Issue link: https://maltatoday.uberflip.com/i/467065
14 ALFRED Sant is not known lo- cally for mincing his words. And it is a reputation the Harvard-trained economist (and former Prime Min- ister, and playwright, and novelist, etc.) has since transported with him to Brussels. An MEP since June 2013, Sant has often vocally criticised the current Commission's approach to the crisis that still engulfs the eurozone since 2008. Likewise, his opinions on the approach to the Russia/Ukraine im- passe seem to be in discord even with those of his own political representa- tion, the European socialists. But he is certainly not alone in voicing scepticism on either front. Very recently, Greek finance minis- ter Yanis Varoufakis claimed that the EU is "typified by a large democratic deficit that, in combination with the denial of the faulty architecture of its monetary union, has put Europe's peoples on a path to permanent re- cession." When I meet Sant at his Birkirka- ra home, Varoufakis' assessment seems a good point of departure to discuss the current problems fac- ing the eurozone. Does he share the Greek minister's view that the EU is in a state of denial, and plagued by a democratic deficit? He begins by inviting me to look at the eurozone as it stands today. "You have countries with a large economic divergence between them that is steadily growing; you have the same rate of exchange, although the economic conditions vary greatly… When it's plain sailing there is no problem: you can move forward, you can power everything through the soft power that the European Union has, and the euro needs. But when problems strike, as they struck in 2008, there are no federal tools that can compensate for these problems. Europe is a Europe of nations, and there is always resistance to the in- troduction of federal structures: for instance, an autonomous federal budget, a federal treasury ministry, etc…" This, he argues, naturally limits the EU's options when it comes to crisis situations. "What do countries do, then, to re- adjust to those problems? The ability to adjust one's exchange rate to be- come competitive does not exist any- more; so basically, the only option to rebalance budgets is what they call 'structural reforms'… which in most cases amount to fiscal consolidation: what the IMF calls 'internal devalu- ation'. That is to say, reduction in social services, in employment, in wages…" In a word, austerity, which is para- doxically what has pushed the Greek electorate to 'rebel' (so to speak) by electing an anti-austerity govern- ment… He nods. "And it's hitting across the European social model. The only way countries on the fringes of the euro- zone can adjust, under the present rules, is through erosion of their social model. Poverty has increased; unemployment has increased; and the soft power of Europe is effec- tively being eroded by this problem. Much of this power rests in fact on the democratic model, the economic model and the social model…" As we speak, negotiations are still ongoing between the Greek govern- ment and the European Commission, and a solution is not yet in sight. "On one level, I can understand that governments and finance ministers would strongly resist talk of writing off the Greek debt. Obviously, they have to respond to their constituen- cies, and their constituencies don't want their tax money flushed down the drain. You can understand this. On the other hand, the bailout plan is simply not working. Not only has it failed to turn the tide, but it has piled up huge austerity on the most vulnerable parts of the Greek popu- lation…" But isn't it too early to see if it's working or not? Parts of this plan are only just being implemented now: for instance, the 315 billion euro investment plan announced by Commission president Jean-Claude Juncker… "That is a completely different ball game. The ball game here is that [the bailout] was supposed to res- cue Greece; yet the Greek debt as a percentage of GDP has over the last five years risen from 125 to 170%+. Its economy has shrunk by a quar- ter. So the 'rescue' is making things worse. The question is this: under this bailout plan, will Greece ever be able to deliver? My argument is: no, it's not going to deliver. Something's got to give. The Greek government is making the claim, 'our people have suffered enough. You should give us more leg-space.' And I think they should." At the same time, the Greek de- mands – supported by an electoral mandate though they are – effec- tively require creditor countries to forego their rights. Is this a reason- able approach? "Well, let's say you lent money to Greece: you gave it a longer grace pe- riod, more and more advantageous interest rates… obviously you're go- ing to say it's not reasonable. Apart from the fact that Greece has not im- plemented a lot of the things it had undertaken to implement: privatisa- tion being one example…" Sant however adds that there are two sides to any coin. "The question is, can you wring milk out of a stone? I don't think so. Something's got to give. There has got to be some kind of solution if Greece is to remain within the eurozone. A compromise has to be reached…" As it happens, a compromise would be reached the following day. But what form of agreement does Sant think could actually solve the prob- lem? He shrugs. "The real alternative, if it wasn't for the problem of managing it… and if it wasn't for the fact that the major- ity of Greeks, in spite of everything, want to remain in the eurozone… the best solution would be for Greece to exit the eurozone in an orderly man- ner. This would protect the country's social and economic model. But it's not on the cards…" It may not be on the cards, but many economists now think it's in- evitable anyway… "Yes, and it doesn't apply only to Greece. If you look at counties on the periphery in the south and east… their economies are not compatible with the German, Dutch, Finnish economies. What happened is that European soft power went to the heads of the elites of Europe back in the 1990s…" With hindsight, he goes on, the 2004 EU enlargement was a case of "expanding just across the border in a certain disorderly manner". Inevi- tably, problems arose… which Sant argues could have been avoided, had the project been handled differently. "After all, when Greece entered the eurozone, they later found that there were three, four years where the national accounts had all been falsi- fied. Now, quite frankly… all these bureaucrats… they didn't realise that something was wrong? Come on…" Does he share the opinion that the European Commission should also bear responsibility for this over- sight? "Not just the Commission, but all the member states as well. And not just with regard to Greece, either. There was clear use of the hegem- onic power of the EU to make the eurozone a beacon of attraction…" Now that structural problems have belatedly come to light, Sant argues (if I may paraphrase) that the EU has taken remedial action that addresses the symptoms of the crisis, but not its cause. "One of the things that happened in the last five years was this: the euro- zone has put up protective structures to compensate for its own economic and structural imbalances. It has built up a funded stability mechanism to intervene in countries which are about to go belly-up [jaqghu zorba]. It's never been tested, but it's there, a very big fund; and under German prodding, they introduced arrange- ments to oversee and control budg- ets of member states. You have the Twopack and Sixpack regulations, by which the Commission, on an annual basis, vets and corrects budgets, and insists that budgets are corrected. But if you ask whether they treated larger counties like France the same as Malta and Cyprus, the evidence shows otherwise. France and now Italy are being given more sympa- thetic treatment than was afforded to smaller countries…" Meanwhile the third plank has just been introduced: a banking union, which he describes in terms of "an IMF for European banks". But the problem, he adds, is that these mechanisms do not amount to a solution to economic stagnation. "While the United States is back on its feet as an economy, while Ja- pan and BRIC (Brazil, Russia, India and China) have moved forward, the Eurozone economies have stagnated. Internal economic divergences have continued to grow; unemployment has soared, especially among the young. Something's got to give. The big challenge now is to how to get the economy back on course. "Internally, especially on the part of the Socialists, there is a lot of (justi- fied) grumbling that too much em- phasis has been placed on fiscal con- solidation – i.e, balancing budgets – and on structural reforms. Some of these reforms are beneficial: to break down certain monopolies, improve work practices, etc. But overall, un- der the imperative of balanced budg- ets, governments found themselves powerless to intervene in order to stimulate their own economies. "They cannot go beyond budget rules. So everything fell onto the shoulders of the European Central Bank, to somehow keep everything stable. There's been a debate about quantitative easing, initially resisted by the ECB. They have now crossed the Rubicon and are going to imple- ment quantitative easing. But it's a case of too little, too late. Effectively, when the Commission changed, the idea of a new investment plan took shape: to stimulate work, projects, and so on…" Sant breaks into a detailed descrip- tion of how Juncker intends to raise the sum of 315 billion euros over two years – to be invested in national projects – through schemes which would rope in the private sector to fund 15 euros for every 1 euro put up by EU/EIB guarantees. "This is Project Juncker, which at least at- tempts to move away from a sys- tem which left everything operating only on a basis of fiscal consolida- tion and structural reforms. That has been the dogma to date. Instead, he [Juncker] introduced a third pillar of investment. There are however big questions regarding whether this is enough, whether it's too late or not…" Sant here seems to be voicing wide- spread criticism that the eurozone it- self has been treated as a matter of dogma: that even if it doesn't work in practice, it must be made to work for political reasons. "From the start, the eurozone has always been a political project. And all the states are committed to make it irrevocable. But in recent years the question has become, how to make effective the original rules of the Growth and Stability Pact – i.e., maximum deficit at 3% of GDP, 60% national debt, a maximum of 2-3% inflation within the member econo- mies, etc. Basically, what they are trying to do is to put up the props to compensate for not having a federal structure." By Sant's own argument, the cost of this project has been very high in terms of social justice. This inevitably raises the question: is all this worth it just to save the eurozone? There are economists who argue that it might Interview By Raphael Vassallo maltatoday, SUNDAY, 22 FEBRUARY 2015 Call me a sceptic, but… GREEK DEBT Something's got to give. The Greek government is making the claim, 'our people have suffered enough. You should give us more leg- space.' And I think they should RUSSIA AND THE EU My problem with this issue is that on both sides – Russia on one hand, the EU on the other – are in bad faith, and have been in bad faith since the beginning