Greece: Like Any Other European Country?

Greece: Like Any Other European Country?

Mini Teaser: Greece is fundamentally a status quo country in part of the world where the status quo is being challenged from many directions. Its future prosperity and security depend on reforms at home and a more prudent diplomacy.

by Author(s): Loukas Tsoukalis

This difficulty in adjusting to EU membership--and international competition as well--requires some explanation. Of course, the challenge facing Greece was a formidable one, given its relatively low level of economic development compared to that of its new partners and its long history of protection of domestic producers. Adjustment to EU membership was bound to create winners and losers inside the country; and the experience until now suggests that losers (or potential losers) were numerous--and that some of them were politically powerful. An incomplete list of losers from adjustment to EU membership would include a significant part of Greek business, accustomed to protection from external competition and heavily dependent on state favoritism, especially through public procurement contracts. It would also include most of organized labor, especially in a large state-controlled sector of the economy characterized by over-employment, relatively high pay and low productivity. And it would certainly include many politicians whose survival depends on the clientele system that flourishes in protected markets and under non-transparent rules. The list would also include other less well-organized groups of society, such as many small businesses and the lesser skilled. Unable to adjust to a very competitive environment, but also unable to offer effective political resistance, they are, unavoidably, being sacrificed on the altar of economic restructuring.

Faced with such a situation, Greek governments tried for more than ten years to avoid or simply postpone adjustment. At the same time, they showed great readiness to throw money at any group of society able to make enough noise around the issue. In the process they created another category of losers, one that conveniently happened to be disenfranchised because of age. By that I mean the younger generations in the country who will have to bear the full burden of delayed adjustment, not to mention the burden of servicing the large public debt accumulated during the 1980s.

The turning point came around 1993, when Greece entered a phase of economic stabilization and convergence with the rest of the EU, coupled with a more determined and much delayed effort at privatization and restructuring. Previous attempts in this direction had proved short-lived; but the margin of maneuver has become progressively narrower with time. The prospect of economic marginalization in the context of the EU, the rapidly rising cost of servicing the accumulated debt, and the increasing difficulties in the financing of deficits left Greek governments with very limited options. In the meantime, Greek society (or at least a substantial part of it) had learned a lesson in economics the hard way.

This new phase has been characterized until now by a substantial improvement in terms of economic growth. Inflation and budget deficits have registered a sharp decline, thus rapidly converging toward the EU average. This convergence finally led to Greece's admission to the European Exchange Rate Mechanism in March 1998, an event accompanied by a modest devaluation of the drachma. By the time of writing the drachma had recovered more than half of its earlier devaluation. Despite the remarkable progress achieved in terms of macroeconomic stabilization, Greece failed to be admitted to EMU on the basis of the 1997 figures. According to the Greek convergence plan approved by the EU Council of Economic and Finance Ministers, the country should be able to satisfy the criteria for admission by the end of this year, which would allow Greece to enter the euro-zone in 2001; and the financial markets are apparently betting heavily on its success.

Joining the European Monetary Union constitutes the first economic and political priority of the PASOK government led by Prime Minister Simitis, who was elected by his fellow Socialists to succeed Andreas Papandreou, and then proceeded to win the 1996 elections. This priority is also endorsed by the main opposition party of New Democracy now led by Mr. Karamanlis, a nephew of the other Karamanlis who had dominated Greek politics for much of the postwar period. The two biggest parties in Greece represent approximately 80 percent of the votes. Only two small parties on the Left of the political spectrum, including the unreformed Communist Party, have adopted a negative stance on EMU.

The popularity of Greece's membership of EMU has been repeatedly confirmed by large majorities in opinion polls, even though every Greek in favor of EMU would not necessarily be prepared to pay the price associated with membership. Such support is easy to explain. The search for a collective shield against the enormous instability of exchange markets is coupled with the fear of the political marginalization that would follow should Greece be left out for very long of the most important part of the European construction. And experience suggests that monetary stability would be more effectively guaranteed if responsibility for decisions in the area of monetary policy were to be transferred to the European Central Bank in Frankfurt.

Assuming that the very recent mishandling of the Ocalan affair does not develop into a full-blown crisis for the government, Greek politics in the next few months should revolve around the target of EMU membership, which, if accomplished, will serve as a psychological boost as well as a sure sign that, having erred for several years in the economic wilderness, Greece is coming back into the fold. But it will be one thing to secure membership of EMU, and another to ensure that the Greek economy performs well in this new environment. Greece has entered a long and difficult phase of structural reform, including cutting the state-controlled sector of the economy down to size, overhauling the social security system, and adjusting Greek public administration to the rapidly shifting reality of European integration and globalization. There is still a long distance to travel in this direction.

Many people, including most notably Mr. Simitis, refer to the task as that of "modernizing" Greece. This term is open to many different definitions. If by modernization--or simply reform, as a less heavily loaded term--we understand the process by which Greece can adjust to a rapidly changing European and international environment, it is interesting to observe that the dividing line between reformists/modernizers on the one hand and conservatives/populists on the other cuts right across the two main political parties in Greece. The Socialists, under the leadership of Mr. Simitis, have taken the lead in this process; but he faces strong opposition both inside his own party and from various organized interest groups. The main opposition party adopts a more populist stance, as is natural for parties out of power, especially in Greece where the legacy left by Papandreou is still strong. New Democracy, like PASOK, has brought under the same umbrella a collection of modernizers, technocrats and demagogues.

Will this eventually lead to the realignment of political forces and the creation of new political parties? Until now, the two main parties have shown much resilience. Defectors have usually been punished by the electorate, while attempts to create new parties have fared badly, with the exception of dikki, a small party that appeals to former voters of pasok dissatisfied with the shift to the center-left. On the other hand, both the Communist Party and the coalition of former Euro-communists have remained close to the 3 percent barrier below which admission to the national parliament is denied.

In times when ideological differences are not always easy to discern and the range of political choices becomes rather narrow, there is a big risk of vacuous talk and populist rhetoric; and there is no shortage of candidates to perform those functions in any part of the world. Has the time for coalition governments come in a country where the few previous experiments of the kind have been very unsuccessful? And what will be the role of civil society as the state gradually adjusts to EU membership and globalization? In this transition phase, any attempt to provide answers to those questions becomes a hazardous exercise.

Surviving in the Balkans

If in economic and political terms Greece is gradually becoming like any other European country, this is certainly not true of foreign policy. The reason is simple: the Greeks live in the rough neighborhood of the Balkans, where nation-states have a relatively short history, national frontiers are not generally considered sacrosanct, and ethnic minorities are frequently manipulated in order to destabilize neighbors and thus lay claims on a possible future redrawing of political maps.

The collapse of the old communist order on Greece's northern frontier may have opened the way for the establishment of democratic regimes. But its first effect has been to unleash the old nationalist (and irredentist) forces that had been kept in deep freeze during the Cold War. Thus, several communist leaders (Milosevic certainly not being alone in this respect) have decided to don the nationalist cloak in order to survive politically. This new environment has presented Greece with many problems and risks, but also with new opportunities. In the early years, it tended to exaggerate the former and ignore the

There have been, of course, real problems. The disintegration of Yugoslavia and the civil war that broke out in several parts of its territory, the breakdown of law and order in Albania, the rapid deterioration of economic conditions in all the former communist countries of the region--all these have had important negative consequences for Greece. Transport links with its trading partners in the EU have suffered badly; illegal immigrants in Greece now represent more than 5 percent of the total population of a country that had been for long a net exporter of people; and the Greek armed forces have had to remain pretty well constantly on alert.

Essay Types: Essay