July 2015: Time to make economic & monetary governance fair & socially just in Greece and beyond

Commentary by CESI Secretary General Klaus Heeger. In the context of the Greek crisis showdown and recent broader political developments in Europe, Klaus Heeger recalls that time has come to finally make monetary policy and economic governance fair and socially just. Not only with regards to Greece, but Europe at large.

July 2015: Time to make economic & monetary governance fair & socially just in Greece and beyond

It is deeply concerning to see that, especially regarding Greece, no major change away from a regime of structural debts and austerity measures has taken place yet.

We have in the past consistently warned that there is hardly any worse impact than austerity measures on economies already hit by economic slowdown. With economic activities downsized, neither employment nor state income is generated and public spending cuts prove completely ineffective (since the parameter used to measure public deficit, the GDP, continues to fall). It is a vicious circle and that is what has happened in Greece.

Criticism has also repeatedly been voiced about what I call the “austerity blame game” and it has been warned that one-sided austerity measures do not only prevent struggling economies from getting back on track but ultimately endanger the existence of entire states and indeed the EU itself.

Given the outcome of Sunday’s referendum in Greece, a scenario which is everything but far-fetched.

Even though it may have been legitimate, yesterday’s referendum and the rejection of the latest or even last creditors’ bailout offer leads (again) to a negotiation stalemate. The blame game is at its peak and I wonder who will assume responsibility for a possible failure to save Greece.

Even more frustrating for both sides – for the creditors who believe they have shown tremendous solidarity and for Greece which feels like having been ‘reformed to death’ by ruthless foreign powers – is that the many years of negotiation have not lead to anything but a practically bankrupt Greece and a broken Greek-EU relationship.

What happens next?

It is hard to imagine that after the Greek referendum, the EU member states, the IMF and the ECB will endorse further payments from the ESM. There is simply no willingness among the political majorities to push for this.

Hence, only a debt relief or an ‘organised’ sovereign default can be the consequence in the long run. Whether this would entail a Grexit may be debatable. Yet, it is unquestionable that Greece would need an extensive recovery programme to get back on its feet. A programme for once not accompanied by one-sided austerity measures, that much must be clear.

In the future the Greek government would need to pursue a predictable, consistent and well-communicated approach in its politics, and it goes without saying that Greece would have to continue fighting corruption and nepotism, properly equip public services, combat tax evasion and fraud more persistently and stop sparing the rich from contributing to the country’s welfare.

It is also clear that further structural reforms to attract investments and to strengthen local production in the country would also have to be implemented, yet once again: not hand in hand with austerity measures.

What does it mean for Europe?

The main lessons to be learned:

There can no longer be an EU monetary union without economic and social components. The aim must be to achieve a “triple-A on social issues, just as much as a triple A in the financial and economic sense”, as Europe´s political leaders have stated again.

In addition to that, the macroeconomic imbalances procedure must be strengthened because in the end many of the challenges that Greece and Europe are facing are similar: Preventing societal disintegration and returning to a strengthened role of social partners to defend and further worker rights.

In this context the crisis in Greece, which is also present in other parts of Europe, is in fact in an opportunity to change things for the better.

We just have to get the direction right. In the end, it is, as noted previously, a small price to pay for social peace and democracy.