NEWS

Will 2010 be the end of the beginning?

It was a lamentable year for the European Union. Its major economies struggled to get out of recession. Politically, after eight years of an insular debate about a grand new constitution, it settled for electing two relative nonentities to represent it on the international stage. In this context, there seems little prospect of a major relaunch of the EU in 2010. Indeed, much of the current talk on Europe employs a perspective not of unity, but of contrasts between the «the good, the bad, and the ugly» of national economic performance. The instinct is that the EU does not have a problem: rather, you do, so put your own house in order. A Europe of political weakness and economic division is not good news for Greece. It offers little help to domestic reform. For Greece in 2009, having lived with a bloated and partially corrupt state sector, the global economic crisis exposed the vulnerability of its high public debt levels. Socially, a system that had provided jobless growth was ignited in the riots of the previous December: events that expressed the frustration of the young over waste and exclusion. And security was a problem as small-scale terrorism returned to the streets with isolated bomb attacks by self-styled anarchists. Set against this gloom, Greek voters opted for a change of government – to one offering greater hope. The ex-prime minister – so recently way ahead in personal popularity rankings – is now history, blamed for… well, everything. A public made complacent by the caution and indulgences of the past can quickly turn cruel. Now in 2010, Greece faces a struggle for its credibility. In the short term, this means settling the fears of the financial markets. Alexis Tsipras is right that convincing the investors of the City of London – and elsewhere – will be the real immediate contest, however much he disparages them and their assigned role. The Irish government set a benchmark for how to react to a financial crisis. The better-than-feared downgrading of Greece’s credit rating by Moody’s just before the Christmas holiday was a positive first sign of approval of the new budget measures, but a climate of anxiety has been set by Standard & Poor’s and by Fitch. The EU Commission has sent a team of investigators to Athens and soon Greece will submit a new Stability and Growth Program to Brussels. A financial crisis takes away sovereignty and the luxury of decision making from political leaders, whatever the populist attacks on markets. In 1967, British Premier Harold Wilson famously lambasted the anonymous «Gnomes of Zurich,» but he still had to devalue the pound. Asking the public to vote on the Internet on budget options is an innovative step and over 9,000 comments were posted on the site in its first week. Public opinion needs to be engaged – to be shaken out of its complacency and embedded privileges. The test will be how far this move helps to educate and shift attitudes. Any serious person would accept that the main problems Greece faces are systemic and have accumulated over many years, even generations. George Papandreou was surely right to highlight this in his budget speech to Parliament just before Christmas. Thus, Greece’s credibility in 2010 will rest on the realization of the budget objectives and on a convincing start to being made on deeper reforms. The agenda is well known. The task is one of seriousness of commitment. Given foreign concerns over the politicization of the state’s accounts, there may well be close scrutiny of how a reduction in the government deficit from 12.7 percent to 9.1 percent was actually made and how further reductions are to be realized. By the end of 2010 it will be clear whether this government will be different: whether it can reach beyond a budget fix to enact serious structural reforms. As Papandreou has argued, at stake is the ability of Greece to set its own agenda. In the Europe of 2010, Greece will be a rare exception to the political dominance of the center-right. Ultimately, the international financial markets will be satisfied either by the fiscal discipline being established domestically or by the markets forcing more drastic solutions. The greater challenge is for Greece to combine fiscal rectitude with the government’s own social democratic agenda for economic growth and social inclusion. After the year Europe has had, and with the political pendulum swinging across the continent to the center-right, no one in Athens should rely too much on external help being available to help realize this difficult policy mix. Churchillian rhetoric seems almost unavoidable here: Credibility is something established over the long term and the best that 2010 can offer is a new beginning – even the «end of the beginning.» (1) Kevin Featherstone is a professor at the London School of Economics and director of the LSE’s Hellenic Observatory.