Τρίτη, 25 Ιουνίου 2013

Do We Need More or Less Europe to Escape the Crisis? Chapter Two: Watchdog of Last Resort

The thing is, we are not good at managing our own affairs. The Greek administrations of the past 40 years or so have been spending profligately, in order to maintain their ties to groups of voters and special interests; the spoils system in hirings at the public sector, which even a constitutional amendment in 2001 failed to curtail, was a prominent way of exchanging public money for votes. Another actor was the system of public work contractors, who also happen to control most of the media and have a lot of influence in the banks operating in Greece - they were not to be deprived of their share of the public purse, either. These factors, combined, meant that each Greek administration had to somehow justify new public works and overlook the faults in those already under contract, tilt the bidding procedure in favor of its "allies" and find ever more original excuses for more hires in the public sector. Conversely, there was no reason to shut down agencies or foundations funded exclusively by the State - quite the opposite.

This situation created a barrier, where even the democratic procedure in itself led to distorted results, as voters were selecting parliament deputies with their mind on short-term gains and complete disregard for the long-term implications of their choices. The result was Greece's huge debt and deficits and subsequent inability to borrow from the markets at reasonable interest rates. Although Greece was bound by the Stability Pact, according to which no European Union member-State was allowed to have deficits exceeding 3% for more than 3 years in a row, falsified statistics meant that the pact's enforcing mechanism, which would be the European Commission, failed to take any remedial actions. When it was finally announced that the greek deficit had exceeded 12% for the year 2009 (it was later readjusted to 15.5%), Greece had to resort to a new international mechanism (an ad-hoc lending contract between Greece, the other euro-zone countries, the European Central Bank, and the International Monetary Fund) to achieve some sort of cash-flow and avoid immediate bankruptcy. Needless to mention that such a novel approach meant that a way to assure that the money Greece borrowed through this process would paid back, that is that the calamities that befell the Greek economy would be avoided. That meant that Greece had to establish its own, independent statistical authority/ agency and be subject to strict controls by the representatives of the lenders (the so-called troika) in its implementation of measures that would drastically reduce the deficit and, hopefully, the debt.

So Greece got under the strictest scrutiny of its finances since World War II. Many unpopular measures were passed under the threat that the next disbursement of the loan money would not be made. For the first time the data sent out to Greece's lenders were considered reliable; and for the first time in a long time the Greek government was held accountable for its actions and omissions: no pain, no gain (i.e. payment of the disbursement). When, following Greece, other euro-zone members required similar intervention, similar controlling mechanisms were established, where fiscal or other targets were set and the  payment of the assistance was dependent upon those targets having been met. One would say, therefore, that in Greece a precedent was set, that the lenders of last resort would be the watchdogs of last resort. What's more, this precedent (along with Eurostat's gross failure to understand that the greek government was feeding it with false statistics for decades) made the European Commission wake somehow up and start asking more questions to all eurozone and European-Union member-States, in order to examine their compliance with the Stability Pact and other fiscal obligations.

What became apparent was that a fiscal watchdog, unrelated to the internal goings-on of each and every State and unaffected by the way politics was mingled with the way the government operated was necessary. For Greece, at least, where putting our accounts in order is definitely a prerequisite for exiting the crisis, the assumption by the European Commission of the watchdog role in earnest is definitely a step in the right direction. So one would welcome a greater degree of european intervention -or, in simpler terms, more Europe (and, correspondingly, ceding the necessary authority on the part of Greece and other member-states), in order to get our domestic accounts straight and stop spending. In the absence of a European enforcement and watchdog mechanism, Greece would probably return to the days and ways it used to conduct business and, thus, create another crisis.

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