Two Views 1 It's been proven now that the crisis is not a Greek - PowerPoint PPT Presentation

Two Views 1  “It's been proven now that the crisis is not a Greek crisis. The crisis is a European crisis. So now is the time that we as Europeans need to act decisively and effectively." Greek Prime Minister George Papandreou  “The future is very much dependent on political will. The crisis has its origins in grave defects in the Greek political system over decades. Recovery requires much more than wise economic management. In fact it requires the remaking of Greece’s whole political and institutional system.” Greek Interlocutors

Outline of Presentation 2  Greece Enters the European Community  The Greek Memorandum I / II  Development within the EC – European Structural Funds  Entering the Eurozone  Greece in the European Community / Union  The Greek Crisis – the IMF/EU Memorandum  Impact of EU Programmes  The Euro and the Eurozone  Dealing with the Crisis

Greece Enters European Community 3  Greece first applied for EEC membership as early as 1959  Association Agreement signed in 1961; suspended when the military dictatorship took power in 1967.  Restoration of democracy in 1974; new application for full membership in 1975  Opinion on Greek Application, January 1976. Negotiations opened.  Accession Agreement in 1979; entry on 1 January 1981.  Spain and Portugal applied for membership in 1977 after end of Franco and Salazar regimes

The Greek Memorandum - 1 4  In 1981 Greek General Election, PASOK elected on pledge to leave both NATO and the EC.  Commissioner Richard Burke, asked by Commission President to find “a political solution to the stated intention of the Greek Government to negotiate with the EC with a view to abandoning their electoral pledge to leave the EC.”  Greek Government submitted Memorandum on Greece’s Relations with the European Communities.  Commissioner Burke conducted negotiations with the Greek authorities over an 18 month period during which some 200 special missions from the EC Institutions visited Athens.  Agreement, at European Council in March 1984 to address Greece’s concerns within in the terms of the so-called Integrated Mediterranean Programmes which covered Greece and parts of France and Italy while paving the way for the accession of Spain and Portugal in 1985.

The Greek Memorandum - 2 5 “The economy of Greece differs markedly from that of the Community as regards both its level of development  and its structures.” “The structural defects of the Greek economy are briefly the following:  an over-developed tertiary sector, a widespread black economy and a pronounced degree of  parasitism;  agricultural production accounts for only17.2% of GNP whereas the agricultural population  is 30% of the total population;  the limited contribution (19.6%) of processing industries to GNP.  85% of industrial companies employ fewer than five persons;  underemployment of a large part of the active population which cannot be absorbed into other  sectors of the economy  very great social and regional inequalities, and great disparities in incomes, along with the distorted  overdevelopment of the Athens area.”  “The Greek Government considers that recognition by the Community of the need to deal with the particular problems of Greece, in conjunction with progress towards a more general reform of Community policies, constitute the minimum possible for creating conditions for Greek membership of the European Communities which will not be in conflict with basic Greek national interests.”

Development within the European Community/ Union 6  Greece achieved economic progress and enjoyed EU’s second highest rate of growth between 1995 and 2009, moving up to a standard of living equivalent to 100% of the EU average.  European Structural Funds and the Integrated Mediterranean Programme provided significant support for economic development  These funds represented on average about 4% of GDP until 2005 when EU programmes were refocused on new Member States in 2004. The build-up to the 2004 Athens Olympics involved a high level of infrastructural investment supported by the EU funds.  After 2005 the level of payments to Greece fell to about 1.5% of GDP. Overall, Greece has received some € 240 billion in EU funding in its thirty years of membership.

Entering the Eurozone 7 Greece was excluded in 1998 from the initial list of (eleven) EU Member States selected take  part in the launch of the Euro on 1 January 1999. The four convergence criteria for Euro membership had not been fulfilled and Greece was covered by a derogation provided for in Treaty Article 122. In March 2000, Greece requested abrogation of its derogation as it now fulfilled the  convergence criteria. In May 2000, Commission Convergence Report 2000 concluded that “in the light of its assessment ....the Commission considers that Greece has achieved a high degree of sustainable convergence.” In June 2000, the European Council confirmed that, as Greece fulfilled the convergence  criteria, it was appropriate to abrogate the Greek derogation in order to allow for the introduction of the Euro as the currency in Greece with effect from 1 January 2001. Greece entered the single currency on that date. In November 2004, Eurostat reported that the government deficit reported by Greece in the  critical years of 1998 and 1999 was significantly understated - the 1998 deficit was 4.1% of GDP compared with the 2.5% reported; the 1999 figure was 3.4% compared with the 1.8% reported.

Greece in the Eurozone 8  Entry to the Eurozone saw serious fiscal ‘softening’ with a Budget surplus of 4.5% in 1999 declining to a deficit of 15.5% GDP in 2009 with 130 % Debt-GDP ratio (Government Debt totalling € 300 billion against a GDP of € 235 billion). Deterioration continued in 2010 and 2011.  As EU structural funds became reduced, with a considerable amount diverted to the ten new Member States, Greece’s central government debt reached enormous proportions: standing at a rather modest 34% of GDP in 1981 but currently projected to rise to over 160% this year (2011).  The general world recession hit hard in Greece. Growth from Euro entry in 2001 until 2008 averaged 4% per annum but GDP fell by 2% in 2009; by 4.5% in 2010 and will fall by 4.5% in 2011. 2012 will see further negative GDP figures.  Exposure of Greek banks to government debt is higher than in Ireland (at 25%+) and represents a threat to what has been a largely well-run and conservative banking sector.

The Greek Crisis - the IMF/EU Memorandum 9 The EU-IMF Memorandum and Programme involve a steep fiscal adjustment programme with  2014 as the target date for achievement of the 3% deficit target. 2010 saw a remarkable reduction in the deficit from 15.5% to 10% but there has been some slippage and overall performance has been uncertain. The Memorandum requires more than fiscal adjustment.  Its reform requirements cover the scale and cost of the huge public sector, large scale  privatisation of state assets, reduction in Greece’s abnormally high defence budget (4%GDP), complete overhaul of the tax and tax collection system, greater labour market flexibility, major changes in the education system, liberalisation of key economic sectors (energy, environment etc.), simplification of regulatory and licensing systems. The IMF argue that successful programmes are those adopted by the local population.  The only lasting solution to the current crisis is to bring about genuine Greek ‘ownership’ of the  reform programme. This must involve the government, the opposition New Democracy party and the relevant civil society actors such as the trade unions and employers.

Impact of EU Programmes 10  “A major source of financing fiscal imprudence had been the vast amounts of funding provided by Brussels in the form of Community Support Framework (CSF) programmes. While a big part of those funds was used for infrastructure-building and other growth-encouraging projects, another significant part was lost to minor projects and subsidies.......when credit rating agencies downgraded Greek Government debt to ‘junk’ status, the cost of borrowing reached such high levels that, lest it declare bankruptcy, the country was forced to turn to the EU and the IMF requesting a bailout package.......”  Monetary Union has been described as, ‘in practice a sleeping pill’ resulting in continuing failure to undertake essential reforms. Growth was demand-driven, non-equilibrium, too easy. Low interest rates were not matched by stabilisation measures, bubbles in some sectors were facilitated and public deficits were allowed to increase as the Stability and Growth Pact lacked embedded penalties after German and French non-compliance went unpunished.