Ένα ενδιαφέρον άρθρο του Γιάννη Καρρά για την ευθύνη των ευρωπαϊκών πολιτικών για την ελληνική κρίση

Structural funds and crocodile tears

Why the EU must share the blame for the Greek crisis

Structural funds and crocodile tears

Why the EU must share the blame for the Greek crisis

Misdirected EU aid has strengthened rent-seeking elements in the Greek economy and fostered political clientelism, writes Iannis Carras. Instead of learning from mistakes, current EU/IMF policy favours construction and privatization of state land, enabled through a legal sleight of hand. Quite apart from the environmental risks, this is counterproductive in economic terms.

Having misspent EU funds intended for a "Hellenic Cultural Centre" on a lame Brazilian football player, local big-wig and businessman Vasilis Arvanitakis aims to hoodwink a delegation of EU auditors dispatched to asses, ten years later, how their money had been invested. Sotiris Goritsas' bitter comedy Braziliero (2001) should have been required viewing for EU officials dealing with Greece. As in Gogol's The Government Inspector, all the usual suspects are there: the foppish inspectors, the businessman, a leftwing politician, local media operators, corrupt policemen, the local football team, a long-suffering wife, the wronged lover... Now, ten years later and more than ten years too late, the time has come to re-evaluate EU policies towards Greece. Like the inspectors, we'd like to know where all the money went. And what the current mix of EU/IMF policies will mean for ordinary Greeks in their attempt to survive economic depression and societal breakdown.

The EU: Broken or just broke?

This article is part of the Focal Point The EU: Broken or just broke?.

Can Europe really break apart? Jacques Delors, Jürgen Habermas, José Ignacio Torreblanca, Daniel Daianu, Ulrike Guérot, Slavenka Drakulic, John Grahl and others discuss the causes for the current crisis -- and how to solve it. [ more ]

Doing justice to the interwoven strands of Greece's post-1981 history, the accelerating EU debt crisis and the distortionary effects of the euro on the competitiveness of EU states remains beyond the scope of the present inquiry. Instead, what will be examined is the impact of development aid distributed by the EU to Greece over the past three decades. Dispersed for the most part through the Common Agricultural Policy (CAP) and the Structural and Cohesion Funds, EU aid – equal to over 3 per cent of annual Greek GDP – was intended to shape Greece's future. EU support was intended to ensure that development would be sustainable and meet "the needs of the present without compromising the ability of future generations to meet their own needs".^[1] Already in the Maastricht Treaty (1993), the EU undertook to promote "balanced and harmonious development" with "respect the environment". The Amsterdam Treaty (1999) went further, calling for a "balanced and sustainable development of economic activities". The question of sustainability goes to the political and economic heart of the crisis in Greece today. What went wrong? What should the EU be doing differently, given the magnitude of the current crisis?

Learning from mistakes?

The management or, rather, the mismanagement of the CAP in Greece is a story in itself. Cotton production, for example, was subsidised by the CAP on the basis of crop output. When demand for water in Thessaly (the main cotton producing area) increased, the Greek government tabled plans for a series of dams that would divert 1.5 billion m³ of water, later reduced to 600 million m³, from western Greece. Though the Acheloos diversion did initially receive EU structural aid, this was cancelled in the absence of proper environmental feasibility studies. Nonetheless, despite losing a string of court cases to NGOs and residents of affected areas, the Greek government insisted that the diversion should proceed. Work on the diversion has been underway since the late 1980s, though with significant breaks due to court interventions. When, in 2000, the Council of State (the highest judicial authority in Greece) revoked the ministerial approval of the environmental conditions of the project, the diversion was simply separated into smaller interlinking segments and continued with renewed vigour.^[2]

Though EU structural funding was withheld, it was EU cotton subsidies that provided the impetus for the diversion. Instead of funding cotton production, the EU could have co-funded the shift to alternative and sustainable forms of agricultural production in Thessaly. Moreover, given budgetary constraints, every euro spent on by the Greek state on the diversion potentially meant the loss of one euro of EU matching funding to any alternative (EU approved) investment. Although opinion polls in 2005 and 2007 revealed a significant majority to be against the diversion, in the context of corruption in Greece it made perfect sense. EU agricultural subsidies created a powerful voting block with vested interests in the status quo; construction companies working on the diversion channelled part of their profits into ensuring positive media coverage for politicians in favour of the project, such as the Environment and Public Works Minister George Souflias. Agricultural subsidies contributed to transforming farmers into bureaucrats, who then used their political clout – along with more direct methods such as blocking travel arteries – to demand further subsidies. Yet despite increasing farming incomes in the short term, EU agricultural subsidies have not succeeded in fostering the development of high value, export-orientated, goods.

Structural and Cohesion Funds have predominately been directed towards investment in physical capital (tangible assets such as roads, buildings, machinery, ports, airports, etc.). Some of these, such as the port of Linara on Skyros, are clearly white elephants. Many of the sewage-treatment facilities built with EU aid are not operational. The correct decision to fund the creation of a national cadastre in the 1990s was undermined by financial mismanagement on a grand scale, with Greece eventually losing more than 1 billion euros in allocated funding. Greek dependence on EU aid meant that increasing the absorption rate (i.e. the level of spending in relation to the total amount of structural funds available) became an end in itself, with effective investment only a secondary concern. EU support was thus directed towards easy and politically advantageous projects, particularly road building, that had the potential to cause significant environmental damage. Despite such projects, public sector inefficiency resulted in low rates of absorption.

Greece's entry into the euro served to consolidate a development path characterised by investment in physical capital. Dramatically lower interest rates and access to cheap credit led to an unsustainable boom in construction and consumption. Spending on facilities for the Olympic Games constituted the apogee of this delirium. The construction of the rowing centre at Marathon, to cite but one example, cost twice the amount of a proposed alternative rowing centre northwest of Athens, simultaneously placing a Natura 2000 wetland under even greater threat.

As Ioli Christopoulou has argued in her study of the impact of Structural and Cohesion funds in Greece, EU funds served to promote a particular growth model. "The view of the Commission that infrastructure investments are to be prioritised among structural investments has trickled down to the national and regional levels influencing selected funding priorities".^[3] Attention to the environment may, she claims, have increased over the years, yet actual spending remains largely unchanged. Despite the current crisis, many mistakes from the past are being repeated in the present.

Build and be damned

Constrained by Greece's inability to devalue, the EU-IMF plan is composed of a number of interlinking measures: increasing tax revenue, decreasing expenditure, liberalising the economy, restructuring the state apparatus. However, raising revenue through the privatisation of land and attempting to stimulate the economy through construction has negative implications for Greece's social and economic development in the long-term.

The IMF "Memorandum of Economic and Financial Policies" has forecast 50 billion euros in revenues from privatisation.^[4] The target date for raising this sum was originally 2015, later revised to 2017. After a tragically slow start, Greece's privatisation fund (TAIPED) has recently been moving swiftly to prepare state assets for privatisation; nevertheless, the legal contracts binding corporations such as the Public Gas Company (DEPA) are causing inevitable delays. The total value of assets, excluding land, that Greece can easily privatise remains unclear: estimates vary from 13 billion euros to approximately 20 billion. The remaining sum is supposed to be made up through the sale of state land, largely for commercial and touristic development. This will involve the sale of coastal land and perhaps even heritage sites on an unprecedented scale. Since this would, in certain cases, be unconstitutional and thus likely to be objected to, legislation has been passed allowing the leasing of state land to developers for a hundred years.

However, market fears of a departure from the eurozone and the absence of credit have so far hindered far-reaching privatisation. Until the fate of the euro is clarified, investors will be loath to take risks on the Greek market. To cite but one example, the privatisation fund had to postpone the deadline for expressions of interest even in highly profitable assets such as the gaming company OPAP. With the exception of the Elliniko, Athens' former airport, which was to have become a park catering for the capital with the least green areas in Europe, the privatisation of state land has so far not progressed from the legislation to the implementation stage. The latest IMF report concedes that "if market conditions do not improve, sales would have to be spread over a longer period of time, with program targets re-calibrated further".^[5]

Further legislation related to the construction sector was passed without any consultation process as an addendum to the Greek government budget in August 2011. This facilitates construction in areas designated as outside town zoning limits. Owners of 15 hectares are henceforth allowed to build on up to 35 per cent of the land at their disposal. Despite constitutional objections, legislation allowing for the legalisation of illegal homes is already in place and being implemented. In October 2011, 95 per cent of the "Green Fund" was incorporated by law into the central government budget; along with many other things, funding for the protection of Greece's forests came from this fund.

Clearly, the purpose of these measures is to generate revenue and reduce expenditure on environmental protection. According to Elena Panariti, a PASOK MP and former World Bank economist, Greek government policy should aim to reduce the gap between formal rules and informal procedures. On this understanding, illegal structures (buildings etc.) and practices should be legalised and thus incorporated into the official economy.^[6] This would inaugurate a period of rapid economic development, along lines that have been tested in other peripheral countries, particularly Latin America. Miranda Xafa, an influential liberal economic thinker and formerly a member of the board of the IMF, adds the proviso that "achieving 50 billion euros in revenues is only realistic if state land is privatised; such privatisation, however, is tightly correlated to growth".^[7]

Opposition to some of the measures has been considerable albeit underreported. Greek NGOs (e.g. the Sustainable Aegean Programme of Elliniki Etaireia, Etaireia Prostasias tis Fysis, WWF Greece and others) have been arguing that Spain, which has up to 700,000 unsold properties along its coasts, shows that the demand for second homes does not necessarily exist. Property bubbles in Ireland and the US have also revealed the perils of a development policy based on construction. Greece, with over 15 per cent of its GDP dependent on tourism, must preserve its natural and cultural environment. Despite the crisis, tourism was up 10 per cent in 2011, proving to be one of the few growth areas in Greece's economy. Widespread construction would not make the Greek economy more productive; on the contrary, it would eliminate one of the few sources of productivity that Greece has so far relied on. Furthermore, the tidal wave of policies fostering construction mean that the Greek state will in fact be competing against itself: laws facilitating construction on private land outside zoning areas necessarily reduce revenue from the privatisation of state land. The elimination of the "Green Fund", in combination with measures legalising illegality, are likely to lead to a surge in forest fires akin to those in 2009 and, given the lack of an adequate cadastre in many parts of the country, to land-grabbing. Legal proceedings against government legislation have, however, not yet progressed, since constitutional appeals can be raised not at the legislation per se, but against executive decisions on a case-by-case basis. Given the inefficiency of Greece's legal system, the resolution of legal battles should not be expected any time soon.

On a party-political level, Tina Birbili, an ally of the former Prime Minister George Papandreou and Greece's first ever Minister of the Environment, was sacked in June 2011 as an obstacle to policies promoting construction; Synaspismos and the Democratic Left have been up in arms. Nikos Chrysogelos, an environmental activist and Green councillor for the South Aegean who led the Greek Green Party (Oikologoi Prasinoi) in the last parliamentary elections, has focused on the consequences of such policies for climate change, a field that has dominated European Environmental policy: "The Aegean is an extremely water-scarce region and the islands very sensitive ecosystems. The mass construction of new buildings on the islands will contribute to an extreme rise in energy consumption and liquid and solid waste production, not to mention the operational cost of the necessary infrastructure for the local communities." He adds: "How can policies such as these be implemented at the behest of the EU without even basic environmental planning?"^[8]

A large number of local councillors from the Aegean regions of Greece have signed a petition against government policies encouraging second home construction.^[9] The liberal MEP Theodoros Skylakakis (Dimokratiki Symachia) has argued that, environmental concerns aside, the measures represent an additional threat to the Greek banking system, which holds much of its collateral in property; mass construction would reduce the value of this collateral.^[10] These parties' influence is limited, however. And while the MEP and economist Kritonas Arsenis (PASOK) has waged a press campaign against a developmental model based on the construction of holiday homes, he has found himself isolated within his party. The perception fostered by the major political parties that Greece is de facto no longer a sovereign nation with regard to its economic and environmental policy might explain why people despair at the myriad changes taking place around them.

From democracy to imperium

The EU-IMF policy-makers currently overseeing the Greek government face a complicated situation. Greece is insolvent. It is in the midst of a depression, GDP having dropped over 15 per cent over three years and projected to keep falling. It is running a primary budget deficit of approximately 10 per cent of GDP in 2011, down, but nowhere near target. The government has been forced to announce new packages of austerity measures in a bid to save extra billions, yet revenues consistently fall below expectations. "Voluntary" debt reduction schemes create insolvency problems for Greek and European banks, which therefore reduce credit supply, requiring additional support to prevent the onset of ever wider economic crises. And then there are the social consequences in a country already facing an unemployment rate of at least an 18 per cent, an increase of 5 per cent in one year, according to figures that many consider conservative. Crime, disease, suicide rates and homelessness have also rocketed.

Greeks feel trapped. Unless they are willing to accept a massive and immediate reduction of their standard of living, potentially worsening the social situation to breaking point, people have no other option but to follow the policy diktats of the EU-IMF in return for irregular doses of "memorandum" cash. Opinion polls show that, for the moment, the majority of Greeks are still prepared to take this course, if only for fear of the consequences of leaving the euro. However, parties opposed to the "memorandum" of the EU and the IMF are on the rise, already garnering almost as much support as PASOK and ND combined. Regardless of whether parliamentary elections are held in February 2012, there is likely to be an increase in nationalism and anarchy, with unpredictable consequences for Greece and the wider region.

From left to right on the Greek political spectrum, the lack of democratic consultation on the national level and the democratic deficit within the EU as a whole (typified by the reaction to George Papandreou's admittedly ill-conceived referendum plan) are causing consternation. It is at least ironic that civil society has found itself cast as an obstacle to EU modernisation. In a recent satirical poem by Orpheas Apergis, Greece becomes Europe's "foster child", picked up by romantic tourists on a whim; now, addicted to her "Rheingold", the screwed-up-sophisticated child ponders what her gilded prison was really worth. She waits, passively, while a nanny administers poison as a curative.^[11] But as the example of the ultimate "polis", ancient Athens, recalls, it is but one small step from democracy to imperium. Despite the rhetoric of democracy in Pericles' funeral oration (taught in Greek schools today as the nearest thing to an official ideology), the Delian League's treasury was transferred from the neutral island of Delos to the Acropolis. The worry is real: might ancient history prove comparable to the pooling of economic sovereignty in an undemocratic EU? What will happen when Greek citizens come to view the EU as responsible for the sale, exploitation and destruction of their natural and cultural heritage?^[12]

Sharing the onus

The aim here has not been to deny Greek responsibility for developments in the country over the last decade. Stereotypes like that of the "lazy Greek" are wrong (Greeks work an average of 42.1 hours a week, more than anywhere else in the EU) and border on racism. Nevertheless, individual and collective responsibility in varying degrees is there for all to see. As the political scientist Takis Pappas argues, the Greek system has been based on clientelism, with the state in the role of primary patron, mediating, among others, between the citizen-client and the foreign underwriter in the form of the EU.^[13] A recent OECD Public Governance Review reveals the extent to which Greece's crisis is the crisis of an incompetent and burdensome state following excessively lax fiscal policies.^[14] Even tax evasion is, in part, the result of the correct perception that the tax authorities operate as rent-seekers.^[15] Elena Panariti thus has a point when she argues that laws, including environmental laws governing land use, need to be simplified and made more transparent, thus reducing the disparity between formal rules and informal procedures. This is not, however, the same thing as creating a property developers' paradise.

Nor should it be argued that EU aid to Greece has failed across the board. A number of large-scale physical capital investment projects will have a lasting effect on Greeks' quality of life: chief among them the Athens metro and airport, and some of the more effective investments in drinking water and sewage-treatment installations, such as that on the island of Psitalia, which serves Athens. Similarly, a number of smaller restoration projects have proved a real boon, contributing both to Greece's and Europe's cultural identity and to Greece's tourism industry. One example is the EU-funded archaeological excavation at Messene, granted a medal by Europa Nostra, an organisation at the forefront of the movement for the creation of a pan-European civil society. A common characteristic of these success stories is much closer monitoring by the Commission and civil society, either because of the projects' large scale or because of activities of NGOs on the ground. Worryingly, under pressure from member states, the EU has decided to reduce the role of the Commission in the supervision of projects for 2007-2013 and subsequent periods.^[16]

The EU has talked the talk, and, most significantly, insisted upon EU law (the acquis communautaire) being incorporated into Greek policy. Nevertheless, though hard to evaluate due to the difficulty of distinguishing between actual transfers and other compounding factors, the record of EU aid to Greece should not be considered positive. The extent of the aid has meant that financial transfers have been seen as an end in themselves: as being the main force for modernisation. By directing structural and cohesion largely towards physical capital, the EU set Greece on a development path dependent on exogenous support. Above all, EU aid has strengthened the position of intermediaries and rent-seeking elements in the Greek economy. Intermediaries and rent-seekers have been largely but not exclusively Greek. The Siemens and Ferrostaal slush funds used to bolster exports to the periphery have not been adequately brought to justice.^[17] Practices linked to the inter-European arms trade, a Danegeld for our times, remain largely invisible.^[18] "Remember those helicopters, Monsieur l'Ambassadeur": successive governments of Greece made sure they did remember. Even on occasions when EU support has been properly directed, the result has been to release Greek government spending for patronage and other political purposes. There is therefore a positive correlation between EU aid and the size of the Greek public sector.

Given the trap into which Greeks allowed themselves to fall after the incorporation of their unreformed economy into the eurozone, and the EU's role in dictating Greek policies and politics in the present, the EU shares a large part of the onus for the creation of a viable framework for Greece to emerge from the crisis. The EU must be firm when it comes to the implementation of its aid programme, but the programme's objectives should also be redefined. The role of civil society, and of the European Commission in the planning, oversight and implementation of projects, should be increased. EU policies should focus not on investments in physical capital but on structural reform. This means, above all, strengthening institutions: bolstering administrative efficiency – especially with regard to juridical, tax and planning authorities – and resource efficiency, including protecting the environment. The widespread sale of land and the destruction of Greece's environment will lead to a form of post-Sovietisation, as attitudes towards state authority and the EU grow increasingly anarchic; a growing gap between official rules and unofficial practices will be the inevitable result.

A "Task Force for Greece" under the auspices of the Commission has been established whose aim is to increase absorption rates, which now stand at less an a third of the total for the 2007-2013 period. Given the circumstances, the decision to reduce Greek co-funding of projects to a token 5 per cent should be commended. Johannes Hahn, European Commissioner for Regional Policy, has proposed that the Task Force supply funds directly to viable enterprises suffering due to the liquidity problems of the Greek market, a first for EU Structural and Cohesion Funds. Still it should be noted that the Structural and Cohesion Funds are being used to stimulate growth and preserve employment in the short term, never their aim, but frequently their practical impact. But if it is the myriad practices of the short term that bear upon medium- and long-term development, then the EU should be calling for a clean break with the consumption and construction fuelled practices that led Greece to the current crisis, not administering another, bigger dose of the same drug.

To be fair, the Commission has limited room to manoeuvre. With expansionary policies on a pan-European level having been ruled out, EU funds constitute the only available tool to foster growth in Greece. The Task Force will emphasise the reform of the Greek state, and will hopefully pay attention to local as well as central government, liaising with elected local councils to create strategic plans for sustainable growth in each region. Still, such policies are not sufficient. Without determined action by the countries of the centre to prevent Europe-wide recession and a collapse of the euro, the reform process in Greece and elsewhere will be prematurely extinguished. Contrary to much recent rhetoric,^[19] Eurobonds, correctly designed, would enhance a pan-European reformist agenda. In Greece there is an increasing danger that the requirements of fiscal contraction will lead to a broken state, a broken environment and a humiliated society. As a manifesto signed by prominent German Green and Social Democrat politicians makes clear, austerity programmes are not enough: "Germany now holds the key to the future of European integration and the prosperity of 300 million people in the euro area. It would be fatal if Europe were to founder on the narrow-mindedness of a German government."^[20]

Angela Merkel has gone out of her way to stress that the current crisis is not a sprint but a marathon, an unfortunate metaphor given that the first Marathon ended with its runner, Phidippides, dead. However, if Merkel is right, Greece should not sacrifice her long-term advantages, her natural and cultural environment, in order to reduce the risk of contagion to the centre. Preserving Europe's environmental and cultural heritage is as important as rescuing her banking system. Moreover, the EU-IMF policy mix that pushes construction as the main source of growth is actually value destroying.^[21] Properly understood, the set of rules governing debt and those governing environmental protection are not incompatible: good debt management, social protection and environmental and cultural conservation are all elements in sustainable development. The combination of these elements could, over the long-term, make Germany a model for other European countries. It is the lack of all three elements that is threatening Greece today.

Both Braziliero and Sotiris Goritsas' other classic, the road movie Balkanizater, depict dystopias. Here on the periphery we have spent much of the past century dreaming of Europe – utopian font of Enlightenment, order and progress. Modernisation has long been coterminous with that ugly word, "Europeanisation". And yet, as the title Braziliero suggests, we are shaking to the tunes of Latin America, at least as that continent was imagined a decade ago. Today, Latin America has emerged from its debt crises. Brazil, post Lula, is booming. Asked recently about the situation in Greece, Goritsas retorted: "This experience [...] provides outstanding material for a film. [...] Tired of unrestrained consumerism [...] I had hoped the crisis would help us recover lost values [...] but what is happening is not what I expected. A state of violence is on the increase, both in Greece and Europe".^[22] Perhaps Goritsas' next film will be named after our own increasingly dark continent, "Europe".