Sunday, March 22, 2015

Conflicts of Interest in Europe’s Greek-Austerity Impasse

At the conclusion of the European Council session in March 2015, all 19 of the state governors in attendance still wanted the state of Greece to remain with the euro. As for whether Greece should continue its austerity program and reform its economy as per the ongoing agreement on continued bailout funds, the tally was 18 to 1. Although both federal and state officials in the E.U. overwhelming believed that the austerity program had been behind the growth in the Greek economy in 2014, the Greek finance minister and most Keynesian economists disagreed, pointing to the fact that the state had lost a quarter of its GDP under the austerity. Besides this honest difference of opinion on the effectiveness of the strategy, conflicts-of-interest compromise the “club of 18” and thus its position.

One conflict of interest concerns the state officials themselves. According to The Wall Street Journal, “Making big concessions to a radical political party in Greece that is seeking to tear up the eurozone rule book would, leaders fear, encourage insurgents in their own countries and jeopardize their careers.”[1] Such officials would have had an incentive, therefore, to refer Prime Minister Alexis Tsipras and his party as “radical,” so as to discredit the political movements in their own states.

Another conflict of interest lies in the fact that the states owed most—Germany being owed the largest amount (60 billion euros)—had the most power in the European Council (and that federal body in turn at the federal level). Alternatively, the European Commission would arguably function more as an honest broker. As for the European Parliament, that Athens owed 195 billion euros to other state governments, and thus to their taxpayers, suggests that a chamber in which the representatives of those taxpayers were dominant would not be likely to come to an arrangement that is fair to the Greek E.U. citizens.

In short, part of the problem in reconciling Tsipras’ electoral mandate with the austerity plan favored by the club of 18 is the conflicts of interest touching on the structural imbalances in the E.U.’s federal system. More systemic change was needed, therefore, than merely in the Greek economy. It is telling, in fact, that this point was not even on the radar screen.

[1] Stephen Fidler, “In Eurozone, Greece Finds Itself Alone,” The Wall Street Journal,  March 21-22, 2015.