Tag Archives: EU

EU should invest in Greece, not just lend it money

Brussels – A restructuring of Greece’s debt or a second bailout from the European Union and the International Monetary Fund coupled with austerity measures and structural reforms will not be enough to ensure the country’s long-term economic future, according to the chief economist at a leading Brussels think-tank who is urging the EU to generate greater investment in the debt-ridden country.

“The key here is to create a positive economic and political future,” Fabian Zuleeg of the European Policy Centre told Kathimerini English Edition. “It is abundantly clear now that simple austerity measures are not enough: they are not going to lead the Greek economy to a higher growth path. If we want to give economic and monetary union a long-term perspective than we need to find vehicles to channel investment from the stronger countries to the weaker countries: true investment, not a transfer – something that will give returns.”

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Restructuring? It’s child’s play

Graffiti by Absent

Anyone who is a parent or has looked after a small child will be familiar with the dreaded moment when a toddler tells you, “I didn’t do anything.” Once you hear these words, it’s a sure bet that you will find food on the floor, toys smashed to pieces or crayon scrawls on the wall. But it’s not just kids that employ these naively transparent methods, politicians are pretty adept at using them too.

It was, therefore, pretty easy to see through the government’s spin doctors this week as they insisted that the issue of debt restructuring did not come up at all during a meeting in Athens between Prime Minister George Papandreou and renowned financier George Soros. Visiting George did not mention the subject even once, government sources told journalists.

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Long live Europe, but which one?

Illustration by Manos Symeonakis

Europe is dead. Long live Europe. The demise of the political and economic union, as we knew it, became evident at the recent meeting of European Union leaders in Brussels. What is less apparent is which Europe will replace it. A rapidly changing world has forced the once-untroubled Europeans to think again about where their continent is heading and how it will get there. The decisions taken over the next few weeks and months will determine whether a brave new world lies ahead or whether we will be left clutching the remnants of a flawed past.

The February 4 summit confirmed that the European project, built on the expectations of decent salaries, respectable retirement ages and an abundance of jobs, mostly in the service sector, has reached its expiry debt. The “social Europe” envisioned by, among others, former European Commission President Jacques Delors, where workers’ rights were protected and adequate public services were available to all, has fallen victim to circumstances. The sovereign debt crisis has been a major catalyst in this, but the Union faces much wider challenges than just how to deal with debt and deficit problems.

Although one EU government after another has been cutting its spending and trimming the fat from its public sector over the past couple of years, February 4 proved a watershed in the process of sacrificing the old Europe at the altar of the new economic reality. French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled their “pact of competitiveness” as a strategy to help the eurozone out of the crisis and to harmonize economic and social policies between the 17 members. The six-point package includes proposals to increase each country’s retirement age to reflect its demography, abolishing automatic inflation-linked wage increases and setting an across-the-board minimum corporate tax rate.

The proposals have divided Europe, not just because Merkel and Sarkozy continue to forego consensus in favor of maintaining an agenda-setting momentum, but because some of their suggestions go against the European grain. “I can’t really detect a reason why abolishing the indexation of wages should improve the competitiveness of my country,” said Luxembourg Prime Minister and head of the Eurogroup, Jean-Claude Juncker. “This is not a competitiveness pact, it’s a perverse pact toward lower living standards, greater inequalities and more precarious employment conditions,” said John Monks, head of the European Trade Union Confederation.

The six-point plan is cast in the mold of the EU’s two dominant economies: the French and German — particularly the latter. But those who oppose the competitiveness pact argue that in a Europe that is not homogeneous, creating more economies in the image of Germany’s is unfeasible and undesirable. “The German model, which relies on a permanent trade surplus is neither sustainable, nor transferable,” wrote the left-leaning German daily Berliner Zeitung. “It works as a model for a selfish nation that floods the neighborhood with its goods and services and exports unemployment at the expense of others.”

“What the chancellor is proposing is a pact of insanity,” concludes the newspaper. “Europe doesn’t need more Germany, rather it needs more cooperation and community.”

However, there are many within Europe who think that Merkel and Sarkozy are on the right track and that although their proposals may reflect a grim reality, it’s reality nonetheless. “The competitiveness pact is a step in the right direction because it means that we are not discussing just narrow economic governance — having more rules — but the broader approach about what competitiveness is as well, and how we will ensure that what has happened over the last two years does not happen again,” Karel Lannoo, CEO of the Center for European Policy Studies told Kathimerini English Edition.

“It is much more important to have disagreement on issues of competitiveness, such as real unit labor costs and how to run public finances, than to have even more rules in the Growth and Stability Pact or balancing the budget. It’s much better to have agreement on broader principles and have them effectively applied.”

Merkel and Sarkozy, some believe, are trying to drag an aging Europe toward economic pragmatism; the lofty ambitions that accompanied the euro for the past decade and the dreams of social security and stability that have formed the cornerstone of the EU will have to be tempered, if not completely abandoned. The debt crisis triggered by Greece’s spectacular unravelling lit the blue touch paper for this dramatic reconceptualization but there is more to it than that. China is the dragon in the room that Europeans are only starting to talk about it now.

China has become a key trading partner for the EU and, in cases such as its purchase of Portuguese, Spanish and Greek bonds, is actively trying to help Europe through this crisis because it values having a reliable trading partner and a counterbalance to the influence of the USA. However, China has also become a competitor because of its meteoric rise in the production sector. The market dominance that has come with it has reminded Europe, that its service-based economy is not strong or versatile enough to withstand the force of the crisis, that it no longer makes things, that its industries are in decline and that it has little capacity for creating new jobs at a time when they are needed most.

Last December, China said that it had created 57 million manufacturing jobs between 2006 and 2010. Between 2008 and 2010, the EU shed almost 5 million jobs in industry while seeing its unemployment rate grow to an average of more than 10 percent and an increasing number of people (40 percent of the EU’s young) working in temporary jobs.

“A little while ago we declared that we were in the post-industrial age and this had a huge impact on such things as the structure of education: we didn’t have any engineers — it was more in vogue to become a psychologist than an engineer,” former Regional Policy Commissioner and current MEP Danuta Hubner told Kathimerini English Edition. “There were a lot of factors that made industry much less important in our economy. And then there is China, which is a completely new factor, which is competing with us mostly in industry and agriculture but not yet in the services. So, now we have to think about creating jobs in the real economy.”

Merkel and Sarkozy’s “competitiveness pact” suggests what underlying conditions, such as low debt and a more flexible and cheaper workforce, might be needed for growth to return to Europe but it still doesn’t propose how jobs will be created. This is an issue that the EU is only beginning to grapple with and the proposals on the table still seem nebulous. It is not clear if the focus has to be on better education, more research or gearing up industrial production. Will the new jobs be in laboratories, on factory floors or in design studios? If the plan is to improve the skills and knowledge of the next generation to give Europe the edge over China, India, Brazil and any other competitors, will Europe be able to survive a lean period in the intervening years? These are quandaries that the EU, collectively and individually, has yet to really address.

At a central level, the European Commission unveiled last October its plans in a communication titled “An industrial policy for the globalization era,” which called for initiatives to create more favorable conditions for industry, including simplifying legislation and offering financial incentives. However, this was somewhat contradicted by EU Research Commissioner Maire Geoghegan-Quinn, who at the beginning of this month said that Europe has to focus more on innovation, which would involve reforming education and investing more in research and development. Last year, the EU adopted the 2020 strategy as a successor to the Lisbon Agenda, which had sought to make Europe a “knowledge-based” economy. The 2020 strategy aims to set targets for reducing the number of early school leavers, increasing the number of people in employment and boosting investment in research and development. The chances of these targets being met in Greece, Ireland or debt-burdened Portugal, for instance, seem slim. Beyond this, the strategies and goals of the individual states have to be taken into account as well. Europe, it seems, is lost in the fog created by the debt crisis, unsure of which way to turn.

“There are still people in important European institutions who believe that just by training people you can create jobs, which I don’t think is really true,” said Hubner. “You still need investment, not just any investment; you need investment that is not just allowing us to compensate for what we lost in the crisis but to have a new type of production that will let us compete with everyone else.

“That’s why we want to focus on the knowledge that comes from education and innovation. We also have to look for jobs in combating climate change. You have to use the European budget to help with this because it has a strong catalytic function, and you must have national budgets working. We have to push for the European Investment Bank to have a greater role. But it is still not enough; we cannot create jobs without private capital,” said Hubner.

The Europe of the future, it seems, will have to turn back the clock by rebuilding a production base, albeit one that will rely on small and medium-sized enterprises pumping out innovative ideas and products rather than large factories pumping out carbon emissions.

“We have to invest in things that generate competitiveness,” said Hubner. “We don’t want just any growth but very concrete growth because we are losing jobs to India and China overnight.”

Although China is reportedly losing some labor-intensive manufacturing jobs to countries like Bangladesh, Vietnam and Cambodia because they offer even lower wages and more unskilled labor, it is still an immensely cheaper place to make things than Europe. Compensation rates for workers in China are estimated to be no more than 5 percent of those in Europe. So, even if European wages are suppressed, as Sarkozy and Merkel’s pact proposes, competing with China or India on labor costs is out of the question.

“I don’t believe that you can change Europe’s development model to compete with China,” said Hubner. “We have to invest in productivity.”

This argument is the starting point for those within the EU who say the answer to the Union’s problems is not becoming more like China, but becoming more like Europe. In other words, it must not stake its future on an export-driven economy supported by cheap, precarious labor but find a better way to harness the potential of a highly developed group of states with a combined population of more than 500 million people.

“At the moment, Europe is one of the most competitive regions in the world,” Jurgen Klute, an MEP for Germany’s leftist Die Linke party and a member of the European Parliament’s economic and monetary affairs committee told Kathimerini English Edition. “This talk [of competitiveness] is only designed to build up psychological pressure on people. It’s not reality.

“We have to look to be competitive but that is only one aspect. We should not focus just on the Chinese, we have to be focused on our own market and development. We have to organize a production sector, a service sector and a sector for delivering goods for our own population. That should be the first goal of every politician in Europe.”

The concern of many in Brussels, and other European capitals, is that Merkel and Sarkozy are pushing an agenda, which is to be reassessed at the next EU leaders’ summit on March 24 and 25, that suits them and their economies but not necessarily the rest of Europe. Their insistence on concluding their business behind closed doors and then presenting other European leaders with a fait accompli is heightening fears that rather than bringing the EU together so it can meet its new challenges with a united front, the Franco-German allies could cause irreparable differences.

“There was no democratic control over the discussion that happened,” said Klute. “Merkel and Sarkozy are trying to change the culture and procedures of the EU. In the past it was clear that you have to find compromises and balances.

“The Council [of EU leaders] is focused only on the single state, not the relationship between states. They ignore that there is a relationship between the deficit of some countries and the surplus of other countries. If there is to be solidarity, then the stronger states have to reduce their speed a little bit.”

The EU is not just facing an economic dilemma, it has an existential question to answer about how its decisions are taken and where these decisions lead, Klute suggests.

“There has been a change in the understanding of how the EU should develop, in the understanding of solidarity and of the democratic process. It’s a very big change in the direction of the EU.”

The issue of competitiveness, as set out in Merkel and Sarkozy’s proposals, therefore seems to be a misleading one. Few people have better first-hand experience of European affairs than Pierre Defraigne, the executive director of the Madariaga-College of Europe Foundation, who served as a European civil servant for 25 years. He is adamant that tweaking wages and retirement ages will not be enough to save Europe. He believes there needs to be a concerted effort to transform Europe into a much tighter-knit community with a specific economic agenda.

“The first thing I would do is to delete the word ‘competitiveness’ from the vocabulary of politicians and economists,” he told Kathimerini English Edition during a seminar organized by the European Journalism Center. “We have to climb up the technology ladder. This is a matter of public policy and small firms — start-ups and so on — and of large firms, of champions. We don’t have the right system and we are still just an economic space, a market; we are not really an integrated politico-economic system.”

Defraigne suggests that Europe can have an industrial future but that it will need to find the appropriate mix of labor market and social policies to achieve it. To reach this point though, Europe will need a level of coordination and harmonization that it has only flirted with in previous years. It seems that the EU’s political and economic viability is reliant on the bloc’s politicians and opinion-makers being able to redefine what this Union is about.

“For me, the key issue is to give Europe a sense of direction, a sense of purpose,” said Defraigne. “The half-century of effort we have carried out successfully will be legitimized in history if we move to closer political union.”

With just over a month until its leaders meet again for a crucial summit in Brussels, the EU must begin redefining itself. Visions must be reconjured, goals reset and strategies redrawn. In the meantime, the words of Delors, one of the architects of the Europe that is now crumbling like a desiccated sand castle will ring poignantly through the corridors of power. “The problem with a purely collective system,” said the Frenchman, “is not only that it requires economic growth, and the right sort of demographic trends, but that it prevents people thinking about their futures in a responsible way.” A lack of growth and the unfavorable demographic trends have forced Europe to emerge from its cozy collectivity and think about its future. Now we wait to see which Europe will emerge from this process.

Nick Malkoutzis

Reaching the age of consensus

Illustration by Manos Symeonakis

It was ironic that as the Greek government supposedly went in search of consensus last week, the streets of Athens should look just like the streets of other European capitals. As Prime Minister George Papandreou embarked on his doomed attempt to reach agreement with opposition party leaders, the only place where there seemed to be any unity of opinion was on the streets.

Student protestors in London raged against a coalition government pricing many of them out of university education, Italians vented their frustration at the seemingly impossible survival of Prime Minister Silvio Berlusconi while in Athens private and public sector workers expressed their anger at the latest set of reforms that are changing the face of Greek society.

Amid this turmoil, like the fishing boat skipper setting out for sea as the perfect storm looms, Papandreou cast his nets in the hope of catching a public relations victory. His effort to achieve “consensus” can be seen as nothing else but a frivolous foray into the choppy waters of political gamesmanship when there are much more pressing issues to deal with, such as thousands of Greeks losing their jobs and the country going through a violent adjustment to economic reality.

At a time when Greece, as well as many other countries in Europe are beginning to resemble the fractured British society of the Margaret Thatcher years, one of the former UK prime minister’s comments comes to mind: “To me, consensus seems to be the process of abandoning all beliefs, principles, values and policies. So it is something in which no one believes and to which no one objects.” It perfectly sums last week’s aborted attempt to build accord between the parties.

Ostensibly, Papandreou invited the other party leaders for talks to find common ground on the challenging reforms prescribed by the European Union and the International Monetary Fund and to adopt common positions ahead of the EU leaders’ summit in Brussels at the end of last week, where politicians were due to agree on the details of the permanent support mechanism for members with sovereign debt problems. In reality, though, there were no grounds for believing that any of the political leaders would agree to common positions on the reforms or on what positions Greece should adopt at the EU negotiations.

It was delusional to expect any kind of understanding on the structural changes given that they were due to be voted through Parliament a few hours after the party leaders met Papandreou. It’s no formula for success to encourage someone to join you on a journey when your bags are already packed, the keys are in the ignition and the engine is running. Understandably, none of the other leaders decided to jump in the moving vehicle. As New Democracy chief Antonis Samaras pointed out, there is a world of difference between “consensus” and “consent.” None of the other parties had been consulted about the content of the bill on the restructuring of public utilities such as the Hellenic Railways Organization (OSE) and the redrafting of labour laws. Once the legislation has been submitted to the House, the role of the opposition parties is to debate it and then vote for or against it – the time for consensus-building has passed. But even at this late stage, the government did all it could to antagonize the opposition rather than encourage unity by submitting the reforms as an emergency bill and thereby limiting debating time to an absolute minimum. It’s no surprise that the Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras decided to boycott the talks with Papandreou – being portrayed as an accessory to policies you do not agree with, nor have had any part in shaping is not something that any young politician wants to have on their CV.

The reasoning that Tuesday’s “consensus” talks would firm up Greece’s positions ahead of the EU leaders’ summit was also feeble. Papandreou had already made his government’s ideas on some of the key issues crystal clear both at home and abroad. He had been shouting from the European rooftops for some time that Athens was in favour of the creation of a Eurobond and against private bondholders having to accept lower returns, or a “haircut”, on their investment as part of a permanent bailout scheme. It’s implausible that Papandreou would have suddenly performed a volte-face because Communist Party (KKE) leader Aleka Papariga or the Popular Orthodox Rally’s (LAOS) Giorgos Karatzaferis expressed misgivings. As it turned out, the Brussels summit was a damp squib rather than a landmark moment demanding national agreement from all of Greece’s politicians.

There is no doubt there are few choices in the sticky position Greece finds itself– there is never much wiggle room when you have been backed into a corner. But this doesn’t mean that everyone has to agree on the course being followed to get Greece out of the crisis. After all, it has never been the role of any opposition to provide the sitting government with succour. Its duty has always been to challenge the government’s policies, to highlight its failings and to offer alternatives. One area where Greece’s opposition parties can be seriously criticized is not in their inability to find common ground with PASOK but in their failure to provide plausible alternatives. Samaras developed a pie-in-the-sky scheme to wipe out Greece’s debt by the end of 2011, which was roundly rejected in the November local elections. In democracies, opposition parties have and always will be judged by the quality of their opposition, not the level of consensus they achieve with the government.

Greece is going through a period of immense upheaval, during which, as Samaras said “the terms by which millions of Greeks live are changing.” Clearly, if everybody agreed on the recipe for change, this process would be straightforward but it would also mean our living, breathing democracy would be brain dead. If people are not to question their government’s choices now, then when? Why shouldn’t voters or politicians doubt the efficacy or fairness of some of the EU-IMF-prescribed decisions?

From the latest package of reforms, for instance, few would argue with reducing wages at public enterprises, where many employees had built cash-lined fiefdoms, and cutting costs at public transport companies that are losing taxpayers’ money by the bus-load. In fact, New Democracy supported these provisions, proving that you don’t go in search of consensus; you build it around your ideas. In contrast, it was much more difficult for the opposition parties to back the articles of last week’s bill that allow companies to bypass collective labour contracts by offering employees in-house deals. This is a clear challenge to the rights of employees in the private sector, who unlike their pampered public sector counterparts have only been enjoying the protection offered by collective contracts since the 1990s. These agreements, which blossomed after Greece’s entry into the EU, are designed to give workers more reasonable pay and conditions and shelter from unscrupulous bosses, of whom there are many in Greece. As such, they are completely in keeping with the EU’s ideal of creating fairer, more socially conscious societies. To strip away these rights, which include respectable compensation deals for sacked employees, as jobs dry up and Greeks have to think about how they’re going to feed themselves and their families only increases the sense of insecurity.

Equally importantly, it’s an affront to the section of Greek society that has carried the country for the last few decades. Private sector workers, of whom there are about 2 million in Greece, have been the ones who have consistently paid their taxes and social security contributions – after all, their wages are taxed at source. Whether the employers who have withheld this money have been equally diligent is another question. Yet, despite their unswerving dedication to fairness and the advancement of national cause, it’s these workers that find themselves being punished by the latest measures, which look like a precursor to collective contracts being scrapped altogether and private sector wages being forced down.

In this climate, therefore, it seems unrealistic, almost offensive that voters and opposition politicians are being asked to give their consent without the government making any effort to win what is a crucial argument. The bypassing of Parliament and collective contracts and the mantra that “there is no alternative” does not make for a healthy democracy, or for a public that can find much good in the measures. It’s a mix that leads to people losing their belief in the political system and seeking answers, a voice and, in some cases retribution, on the streets. After all, the way things are going, this is where an increasing number of Greeks will find themselves anyway.

This commentary was written by Nick Malkoutzis and was published in Kathimerini English Edition on December 20, 2010.

Crisis? What Crisis?

Illustration by Manos Symeonakis

I’d heard it said many times, in many ways but never with such clarity. It fell to Thanassis, an advertising company employee vacationing on Serifos to deliver a wonderfully succinct assessment of the country’s mood. “Everybody is waiting for September without knowing whether it will be a new beginning, or the beginning of the end,” Thanassis, who clearly has a flair for dramatic turns of phrase, told Agence France-Presse. All his experience as an advertising executive didn’t prevent him from not only jumping on this particular bandwagon but riding it all the way into the imaginary Doomsday sunset like a champion jockey.

September is no longer just any month in most Greeks’ minds, it’s a mystical watershed, a moment in time when clocks will stop, spoons will bend and fish will jump out of the sea. Spurred on by journalists and commentators who can’t resist stirring up a hornet’s nest and politicians who are desperate to be part of the madding crowd, Greeks have become obsessed about September being the month when time will catch up with Greece and lash them viciously against the rocks of hardship.

Of course there will be some tough times in September: the government will begin taking on the closed professions as it starts its liberalization program; a drop in tax revenues due to reduced household spending will require new austerity measures that could include more VAT hikes and spending cuts, and, our IMF and EU overseers will be back to check our books. But, hold on a second. Isn’t all this starting to sound a little familiar? Sure, September will bring new hardships but it’s not like January through to August has been a walk in the park. It was only a few days ago that the head of the IMF mission in Greece, Poul Thomsen, said that “Few European countries have produced so many reforms in such a short time.”

Is it possible that a quick dip in the Aegean and a couple of tequila slammers over the summer has made us forget all this? Don’t we remember how many experts predicted Greece would be bankrupt before the summer, the euro was facing imminent collapse and the EU would implode? Well, here’s some news: the euro has gained 10 percent against the dollar over the past two months, the risk premium on Spanish, Italian and Portuguese government debt has dropped and data published earlier this month showed the German economy grew by 2.2 percent in the second quarter of this year, its best performance since reunification 20 years ago. Sure, the spread on Irish bonds inched up last week and Slovakia says it won’t stump up the cash for Greece’s rescue package but it’s far from the apocalypse many dreaded.

Most bold predictions have been undone and, if anything, several months on from when the debt crisis began, the only thing we can say with any confidence is that there are more unanswered questions than when we began. It seems certain as we continue this fascinating journey into uncharted territory that September will not be a new beginning or the beginning of the end; it will be just another month in a long, hard slog as we adapt to a whole new set of parameters.

Each bump along the road will not only jolt us but it will enlighten us and, hopefully, inch Greeks closer to achieving a more stable and fairer future, free from the favoritism and myopic thinking of the past. To appreciate how the crisis has shaken things up, we only need to look at how Greece has gone from being an inert country not just gathering dust but accumulating it in huge piles, to one that finds itself at the coalface of the global economy. It used to be that reforms only existed so we could create more shelves to put them on but this year we have seen changes pushed through with breathtaking speed. Not too long ago, Greek prime ministers seemed to only venture abroad if the shopping was good but now George Papandreou is racking up more air miles than George Clooney as he seeks to preach the good word about Greece’s gallant fight with its economic demons and grab a seat at the table where the big players take decisions.

The crisis has been good for Greece. It’s created the best chance the country has of achieving catharsis and tangible change. Critics, though, will argue the process is devalued because Greece is following the instructions of foreigners. In fact, New Democracy, after almost a year in opposition, has decided this is the government’s Achilles heal. Lately, the conservatives have taken to calling Papandreou and his team “the memorandum government” in reference to the agreement Greece signed with the EU and IMF to obtain 110 billion euros in loans. Yes, it’s taken nine months to come up with this dazzling repartee. However, if the wisecrackers at ND headquarters could sew their split sides back together for a moment, they’d realize that after the flaccidness of their five years in office, it really doesn’t matter where the instructions are coming from. What counts is that the status quo, which worked in favor of the few, is being confronted. It’s natural that only outsiders could instigate this challenge since our own decision makers – some of the members of the current PASOK government included – were draughtsmen of, and shareholders in, the previous, failed system.

New Democracy, like all the political parties, is preparing for the November local elections, which are expected to be a litmus test for Greek politics. Some big name politicians want to avoid throwing themselves at the mercy of the electorate and the big parties intend to take a much more low-key role than usual, allowing local politicians to form their own alignments and groupings. The fact that rather than being drawn to power, politicians and parties are daunted by the prospect of being scrutinized or having to answer to the public is evidence of how the crisis is reordering things in Greece.

So, this September, instead of being cowed by the doom-mongers and naysayers, let’s take heart from the potential of our situation. Like so many other European countries, for Greece the next decade will be about taking steps to bring its debt and deficit under control. With that come some very harsh measures, as we already know, but, unlike other European countries, it also presents Greece with the opportunity to right wrongs, correct injustices and rebuild our dilapidated structures. That’s why we should not fear the crisis, but embrace and master it – it could be the only opportunity we have to press reset rather than the self-destruct button.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on August 20, 2010.

Life, but not as we know it

Illustration by Manos Symeonakis

It’s a scene that is becoming very familiar to people across Europe: A newly elected leader addresses his nation and blames the previous government for its “total irresponsibility” which has left a “terrible legacy” of seriously compromised public finances, which are in an “even worse state than we thought” and which will require “painful” but absolutely necessary cuts. Earlier this year, it was George Papandreou delivering this stark message — British Prime Minister David Cameron reprised the role this week.

A few days earlier, the scene had been repeated in Hungary, which, like Greece, has borrowed money from the European Union and the International Monetary Fund. The claims by government officials in Budapest that the previous administration had disguised the poor state of the local economy and that the public deficit would be bigger than expected, sent the type of shockwaves across the continent and international financial markets that only Athens had been capable of until recently, as concerns about a Hungarian default stoked another round of fear about the future of the euro and the EU.

Apart from Greece, Britain and Hungary, Ireland, Spain, Portugal, France and Italy have all had to take steps – albeit less austere than the Greek ones – to rescue their public finances. Even Germany, Europe’s economic powerhouse and the metronome for stability within the Union, announced this week that it’s seeking to make more than 80 billion euros in cuts over the next few years. Until now, there has been unease about European countries being too disparate in economic terms but, ironically, the current debt crisis has suddenly given them common points of reference. It’s causing people across the continent to ask two key questions: “Why are we in this position?” and “How do we get out of it?”

There are two aspects to why so many European countries find themselves in a mess: the economic and the political. In terms of the economic failings, the EU simply found itself unprepared for the consequences of the financial crisis that began in the United States two years ago. A failure to reduce debt when European economies were booming meant that the onset of recession — which also coincided with the use of public money to prop up the private sector, especially banks — has saddled many countries with unprecedented debt and exposed an Achilles’ heel that speculators can exploit.

“The banking crisis has mutated into a sovereign debt crisis; the weakest members of the eurozone are targeted because the euro is a comparatively new currency lacking sufficiently strong institutional foundations, and because markets doubt the ability of the weaker countries to manage their debt problems,” the editorial director or the European Council on Foreign Relations, Thomas Klau, told Athens Plus.

This implies that the real roots of the crisis lie in the political arena. Just as governments across Europe have tried to mask the real size of the problem, often leaving it for the next administration to deal with, so for a number of years, the politicians of various ideological persuasions that held power found it easier to go with the flow rather than develop a long-term plan. Instead of making hay while the sun shone, they simply sat back and soaked up the rays. What happened in Greece, more than anywhere else, has driven this point home. “Greece stands as a warning of what happens to countries that lose their credibility or whose governments pretend that difficult decisions can somehow be avoided,” Cameron said this week.

There are few who would argue with him. “I think that the political inadequacies are most pronounced in the Greek case and to a lesser extent in Portugal,” Professor Iain Begg of the European Institute at the London School of Economics told Athens Plus. “In the other cases, it is more that – as with banks like Northern Rock or Lehman Brothers – the business model is no longer as viable as it used to be and that has fueled market scepticism. Let’s not forget that Spain actually scored pretty well in relation to the fiscal rules, even if, with hindsight, we can now say that it ought to have been running a budget surplus.”

These inadequacies, which an unnamed German official described to the International Herald Tribune’s John Vinocur as “a decade wasted through a lack of frankness and realism,” have left many European countries, the single currency and millions of people at the mercy of markets, which have now become the sole judges of economic policy. The response to this situation, therefore, must be one that is deeply political and carries serious conviction. “Because EU members were caught misrepresenting their finances with the passive acceptance of France and Germany for a decade, no response or solution that is based on a statement of intention rather than a legally binding undertaking is likely to lead the markets away from their hair-trigger surveillance of the euro and Europe’s solidity,” wrote Vinocur in the IHT this week.

The political solution to this problem must first come at an individual state level. “In the UK, the problem, I suspect will prove to be reasonably easy to manage but in Greece, the whole approach to the public sector needs radical change,” says Begg. “In Spain and Italy, labor market and welfare reforms will require political courage and leadership.”

This decisiveness then has to be replicated on a collective level as well. The IMF said as much in its report on the European debt crisis this week. “Crisis management is not an alternative to corrective policy actions and fundamental reforms needed to reinforce the foundation of the European Monetary Union,” the Washington-based fund said in the wake of European finance ministers agreeing to commit 440 billion euros to a rescue fund for debt-ridden EU members, which the IMF will also participate in.

In practical terms, it means that common policies and instruments must be devised along with checks that it is in everyone’s interest to adhere to. “What this crisis has shown is that the euro countries must accept a much stronger degree of shared sovereignty over their public finances and economic policy to ensure the long-term survival of their currency,” says Klau. “A monetary union needs a political union, as the Bundesbank wrote 20 years ago.”

Instilling this level of togetherness is going to be a massive challenge. If controling their debt in the midst of a recession appears an elusive goal for EU countries, then getting them to work in harmony toward this will seem like trying to pin down a greased greyhound during a torrential rainstorm. Already this week, Britain has rejected the notion of presenting its national budget to Brussels before submitting it to its own Parliament. The newness of the debt crisis means that political leadership and consensus will take some time to emerge but recent history indicates our futures depend on it eventually shining through.

“The decisions we make will affect every single person in our country, and the effects of these decisions will stay with us for years and decades to come,” Cameron told his audience this week as his government began reviewing its planned spending cuts. “How we deal with these things will affect our economy, our society, indeed our whole way of life,” he added. The Conservative Party leader will probably never utter more accurate words during his premiership. In fact, our way of life is already being transformed. What it changes into will depend on the political decisions taken over the next few months.

This commentary was written by Nick Malkoutzis and appeared in Athens Plus on June 11.

Germany, a cold case

Dortmund – It used to be said that if the United States sneezed then Mexico caught a cold but in the German heartland of North Rhine-Westphalia, you get the impression that as far as the European family is concerned there has been a reversal in the relationship between the economic superpower and the lesser associate and that Greece’s sniffles are causing the Germans a big headache.

There was a state election here on May 9 that Chancellor Angela Merkel’s party lost. Her reluctance earlier this year to commit quickly to a rescue package for Greece was partly down to the fact that she didn’t want the coalition government – made up of her center-right Christian Democrats (CDU), its Bavarian sister party the Christian Social Union (CSU) and the pro-business Free Democrats (FDP) – to suffer a defeat in North Rhine-Westphalia and lose its majority in the Bundesrat, German Parliament’s second legislative chamber. But this is not turning out to be Merkel’s year and that’s exactly what happened.

Although there is no conclusive evidence to prove that the Greek crisis was the decisive factor in her party’s defeat, it did appear to have some impact. Pollsters Infratest dimap found that the Greek crisis was “important” or “very important” to 52 percent of voters. On the other hand, 47 percent said it wasn’t important. The actual election result was equally ambiguous as it didn’t leave the opposition Social Democrats in a position to form a center-left coalition to govern the state and negotiations about who will do so are still continuing. But maybe it’s in this absence of a clear cut message that one can find the true effect of the Greek crisis. Above all, it seems to have disorientated the Germans –  Merkel and her citizens appear to be confused about what kind of Europe they want and what role Germany should play within it.

Merkel had wanted to bring a “culture of stability” to the European Union but her actions have been more schizophrenic than stable over the past few months. First she procrastinated over whether to come to Greece’s aid then she allowed French President Nicolas Sarkozy to play the lead role in constructing an unprecedented 750-billion-euro EU support framework for debt-ridden countries. Now, Merkel has sprung into action and over the last few days has called for a global levy on banks and the creation of a new European credit rating agency, as Germany unilaterally banned naked short selling of eurozone government bonds and other securities.

This has all played out against the backdrop of a divided domestic opinion – 52 percent of Germans support the Greek aid package and 43 percent are against it according to a poll by Forsa for Stern magazine on May 5 and 6. In North Rhine-Westphalia, Germany’s richest and most populous state, it’s easy to see why Greece’s debt and borrowing problems seem like a world removed. Whereas Athens has been faced with interest rates of more than 7 percent above the German bund rate, North Rhine Westphalia is paying just 0.35 percent more than Berlin to borrow money. Equally, committing funds to bail out Greece galls some Germans when their government has agonized over whether to prop up Opel, the local subsidiary of General Motors, and the Karstadt department store group. Maybe it’s no surprise that Germans are split over the way forward.

There is a feeling, however, that this indecision starts with Merkel. “Her whole governing style in domestic politics since she became chancellor has been one of hesitation, cowardice, not taking a stand, not doing what a leader should do,” Florian Hassel, a business reporter for Die Welt daily told Athens Plus.

“Her lack of solidarity with Europe this year has made many Germans feel extremely uncomfortable,” Daryl Lindsey, the editor of the online version of German weekly magazine Der Spiegel told Athens Plus. “The idea of Germany being isolated in Europe is horrifying to most Germans because the country’s strong role in fostering European integration is a large part of what has created the modern Germany which has been able to move forward from its difficult history.”

Having a flummoxed Germany as the EU is facing a cascade of new challenges could be a disaster for the Union, especially when the problems the euro has run into mean that more, not less, cooperation is needed. “It has become apparent that the euro was a fair-weather construction from the beginning and that you cannot have an economic union in the long run without a political one,” says Hassel. “But as few Europeans are willing to move forward with a political union, we have a crisis on our hands which will last a long time.”

However there is some hope that Germany will snap out of its stupor. The swift agreement between EU leaders earlier this month to put together the 750-billion-euro guarantee was “close to a miracle,” according to Lyndsey who thinks it’s a sign that Germany could yet be a champion of European solidarity. “It actually shows the extent to which European unity already exists,” he says. “If Merkel is ready to state that the threat to the euro represents an existential threat to the European Union, then I think she and the Germans are ready to fight to save it.”

Germany’s participation in the so-called “shock and awe” package, which may reach some 150 billion euros, was approved by the country’s Parliament last week. It could prove a pivotal moment for Germany, which has profited so much from membership of the EU and eurozone, which are captive markets for its exports, just at his from its business, banking and defense dealings with Greece. “We’re doing this in our best national interests… the common European currency has been a huge benefit to Germany,” said Finance Minister Wolfgang Schaeuble before last week’s aid vote. “Without the euro, we would have a much weaker economy, a much weaker Germany.”

It’s clear, though, that much more than the future of the euro and the continent’s economic stability is at stake. The crisis is not just an economic one, at its root it is political. The real question being asked of EU countries is not what fiscal policies they should follow but how closely coordinated and managed they should be. In other words, how much solidarity is enough and how much integration is too much? “It isn’t just about a currency but about the European project per se,” Germany’s former Foreign Minister Joschka Fischer told Der Spiegel in an interview this week. “It’s about the issue of whether Europe is strong enough and has the common desire to defend its project against external attacks, in this case, by speculators.”

With the stakes so high, we may see a much more decisive Angela Merkel from now on, suggests Lindsey. “There has always been a feeling in Germany that Merkel’s background as a scientist is too often reflected in her political decision-making. Logic and reason are comforting in situations that permit slowly calculated decisions, but that scientific thinking appears to be incompatible with fast moving markets.” He believes the criticism she has received for dithering over key European issues “is likely to be highly motivating for the German chancellor.” He also thinks public opinion will gradually swing behind efforts to bolster the union. “The money required to save the euro will directly affect German quality of life, but people are slowly coming to terms with this now and they know that the alternative would be far worse.”

In the meantime, we wait to see if Germany has contracted a common cold that it will soon recover from or whether it has a case of pneumonia that could prove deadly, not just for the patient but for the rest of the family as well.

This commentary was written by Nick Malkoutzis and appeared in Athens Plus on May 28.