
Without a shadow of a doubt, Greece could be considered an exceptional case of lack of solidity and bad management, to the point of justifying the Eurogroup if it had decided not to intervene to avoid its bankruptcy and in the end to exclude it from the euro. Various opinions were expressed to this effect, however the exact opposite has occurred. Not only has Greece been supported, but financial assistance measures have been taken that go well beyond the non-bailout provisions foreseen in Maastricht: € 80 billion, in the form of a bilateral loan, has been secured in cooperation with the International Monetary Fund, which offered an additional 30 billion. The total amount of € 110 billion is unprecedented in such assistance. Furthermore, the European organizations they ascertained that the ‘over-indebtedness virus’ was not exclusively Greek, but was affecting various other nations, leading to accumulating competitiveness deficits. This resulted in the creation of a € 750 billion support plan. According to the agreed measures, in the event of activation, the IMF will pay € 250 billion, the other European states 440 billion, again through bilateral loans; a further 60 billion will be allocated to the creation of a community assistance mechanism for states in the event of extraordinary events. The European Central Bank has endorsed these decisions and relaxed its policy on indirect financing of public debt by accepting as collateral debt instruments of commercial banks of the Member States,
In doing so, the political will has been resolutely demonstrated to tackle the eurozone’s first structural problem, the bailout from bankruptcy. The second problem, that of the loss of competitiveness, is a longer-term challenge. The question of economic direction (in the German terminology) or of economic governance (in the French expression) is, however, on the agenda. A commission headed by the President of the European Council has been set up to examine the problem. There are, of course, different approaches and divergent opinions, as has always been the case in the history of European integration, but it is a real challenge and a great moment.
Greece’s response
The government that took office following the October 2009 national elections faced an unprecedented set of problems. In addition to the two huge deficits, it had to manage a notable loss of credibility both nationally and internationally: in the domestic sphere, the promises that had been made during the electoral campaign necessarily had to be disregarded, while abroad it was necessary to rebuild trust and prestige.. The first indication of the government’s intentions was expressed through the 2010 budget and the review program of the Stability Pact. Failing to convince the markets, a few months later the government accepted an unprecedented program of fiscal consolidation and structural changes in exchange for the IMF-eurozone bailout.
The first measures applied were drastic. The salaries of the oversized Greek public sector have been cut by 25-30%; the social security system has been restructured through substantial reductions in pensions, increases in contributions and raising the retirement age; finally, the labor market has been reformed. These spending cuts and tax hikes led to a significant 45% deficit reduction in the first half of 2010. However, confidence in international markets is far from being regained. The difference in the yield of Greek bonds in the secondary market remains very high, thus preventing the government from resorting to primary long-term financing. The forecast that the measures indicated will lead to a sharp recession for at least the next two years leads markets and investors to question whether the Greek government will be able to implement the program and at the same time serve its debt. Without a doubt, the months to the end of 2010 will be crucial for Greece, as well as for the eurozone as a whole.
Conclusions
The governments of the eurozone states, including Greece, have taken very important decisions that have exceeded initial forecasts. Political leaders, regardless of their ideological connotation, national interests and public opinion pressures, have united to save not only Greece but, more importantly, the future of the euro. Through these decisions, the governments of the Eurogroup have shown how the concept of solidarity is not constituted by a moral approach to ‘good and evil’, but is rather represented by a criterion of political realism. It is equally important that these decisions have gone beyond the provisions of the Treaty, the result of the political equilibrium of past decades, and that in many countries they have been adopted with the approval of national parliaments;
It would be wrong to view these measures solely as decisions made in a state of emergency, as a way of handling an extraordinary event, without expecting them to take the form of permanent institutional changes. As in the case of every crisis, the global one has corrected and recalibrated the overall functioning of the international economic and financial systems and the patterns of production and consumption. An effective and lasting reform of the functioning of the eurozone must therefore be expected, especially if the aim is to strengthen its position in the increasingly competitive global market. In this sense, the debate on the future of the eurozone and the euro, and indirectly of the Union as a whole, has only just begun.
Finally, what conclusions can be drawn from the relationship between Greece and the euro? Due to the size and strength of its economy, Greece has so far not been a driving force or a major player in the European integration process. It has generally limited itself to queuing up, often with some difficulty and very late. In the establishment of the European support mechanism, however, Greece’s weakness managed to make it occupy a central position, something similar to what happened in the mid-1980s, when the Greek fragility within the common market was while forming he played a key role in the creation of the Mediterranean Integrated Programs, precursors of the economic policy of the Union and of the policy of social cohesion.
