Loukas Tsoukalis : "Greece won't need to be bailed out by the EU"

In its new series Wide Angle, Touteleurope.fr will interview each month a different expert, politician, historian or artist about a topical european issue. For the first interview in the series Touteleurope.fr spoke to Loukas Tsoukalis, a greek politicial scientist about his country's economic woes and about the future of European social and economic policy.

Loukas Tsoukalis is also one of the authors of the report 'An EU fit for purpose in a Global Age - Can we rise to the challange' published by the Policy Network which examines how the EU needs to evolve to face the challenges of the 21st century.

To read the whole text, click here and visit the website of "Toute l'Europe".

Greece is experiencing one of the most difficult economic crisis in its history. Why is Greece so badly affected by the global economic crisis?

Greece has a dual deficit: a budgetary deficit and a current account deficit. They are both large and unsustainable. They also precede the global economic crisis. For some time, consumption levels have exceeded the productive capacity of the economy. They have been largely financed through public borrowing. In other countries, the bubble had been created mostly through private credit.

What is Greece doing to tackle its economic problems? In your opinion, will these measures succeed?

The measures already announced by the Greek government are in the right direction: cuts in public expenditure, an aggressive policy directed at widespread tax evasion, and selective tax increases. The key question remains whether measures to tackle Greece’s fiscal deficit, which has been piling on top of an already very big public debt, will be accompanied by structural measures aimed at a sustainable improvement of the competitiveness of the Greek economy. The intention seems to be there. Delivery will require strong political will.

Is the Greek population ready to make the sacrifices necessary to rebalance its public finances?

It is encouraging that the majority of Greeks now recognise the gravity of the situation and the need for painful measures, although of course the proof of the pudding will be in the eating. Organised groups of interest will resist, and this is where the government’s determination will be tested. The reform announced is radical, and so are specific measures relating to public revenue and expenditure. The question remains whether and how they will be implemented.

Would a collapse of the Greek economy endanger the euro? Would Greece be obliged to leave the eurozone if its economy collapsed?

This is a hypothetical scenario with low probability attached to it. Of course, there is a real problem, but I believe that Greece will finally succeed in dealing with it effectively with the encouragement and support of its eurozone partners. On the other hand, financial markets often overreact. Even the most naïve believers of the rational market hypothesis should know that by now. Yet, if the crisis has helped to strengthen the determination of the Greek government, and Greek society as well, to tackle problems that have been around for long, while also helping to push the euro slightly down against the dollar, that was all for the good!

Social democratic parties are experiencing difficulties throughout Europe.  Do you see the regeneration of this political grouping coming from European level politics and policies rather than the national level?

This might be a logical conclusion to draw for political parties that have always defended an important role for the state as a provider of public goods, a guarantor of macroeconomic stability and the main vehicle of solidarity and redistribution in our societies. In a world of growing interdependence (and globalisation, if you prefer), the role of the nation-state becomes increasingly constrained. The EU is by far the most advanced, and also successful, regional institution for the joint management of ever growing interdependence – it is really about shared sovereignty, if you are not scared by the term. But this is only part of the story. In several European countries, losers and potential losers from globalisation and rapid change look for protection and thus turn their back to the usual discourse on the need for adjustment proffered by the modernising, cosmopolitan wing of social democracy. The EU has been seen mostly as a vehicle for liberalisation and change, while the nation-state bears the responsibility for welfare and redistribution. This implicit division of labour is unstable, particularly in times of crisis, and increasingly difficult to defend for social democrats. If it is indeed true that the economic crisis marks the end of an era, it is still difficult to imagine the shape of things to come. We are in a transitional period. European social democracy will need to redefine itself in a rapidly changing environment.

Originally published on 19/01/10.