Lessons from the Greek Tragedy: Europe Needs Economic Governance
Lianou, Maria, International Advances in Economic Research
The financial crisis that has hit the global economy since the late summer of 2007 is the worst in post-war economic history. It affected the European Union, showing the need for real economic governance in Europe through the convergence of fiscal policies. Up to now, there is economic administration only in the monetary section. The economic union--the first and most important segment of EMU--remains inoperative.
The need for economic governance has two aspects: firstly, it is a political choice for the confrontation of the economic problem, and secondly, it is an economic demand for the effective use of economic assets (through coherence policies). Today, the fiscal policy comes under common rules enacted by the Treaty of the EU and the Stability and Growth Pact, which promote the fiscal discipline of the member states and a system of mutual observance so that the public deficit to the GDP does not exceed the limit of 3%.
The Lisbon Treaty is not enough for integrated economic governance in the EU, as it did not reinforce the political union of Europe. Although it contributed to changes in the economic governance of the Eurozone, these changes were weak and inadequate, as they actually stepped back from the policies that the rejected European Constitution would have implemented. Fiscal policy remains under the authority of the member states.
The long duration of the crisis illustrates that the common currency and the European Central Bank are not adequate to support the common market and European financial integration. As the Greek fiscal problem has indicated, without a common economic and financial policy, the cohesion of the common currency and even of EU itself faces a great and unpredictable risk.
The mechanism that will save the European Monetary Union is the transfer of money to Eurozone countries that face serious economic and financial problems. But the transfer and allocation of economic resources to places in need is feasible only within states or countries.
In the case of the Greek fiscal problem, an ad hoc mechanism of support was created with a loan of 110 billion euros, including 30 billion euros from the IMF and 80 euros from the Eurozone. However, an ad hoc mobilization is not adequate. A unified centre of economic policy is needed and with it, an associated progress towards economic and political integration is essential.
The Lisbon Treaty is only the beginning. The integrated economic governance must concern all member states, not only the Eurozone. So a prerequisite is that all the member states must adopt the euro. …