Tuesday

12th Dec 2017

Analysis

Democracy is the real victim in the Greek tragedy

The IMF staff report leaked last Wednesday (5 June) evening was a guided missile aimed at the European Commission.

Contained in the Fund's 50-page mea culpa were two accusations levelled at the EU's executive arm: that it blocked an early, and much needed, restructuring of Greece's debts and that it sat on its hands while the Greek economy collapsed. Neither charge should come as a surprise.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • The IMF report on Greece raises big questions about the Troika's accountability (Photo: asterix611)

The commission's response was a well executed, if utterly brazen, piece of political spin.

Olli Rehn's spokesman, Simon O'Connor, played down the importance of the report implying that it was the work of a handful of staffers and did not represent the official view of the IMF. He also rejected as "plainly wrong and unfounded" the report's suggestion that the commission had done little to help the Greek economy.

The following day, economic affairs commissioner Rehn himself accused the IMF of throwing "dirty water." He then briefed reporters that the IMF's managing director Dominique Strauss-Kahn did not propose early debt restructuring, and that his successor Christine Lagarde was opposed to it.

But for all their protestations, much of the criticism heaped on the commission is valid.

The EU executive knows that it is vulnerable to the charge that it has been more interested in spending cuts and tax rises than in creating the conditions for economic recovery in the eurozone's crisis countries.

A calculated decision

Meanwhile, the decision to delay the restructuring of Greece's debt until February 2012 - nearly two years after the first eurozone bailout fund, the European Financial Stability Facility (EFSF), was set up - was a calculated political decision.

Numerous reputable economists (including several Nobel prize winners) looked at Greece's debt payments, the 5.5 percent interest rate attached to the loans in the first bailout package, and the depth of the country's recession, and concluded that anything short of a 50 percent write-down of Greece's debt pile was unsustainable.

After the creation of the EFSF, the eurozone's delaying tactics were not about avoiding contagion but instead giving EU banks more time to get their money out of the eurozone periphery.

Data published by the Bank of International Settlements indicates that, in Germany's case, an estimated $353 billion (€270 billion) left the five crisis countries - Greece, Ireland, Portugal, Italy and Spain - in 2010 and 2011.

As the IMF report admits, "the delay provided a window for private creditors to reduce exposures and shift debt into official hands. This shift occurred on a significant scale and left the official sector on the hook."

It also greatly increased the cost of the Greek bailout to taxpayers not just in Greece but across the EU. But it is harsh to lay the blame for failing to agree a credible restructuring of Greece's debt at the commission's door. The main roadblocks were in Berlin.

End of the Troika?

If nothing else, the IMF report has hit a raw nerve and will inevitably have implications for the working relationship of the three institutions involved in the bailouts - the commission, the European Central Bank and the IMF (known as the Troika) - in the future.

It is quite possible that the IMF will even leave the Troika altogether. The commission will publish its own report evaluating the Greek programme later this year. The two main lessons from a policy perspective must be that upfront debt restructuring is preferable to forcing a country to maintain interest payments on debts it can never repay, and that front-loaded austerity programmes will inevitably lead to a deep and prolonged recession.

But while the commission and the IMF squabble over who was responsible for the failures, and limited successes of the policies chosen for Greece, one point is increasingly coming to the fore. Namely, that three years after it was created to handle the Greek bailout, the Troika, which now handles all four of the eurozone's bailout programmes, is not democratically accountable.

It has much to answer for but nobody to answer to.

The first step demanded by Sharon Bowles, who chairs the European Parliament's economic affairs committee, is for the IMF members of the Troika to appear in public hearings with MEPs.

"The Troika will also need to become more democratically accountable, above all else to the European Parliament, she said recently, adding that "it is not possible that decisions which strike at the very heart of a country continue to be taken without the proper level of accountability."

However, if the democratic controls over the Troika are non-existent, they are scarcely any stronger when it comes to the role of the commission.

Sure, Olli Rehn has received the occasional verbal lambasting from MEPs on the Economic and Monetary Affairs committee. For that matter, so has Dutch finance minister Jeroen Djisselbloem, whose uncertain start as chair of the Eurogroup was marked by the chaotic and botched bailout for Cyprus. Both appear regularly at 'economic dialogue' hearings with MEPs. But the capacity for MEPs, or national parliamentarians, to change or influence decisions is very small - Parliaments can bark but they have no teeth.

In fact, short of sacking the entire Barroso Commission - which all bar the commission's bitterest critics would concede was overkill - there is not much the Parliament can do.

Power without accountability

National parliaments are also toothless. Their role in each of the bailout packages has been to put the Troika's demands, stitched up behind closed doors, into law. As was demonstrated when the Cypriot parliament rejected the Troika's first bailout offer in April, there is no capacity to broker a compromise on the terms.

This lack of basic democratic controls also makes it harder for countries to take national 'ownership' of their recovery programmes.

The EU's new economic governance framework, particularly the so-called 'six pack' and 'two pack', has handed sweeping powers over national budgetary policy to the commission. With the right to make binding recommendations on how member states run their economies together with automatic sanctions for those who fail to correct their debts and deficits, commissioner Rehn has the powers of a minister for the eurozone without the democratic overhead.

Democracy rests on electorates being able to hire and fire the politicians who govern them. Since 2009, all but a handful of EU governments have been toppled, many as a direct result of their handling of the sovereign debt crisis. But those wielding the real power over economic policy-making in Europe - the three members of the Troika - remain largely unaccountable and unchallenged.

A report as damning as the IMF paper would have serious consequences in most (if not all) European countries for the government and, in particular, the ministers involved. The minister responsible would be hauled before parliament and censured. Many would be sacked or forced to resign. Nobody in the Troika is in danger of facing this.

Whether or not the commission cares to admit it, the truth is that serious and avoidable errors were made by the Troika at every stage of the Greek debt crisis. What is most troubling is that there is nothing to stop these mistakes from being repeated.

Rehn in war of words with IMF

Economic affairs commissioner Olli Rehn joined a bitter war of words between Brussels and the IMF about Greece on Friday.

Greek state TV defies blackout

Greek state broadcaster ERT stayed on the airwaves on Wednesday despite a controversial government edict to shut it down.

Opinion

The austerity blame game

Public broadcasting is a crucial public service and a central means of embracing participatory democracy through well informed citizens.

Thousands march for Catalonia in Brussels

Around 45,000 people marched in support of Catalonia in Brussels to get the EU involved in mediating the conflict with Madrid. 'Europe must realise that it can still play a role in the Catalan crisis,' said self-exiled Catalan leader Puigdemont.

News in Brief

  1. EU to Israel: Don't expect us to move embassies
  2. EU Commission condemns anti-semitic 'Jerusalem' protests
  3. Ministers have 'lots of questions' on new CAP plans
  4. Commission: Brexit agreement is 'deal between gentlemen'
  5. 25 EU states sign defence cooperation pact
  6. Netanyahu wants 'hardy' talks with EU on Jerusalem
  7. French centre-right elects new leader
  8. Germany and UK increase arms sales

Stakeholders' Highlights

  1. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  2. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  3. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  4. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  5. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  6. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City
  7. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  8. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  9. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties
  10. EPSUEU Blacklist of Tax Havens Is a Sham
  11. EU2017EERole of Culture in Building Cohesive Societies in Europe
  12. ILGA EuropeCongratulations to Austria - Court Overturns Barriers to Equal Marriage

Latest News

  1. Alignment with EU is 'last resort', May tells MPs
  2. Iceland: further from EU membership than ever
  3. Israel presses Jerusalem claim in EU capital
  4. From dark coal toward a brighter future
  5. UK casts doubt on EU deal in 'bizarre' twist
  6. Romania wants EU signal on Schengen membership
  7. Germany says China using LinkedIn to recruit informants
  8. No chance of expanding EU warrant crime list

Stakeholders' Highlights

  1. Centre Maurits CoppietersCelebrating Diversity, Citizenship and the European Project With Fundació Josep Irla
  2. European Healthy Lifestyle AllianceUnderstanding the Social Consequences of Obesity
  3. Union for the MediterraneanMediterranean Countries Commit to Strengthening Women's Role in Region
  4. Bio-Based IndustriesRegistration for BBI JU Stakeholder Forum about to close. Last chance to register!
  5. European Heart NetworkThe Time Is Ripe for Simplified Front-Of-Pack Nutrition Labelling
  6. Counter BalanceNew EU External Investment Plan Risks Sidelining Development Objectives
  7. EU2017EEEAS Calls for Eastern Partnership Countries to Enter EU Market Through Estonia
  8. Dialogue PlatformThe Turkey I No Longer Know
  9. World Vision7 Million Children at Risk in the DRC: Donor Meeting to Focus on Saving More Lives
  10. EPSU-Eurelectric-IndustriAllElectricity European Social Partners Stand up for Just Energy Transition
  11. European Friends of ArmeniaSignature of CEPA Marks a Fresh Start for EU-Armenia Relations
  12. Nordic Council of MinistersNordic Energy Ministers Pledge to Work More Closely at Nordic and EU Level

Stakeholders' Highlights

  1. European Friends of ArmeniaPresident Sargsyan Joined EuFoA Honorary Council Inaugural Meeting
  2. International Partnership for Human RightsEU Leaders Should Press Azerbaijan President to End the Detention of Critics
  3. CECEKey Stakeholders to Jointly Tackle the Skills Issue in the Construction Sector
  4. European Friends of ArmeniaLaunch of Honorary Council on the Occasion of the Eastern Partnership Summit and CEPA
  5. EPSUStudy Finds TUNED and Employers in Central Governments Most Representative
  6. Mission of China to the EUAmbassador Zhang Ming Received by Tusk; Bright Future for EU-China Relations
  7. EU2017EEEstonia, With the ECHAlliance, Introduces the Digital Health Society Declaration
  8. European Jewish CongressEJC to French President Macron: We Oppose All Contact With Far-Right & Far-Left
  9. ACCASmall and Medium Sized Practices Must 'Offer the Whole Package'
  10. Mission of China to the EUNew era for China brings new opportunities to all
  11. Nordic Council of MinistersNordic countries prioritise fossil fuel subsidy reform
  12. Counter BalanceNew Report: Juncker Plan Backs Billions in Fossil Fuels and Carbon-Heavy Infrastructure