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Greek Crisis and the Future of the European Union – Part II

Internal divisions can endanger any union more than external threats. Mistrust – a lack of shared basic values or vision – can decimate cooperation, explains Jean-Pierre Lehmann, professor of political economy, in the second article of a two-part series analyzing the Greek debt crisis. Lehmann describes Greece’s immense debt load, the history of corruption, and their effect on the European Union. The notion of bailing out a corrupt spendthrift member to protect the union’s whole may not seem the most moral course for an organization that stresses good governance. Short-term gain and security are not enough to build a strong, lasting union, Lehmann warns, noting that the European ideal requires long-term agreement and sacrifice for “a dream, a mission and a vision.” To preserve the union, Lehmann urges a review of the fundamentals such as responsibility, honesty and trust. – YaleGlobal

Greek Crisis and the Future of the European Union – Part II

Mistrust threatens cooperation among nations and EU survival
Jean-Pierre Lehmann
YaleGlobal, 7 May 2010
Greece's hard landing: Protesters in Athens burn an EU flag and want to drive out the IMF

GENEVA: The Greek sovereign debt crisis raises issues that go well beyond the “purely” economic. Fundamental, profound questions arise. So far, however, these have been eschewed in the panicky efforts to save Greece, hence the euro. The answers to the economic questions may determine whether the euro survives, at least in the short run. The philosophical questions of trust and honesty will determine whether the European Union can survive.

To put matters in perspective, in 1957 the Treaty of Rome established the European Economic Community (EEC). The purpose was to generate a more open, harmonized European economic space. A major landmark was reached with the establishment of the Single European Market on 1 January 1993. At the same time, the European architects took a bigger step. With the Treaty of Maastricht in 1992, the European Union was created and henceforth replaced the community. Union is a strong word, describing marriage and other commitments intended to last. 

The philosophical question that must be posed in 2010 is whether a union – any union – can be sustained when there is no trust and no strong underlying ethical foundation. The Soviet Union collapsed, partly for that reason. The union between the Czechs and Slovaks was dissolved, albeit on a friendly parting basis, as was that between Sweden and Norway. And the Greek case could be a harbinger of the ultimate dissolution of the EU.  

The philosophical question that must
be posed is whether a union can be sustained when there is no trust or strong ethical foundation.

The purpose here is not to excoriate the Greeks. Nevertheless, it’s blatantly clear that the nation violated trust not for alleged profligacy as for dissimulation of accounts, accomplished with the complicity of erstwhile reputable international financial institutions. Goldman Sachs, among others, was criticized by EU leaders, notably German Chancellor Angela Merkel and French Finance Minister Christine Lagarde, for having helped Greece hide the true scale of its debts over several years. As Greek Finance Minister George Alogoskoufis admitted, the Greek government had been cheating on its accounts – big time. For 2009 the government had initially projected a deficit of 3.75 percent, “revised” to 6 percent a few months later, whereas the reality turned out to be a whopping 12.7 percent, which led to this year’s budget crisis. In 2004 the Greek government admitted cheating on its national accounts in 2001 in order to gain admission to the euro.

Today other member states of the EU are being cajoled, pressured and morally blackmailed to help Greece. Of course, in rescuing the Greeks, other members will save the union’s and hence their own skin. Once – or if – the storm passes, reflection will be needed on lessons from the Greek tragedy. One fundamental and quite inconvenient truth is that Greece, by cheating, betrayed the trust of the other members of the Union. This is not, however, a story of villains to greater or lesser degrees. For while Greece was merrily cooking the books, EU member states and the commission looked the other way – adding up to profound ethical issues of dishonesty, as well as incompetence among EU institutions and abysmally poor governance. 

Today other EU member states are pressured to help Greece. Of course, in rescuing the Greeks, other members will
save their own skin.

Greece’s accession to EU membership in 1981 was not without controversy. As late as 1974 the nation was ruled by a military dictatorship. Were it applying for membership today, accession would be much harder; Greece did not undergo the scrutiny imposed on applicant central and eastern European countries, hitherto under Soviet rule. In light of Greece’s geo-strategic position and NATO membership, Greece’s accession to EU membership – with strong pressure from the US – may have had as much or more to do with geopolitics than merits of the Greek case per se.

EU membership has been good for Greece. It remained a democracy, a somewhat rambunctious one. Its main gains have been economic. Thanks to EU regional aid funds, private capital flows and a subsidized and protected European market for agricultural exports, its GDP per capita has increased from $5000 at the time of accession in 1981 to $31,500 today; a six-fold increase.

In terms of governance, however, Greece is no European poster child. Good governance, it must be recalled, is a point of pride for the EU, proselytized to the world. According to the Transparency International 2009 corruption perception index, Greece ranks 71st place, equal with Romania, and last among 27 EU member states. EU regional aid funds created in recipient Greece, as in the other EU southern Mediterranean countries, a culture of entitlement. Furthermore, reflecting high levels of corruption, a good chunk of “aid funds” were “recycled” to private bank accounts in Switzerland and the UK.

All northern
EU countries rank among the top 20 on a corruption perception index, while not a single southern country makes that league.

The issue of sovereign debt cannot, of course, be correlated too closely to corruption. Among the other “PIIGS” countries, Ireland is in respectable 14th place – equal with Germany – while Spain and Portugal rank 32nd and 35th, respectively. Italy ranks 63rd place.

Two observations can be made: On the corruption scale, there is a stark EU north-south divide. All northern countries are in the top 20, while not a single southern country makes that league. Belgium and France are, respectively, at 21st and 24th positions. Honesty is not trivial. Can a union that has such a strong chasm on something so fundamental be sustained?

Second, it’s clear that there’s a good deal of rot in the state of the EU. The European ideal rested at its inception on a dream, a mission and a vision – and not on a balance sheet. Foundations were laid during the 1950s and 60s, with enormous efforts extended to create trust among countries – France and Germany, in particular, that had warred incessantly for decades. Though the UK only joined the EC in 1973, it too had engaged in confidence building with Germany during the previous three decades.

Without honesty and mutual trust, the EU would never have existed. Indeed when the Berlin Wall was destroyed in 1989 and thereafter German reunification proceeded, Europe could overcome initial trauma due to trust laid and cemented in foundations of previous years.

The Greek crisis may cause erosion, possibly destruction, of the EU ideal; more alarming,
it could demonstrate that the ideal no longer exists.

This fundamental point escapes modern European leaders. Much of the effort in building more recent extensions of the European edifice has gone into devising institutions or appointments – for example, the new EU president and foreign affairs supremo. The Lisbon Treaty is the most recent egregious example: Purely mechanical, it does nothing about the spirit of Europe. It is mute on ethical considerations and results in further alienation of European citizens from the European ideal.

The Greek crisis may cause the erosion, possibly destruction, of the EU ideal; perhaps much more alarming, it demonstrates that the ideal no longer exists. How else can one interpret the acts of Greeks burning the EU flag when without the EU they would likely wallow in poverty?

From a political economy viewpoint, German Chancellor Angela Merkel may have been wrong in dithering in providing cash to the Greeks. But the fundamental issue surely is that she does not trust Greek leaders or governance. And who can blame her? The EU may or may not weather this crisis. If it does survive, there will be others. Ultimately the fall of the EU can be averted only if members demonstrate honesty and trust. An economic fix-it solution to the Greek/PIIGS crisis will not suffice. The EU must go back to philosophical basics. Nothing short of a renaissance of Europe’s spirit will save the EU in the long run.

Jean-Pierre Lehmann is professor of international political economy, IMD, and founding director of the Evian Group.
Rights:Copyright © 2010 Yale Center for the Study of Globalization

Comments on this Article

14 May 2010
Great post !
-vibram fivefingers , USA