A meeting of the European Union’s leaders on Thursday and Friday will be a crucial test for the eurozone, divided on economic aid to Greece, says a Swiss expert.
It’s an unprecedented situation, Nicolas Levrat, director of the European Institute at Geneva University, told swissinfo.ch in an interview. After the entry into force of the Treaty of Lisbon, Europe faces the challenge of redefining its economic landscape.
Greece’s financial difficulties have put Europe to the test, and the topic is set to eclipse other issues on the agenda when the EU’s heads of state meet in Brussels. Because behind the discussions of whether the EU will bail out Athens or not are questions on Europe’s economic governance itself.
Levrat says the EU is experiencing a “very uncertain but very interesting” period, but he believes it has the means to get through it.
swissinfo.ch: Helping Greece and not offending Germany, which has been very reluctant to provide economic support and respect the new industrial framework – can the EU master this difficult balancing act?
Nicolas Levrat: I think so. In fact, there are several levels of issues. In the short term the first is to assess the severity of the crisis. Overall the decline of the euro is not so dramatic in itself. This has also happened to the dollar.
But unlike what happened with Portugal or even France and Germany, which have also strayed from the rules of the stability pact, the external factors – the markets – have this time joined in the dance. Countries don’t exist in isolation, so for the first time, a real impact of refinancing the debt of a eurozone state is being felt.
The second issue is structural – will what is done in relative urgency to save Greece automatically apply whenever another country finds itself in a comparable situation? If so, the EU must also develop rules to improve the economic governance of the eurozone.
swissinfo.ch: What are the options? On Tuesday French President Nicolas Sarkozy and Spain’s José Luis Rodríguez Zapatero were still expressing the need to go deeper into the issue. A European monetary fund was mentioned.
N.L.: Several models are possible. But all pose the problem of whether to establish a common European debt. Today, symbolically, some states absolutely oppose increasing the common EU budget, including debt, because this would be an even more irreversible commitment in the European integration project.
In fact, the Greek crisis puts the EU in an unprecedented situation. It questions the politics, economics and laws of the eurozone members. The debates around their fiscal and monetary autonomy already existed in the Maastricht era, when it launched monetary union. And there had been talk of a European economic government.
The only certainty for now is that the question of European economic governance leads back to the political question of whether states are prepared to go further in the integration process.
swissinfo.ch: Which doesn’t seem to be the case in Berlin...
N.L.: With the Greek crisis, as is often the case, a decision by all of Europe means that in fact it has been guaranteed by the Germans. So we need their agreement. The Greek crisis raises the crucial question of the role and position of Germany relative to the EU’s other member states.
It also raises the question of the status of the present German government vis-à-vis public opinion. For obvious historical reasons, inflation and debt bring back very bad memories among Germans. The internal pressure [not to bail out Greece] is very strong.
swissinfo.ch: What will happen in the eurozone? Can a bailout be ruled out?
N.L.: We’re speaking of roughly €50 billion [SFr71 billion] to help Greece. This is obviously a considerable sum, but I recall all the same that Switzerland alone spent SFr65 billion rescuing [Swiss bank] UBS, even though it didn’t use the entire amount. Mathematically, the euro is not in danger. It could be though if the situation raises political concerns and the powerful decide not to play the game.
swissinfo.ch: Greek Prime Minister Geórgios Papandréou has reproached several European countries “for forgetting the political importance of the euro”. Do economic problems not risk jeopardising the political project?
N.L.: That will depend on the ability of Europe to come up with a way out of the crisis. Until now, history shows it’s more likely that crises lead to solutions that, in retrospect, can be regarded as major advances in the integration process. The Greek crisis could therefore be an opportunity for a significant qualitative leap.
Carole Wälti, swissinfo.ch (Translated from French by Justin Häne)
Swiss support for Greece
This year’s Swiss president, Doris Leuthard, says Switzerland is willing to help stabilise the situation in Greece.
“We don’t want to interfere in the affairs of the European Union but this crisis reveals the weakness of the European monetary system,” Leuthard added. “If the EU cannot resolve the problem then it will be left to the International Monetary Fund.”
She said Switzerland was in a position to contribute to finding a solution.
“It’s clear that the franc is much too strong compared to the euro,” she said.
About 70 per cent of Swiss foreign trade is with the EU.
Greece faces a mountainous debt of more than €300 billion (SFr440 billion). The shortfall in its budget stands at 12.7% of GDP, which is four times higher than EU rules allow.
Greece has admitted to deliberately altering its statistics to cover up the worst of the problem until it was forced to uncover the full extent of its woes.
The country has announced a series of sharp cutbacks in public spending, sparking a nationwide public sector strike.
Greece’s dilemma has brought focus to bear on other debt-laden EU countries, particularly those in southern Europe such as Spain and Italy.
The direct influence of Greece’s problems on Swiss trade is limited as Switzerland exports only around 0.8% of its goods to that country.
The worst effect on Swiss exporters has been indirect. The euro has fallen in value at a steady pace since news of Greece’s debts has gathered pace this year.