“Europe is like a fruit salad,” says Frank Schwalba-Hoth, perched on the edge of his seat at the European Parliament’s cafe in Brussels. Normally, our surroundings would be a hive of activity but this week the MEPs have buzzed off to Strasbourg, the Parliament’s other home. But even if there had been a throng of politicians from the 27 member states around, the topic of discussion — Will Greece survive? Will the EU survive? — would have been too absorbing for us to notice.
Schwalba-Hoth, a German politician who was a founding member of the country’s Green Party and served as an MEP in the 1980s, is engaging company. He now works as a networker and consultant in Brussels and his knowledge of the workings and history of Europe’s institutions is unrivaled. He believes the Greek debt crisis and the threat it poses to the euro is just the latest in a long list of challenges that the EU, which traces its roots back to the European Coal and Steel Community founded in 1951, has faced in its long history.
“The financial crisis and the euro crisis are forcing the EU to deal with certain situations. That’s a normal process in any society,” he says. “During the Kosovo conflict, the Serbs proved instrumental in forcing a new element to EU policy being developed. Likewise, the Greeks and the Portuguese, and possibly others, will get a medal in 100 or 200 years for having helped shaped EU economic policy. History is being written at the moment.”
Greece was certainly at the forefront of European history last year when it became the first member of the eurozone to receive emergency loans from its partners and the International Monetary Fund. Since the 110-billion-euro bailout, events have not unfolded particularly pleasantly either for Greece or for some of its partners. German Chancellor Angela Merkel, who along with French President Nicolas Sarkozy are the locomotives that drive the EU decision-making process, have had to tread a fine line between holding Europe together and retaining their popularity at home.
Merkel has at times walked this line with all the poise of someone on their way home from the local beer festival after a stein or two too many. Her public comments, which the more colorful element of the German media have amplified, helped foster the image of Greeks as pampered slackers. The perception of a lazy, backward Southern Europe, compounded by Portugal’s bailout, has given rise to a new insularism in parts of Northern Europe. A prime example has been the rise of the True Finns. The nationalist party won almost 20 percent of the vote in Finland’s general elections in April and would have become a member of the coalition government were it not for its unswerving opposition to bailouts for other EU countries — a policy position that played a major role in the party’s rapid rise.
The fallout from the Greek crisis is testing the strength of the seams binding Europe. The way the EU responds to the challenge will define its future and, as things stand, there are no guarantees that the Union will survive this particular test, says another German, Fabian Zuleeg, chief economist at the European Policy Center think tank in Brussels.
“We are at the crossroads and for people like me who work at a European level, it’s too easy to think that Europe can just continue like this,” he says. “In European integration, there have been periods when we have gone backwards, there have been periods of sustained difficulty and we are facing a period when there are a lot of serious political, economic and social challenges.”
The European Commission lies a stone’s throw from Zuleeg’s sunlit office. The Berlaymont building, which houses the offices of Europe’s commissioners, stands as a monument to the progress the continent has made since it was torn apart by war twice in the 20th century. But for all the integration and shared decsion-making of the last few decades, the Greek crisis has exposed the EU’s weaknesses. Chief among these inadequacies is that monetary union has not been backed up by true fiscal and political union. The 17 members of the eurozone share a currency but not a strategy. The effort to draw up a common vision under the duress of the debt crisis has led to some rough scribblings rather than a clear outline.
For Zuleeg, though, the path to a more secure future is clearly visible through the mist created by burgeoning debts and escalating deficits. “I don’t know what direction we are going to go in but I have a strong belief that a common European solution is by far better than falling back onto the national focus,” he says. “History should teach us this much. It is very shortsighted to go back to a world where every country stands on its own. But we can’t stay where we are at the moment either.
“Unless we make a conscious choice that we want to move further towards integration, towards making sure that we are politically in the same boat, as we are economically, then we are going to continuously face the situation where he have to bail out, where we have transfers. Maybe next time it will not be Greece, maybe it will be someone else but it is not a sustainable political or economic solution.”
Given the growing euroskepticism within the EU, it is heartening to hear another Brussels resident, also a German, express support for greater integration. “One possibility is to strengthen European integration and to have a model that is closer to German federalism, where most of the important decisions are taken on a central level and not on a local level,” says Bernd Loescher, vice president of Union Syndicale Federale, the main federation of unions of the European and international public service.
“We have an article in the German Constitution that says the state must work towards guaranteeing the same life conditions in every part of the country,” he adds. “So there is an organized transfer from rich regions to the others, which does not depend on political will but is a constitutional obligation. This could work on a European level but it would imply giving up really important parts of national sovereignty and I do not see most member states wanting to give this up.”
A year on from Greece’s bailout, it is clear that many states have reservations about greater harmonization and integration. Countries like Germany fear they will end up paying for the weaknesses of other countries that fail to change their wayward ways. Some loose parameters have been set out on pensions and pay as part of Merkel and Sarkozy’s Competitiveness Pact. Also, the creation of the temporary European Financial Stability Facility (EFSF) — to be replaced by the permanent European Stability Mechanism (ESM) in 2013 — is a sign that the EU is gradually taking common ownership of the debt crisis. But as Schwalba-Hoth points out, the nature of the EU is to evolve rather than to make sudden changes, which could benefit Greece in the long run.
“The EU’s structures are not made for yes or no decisions, they are made for compromises,” he says. “It is a consenus-oriented structure because decisions have to be sold to a domestic audience. That’s why the others are prepared to stick with Greece, even if you have problems like with the populist party in Finland. The structure of the EU is not to kick someone out. It is always to find a way to reach a compromise.
“The aim is not to save Greece but to come out of this crisis for the benefit of all 27 and the rest of the world.”
Schwalba-Hoth argues that Greece, which this year celebrates 30 years since it joined what was then the European Economic Community, has always had a give-and-take relationship with Europe: The EU gave and Greece took, which has, in a sense, prepared both sides for the current difficulties. “Europe is like a fruit salad, not only because it is made up of various chunks but because to make a good fruit salad, you need good fruit. If you taste it, you understand that it would not be the same if some types of fruit were missing. One of the possible achievements of being a member of the EU is that your contribution to the fruit salad can be tasted.
“But I have a lot of problems identifying the Greek participation and if Greece magically disappeared from the EU, a lot of people here [in Brussels] would only realize it weeks or months later. Greece has not yet, and I stress yet, succeeded in adding its flavor to the fruit salad. The benefit for Greece [of EU membership] in the past was always receiving a little bit of money.”
During its 30-year membership of the EU, Greece has received the equivalent of 78 billion euros in Union funding. Beyond that, the European Investment Bank has also helped finance key projects such as the construction of Athens International Airport and the city’s metro system. While there is a strong argument that these funds were of great benefit to Greece, their disbursement did not coincide with the underlying problems in Greece’s economy and public sector being solved. So, whereas unemployment was 4 percent when Greece joined in 1981, it was never that low again over the next three decades. It now stands at 15.1 percent. The country’s public deficit 30 years ago was 9.1 percent of GDP; it is now 10.5 percent. Although inflation has dropped dramatically from 24.5 percent to 4.7 percent and average income has quadrupled to 19,400 euros per capita, suggesting greater prosperity for individuals, the country has not fared so well. It entered the EU with a public debt of 34.5 percent of GDP but an almost uninterrupted upward trajectory means that it has now reached 142.8 percent. That’s why Greece has gone back to Europe’s top table to ask for more money.
Wafting his hand in the direction of the Justus Lipsius building, the headquarters of the European Council, Schwalba-Hoth says: “There, prime ministers and presidents meet to take decisions. Sometimes it’s like a market, where they haggle over the content of policy. The Greeks rarely asked for stronger or weaker decisions in this or that field. They only offered opposition to get more money. That means Greece’s relationship to the European Union was like a child getting pocket money from its parent. Now, we are in a situation where there is a demand for a very large paycheck.”
Ultimately, money and the extent to which the Union’s richer members are willing to fund structured support for countries like Greece could define whether there is a real commitment to retain the ultimate symbol of European unity: its single currency. Merkel and several other leaders dread having to explain to their domestic audiences that pumping money into Greece, Portugal or any other country will ultimately strengthen their homeland’s cause. But the situation cannot remain as it is because Greece is on the hamster wheel of debt. It’s trying to repay the money it’s borrowing from European partners and their central banks at the same time as its economy continues to shrink and it is finding that the amount it owes just keeps growing. It appears to be a formula that only benefits the short-term interests of the lenders.
“The loans to Greece and Portugal are in fact new transfers from the poor states to the rich ones,” says Loescher, who argues that a political change at the heart of Europe is needed if the situation is to be salvaged. “I think the crisis will produce clearer contradictions that will require clear decisions from the European Union in the next couple of years. By that time, we could have more a progressive orientation in some governments, so there is reasonable hope that there will be a change in direction.
“I don’t think that the conservative and liberal parties that dominate most European governments would change the strategy they are pushing through. There is still hope that in countries like Italy, Germany and France, which are the EU’s main decision makers, there will be changes in the political majority in elections that are due to take place this year and next. I’m sure that a Socialist president of France would act differently.”
Under the added pressure of unconvinced markets and skeptical ratings agences, Greece might not be able to wait that long as it tries in vain to scramble away from what looks like an inevitable default. The government is now entering into a second bailout but in the view of many economists, it will not be enough to save Greece. Some of them are crying out that further measures are needed, measures that require those that form EU’s core to go against the grain and take quick, bold decisions such as encouraging private investors to accept haircuts on Greek bonds or at least longer maturities, using the European Investment Bank as a tool to fund more projects in Greece or even agreeing to part of the Greek debt being transferred to the European Central Bank and allowing Athens to repay it over a fixed period.
Without some creative and united thinking, Greece’s future in the EU looks uncertain and its presence within the euro will continue to be under severe threat. “There is a danger at the moment that we will just lose Greece, that we will not do what is necessary and that the impact on the Greek people is going to be extremely negative,” says Zuleeg. “Technically it is unlikely that it will leave the EU but it could become so marginalized politically and economically that it really won’t be a full member of the Union.”
During the 30 years it has been part of the EU’s colorful and tasty fruit salad, Greece has been steadily sliding to the bottom of the bowl, where it’s now drowning in debt. Bailouts only seem to be prolonging the agony and a genuine rescue plan depends on both Greece and the EU overcoming the failings of their long relationship.