For the past couple months, the world has witnessed a Greek tragedy unfolding with scenes of riots in the streets of Athens, devastating austerity measures and widening fears of cotangent spreading to Italy, Spain, Portugal, and even France. In the media, Greece has been portrayed as economically lazy and politically incompetent – a cancer on the EU that may well be best removed. With the New York Times publishing articles detailing village bakers with Ferraris and no retirement savings, and numerous instances of chronic tax evasion, sympathy for the Greeks has been hard to find.
Yet, this is a simplification of wider crisis that is centred on the institutional structure of the European Union. Without a doubt, the Greeks bare their fair share of the blame. However, the underlying reality of this crisis is that the EU was poorly conceived. Its institutions were designed to function very effectively in times of prosperity, but not in crisis.
Since the establishment of the modern Greek state in 1830, Greece has had two principle industries: shipping and tourism. As a coastal nation with an ancient maritime tradition, shipping was a natural industry. However, in the age of modern container ships, Greece simply could not compete with the modern ship building powers of Norway, China and South Korea. While the wonders of the Acropolis, the Agora and Olympia will continuously draw tourists; tourism in itself is not enough to support a modern state.
To offset its economic weakness, modern Greece has leveraged its geopolitical position in exchange for external power’s support. Upon independence in the 1800’s, Britain used Greece as a foil against the Ottoman Empire. During the Cold War, the United States played a similar role, supporting Greece against the Soviet Union. In both cases, massive amounts of capital subsidized the Greek state. In the post-Cold War era where Turkey was a member of NATO and Russia represented a minimal threat, nobody was looking to use Greece as a military foil against a regional threat.
Too Fast and Furious
Upon the end of the military dictatorship in 1974, the European elites were all too willing to accept Greece into modern Europe. After all, Greece was the birthplace of democracy and European culture. It did not matter that Greece was a developing country, free trade and economic liberalization would solve that problem. Greece had found a new sponsor.
The Maastricht Treaty created the European Union in 1992. It was the success of the European elites who wanted a united, peaceful, prosperous Europe. The cornerstone of this success story would be the single market and common currency. Even though Greece lacked the necessary economic credentials, it would be allowed to participate.
Brussels’ drive to create an ever-closer union had created realities that are not sustainable. First, a single currency that is designed to manage both the advanced German economy and the under-developed Greek economy is impossible. From regional inflation to dissimilar productivity levels, there are obvious differences between the economies that a single monetary policy could not take into consideration. Furthermore, before Greece’s entrance into the Euro Zone, the country had a relatively low national debt. This was because the markets charged a premium due to the risk involved with Greece’s underdeveloped economy. Upon entry into the Eurozone, for the first time in its history, Greece was given access to interest rates reserved for advance economies. If this temptation was not enough, Brussels encouraged Greek borrowing in order to solidify the monetary union. The last decade witnessed the tripling of Greek debt.
Second, the EU created a free-trade zone in which the world’s second largest exporter – Germany – is able to move its goods into any country that wants to buy them. Local producers are outcompeted. Even before the entry of Greece into the EU, its economy had a hard time competing with the larger European economies. Free trade has widened this gap and not provided the supposed opportunities for economic development as promised by Brussels.
Lastly, the bureaucracy in Brussels tries to control and micromanage too much of the European economy. The bureaucracy lacks the ability to do this effectively. The EU’s regional development fund, which is supposed to foster a similar economic standard across the union, is spread out too thin. With the expansion of the EU to Central and Eastern Europe in 2004 and 2007, there are fewer funds for the Southern countries, such as Greece.
Not Over Yet
As much as statesmen, politicians and policy makers would like to take charge of the crisis, the reality is that the EU remain in control. This crisis has shown that the EU was poorly conceived. It was a union designed to function very effectively in times of prosperity, which it fortunately had in its first two decades. However, it was not built to handle crisis. It has a decision-making structure that is very difficult to manage. While Euro elites imagine the EU to be a supranational organization, the reality is that it is an intergovernmental organization. The real power is in the hands of the nation states, not in the hands of the EU. The EU was created so that no one can be in charge.
While Greece’s economic underdevelopment and Brussels’ overzealous drive to create an ever-closer union caused this crisis, it is up to the Germans to resolve it. But the more they try to solve the crisis the deeper it gets. There is no other option because the EU has linked together all these countries with different realities in a single fate. Greece should never have been allowed into the Eurozone. Brussels failed to see that the realities of Greece and the realities of Germany have nothing to do with one another, and trying to manage them not only by these institutions but also through unanimity is a recipe for disaster.