A Juncture of Stateness: Political Challenges and the Euro Crisis in Southern Europe

THE CES EASTERN MEDITERRANEAN AND EUROPEAN STUDY GROUP

A JUNCTURE OF STATENESS: POLITICAL CHALLENGES AND THE EURO CRISIS IN SOUTHERN EUROPE

A Discussion with Professor Kostas A. Lavdas February 12, 2015

The Eastern Mediterranean and Europe Study Group at the Minda de Gunzburg Center for European Studies at Harvard University brings together scholars, policymakers, and practitioners with expertise on the Eastern Mediterranean region – Cyprus, Greece, Israel, Lebanon, Syria, the Palestinian Territories, and Turkey. This Study Group focuses, in particular, on how contemporary geopolitical and cultural factors are reshaping the dynamic, reflexive relationship between the Eastern Mediterranean and Europe.

This event was made possible with the generous support of the Embassy of the Republic of Cyprus in Washington, D.C.

Eastern Mediterranean and Europe Study Group

A Juncture of Stateness: Political Challenges and the Eurocrisis in Southern Europe Overview Against a background of economic and fiscal crisis and a renewed politicization of the European project, Greece’s parliamentary election in January ushers in a year of national elections in Europe: there are parliamentary elections in Estonia, Finland, Britain, Denmark, Portugal, Poland, and Spain, in addition to a presidential election in Poland. The talk provides a critical reading of the road to current developments in the EU and the eurozone and of the prospects ahead for Southern Europe in particular. It is argued that in 2015 a number of EU member states will face a juncture in terms of both political economy and political performance. The challenges are multiple and the particularities of different domestic contexts will mediate in unforeseen ways the content and implications of EU-states interactions. As a case study, the Greek election (widely seen as a case of radical change and possible discontinuity) offers a number of significant elements of continuity in terms of the country’s political culture and party politics, in addition to manifest dimensions of change and symbolic rupture.

SPEAKER Professor Kostas A. Lavdas

Constantine G. Karamanlis Professor of Hellenic and European Studies, The Fletcher School of Law & Diplomacy, Tufts University

CO-CHAIRS Dr. Elizabeth H. Prodromou

Visiting Associate Professor of Conflict Resolution, The Fletcher School for Law & Diplomacy, Tufts University

Dr. Payam Mohseni

Iran Project Director and Fellow for Iran Studies, Belfer Center for Science and International Affairs, Harvard University Kennedy School of Government

Minda de Gunzburg CENTER FOR EUROPEAN STUDIES at Harvard

TRANSCRIPT OF PROCEEDINGS The title of this talk was finalized a couple of months ago, following your kind invitation, but it would be pretentious or worse to ignore what is happening today in Greek-EU relations after the January election in Greece. I will, therefore, perhaps successfully, perhaps not, try to merge, if you like, two different ways to approach the “juncture of stateness”. One is my initial interest in talking about the state and evolving “stateness” in today’s Europe. And the other of course is the dramatic crisis in relations between Greece and some other states and EU-level developments. So this will be a 45 minute presentation on both aspects and then I hope we can have a fruitful Q&A session, which almost always turns out to be more interesting than the presentation itself.

So I’ll give you first a couple of concepts. I wish to look at the ways in which the European project has become so politicized recently and this politicization of the European project reminds me of something that a distinguished professor at Cambridge — the other Cambridge, the older one in England — John Dunn, once said about Europe: that it’s either going to become political or it’s unlikely that it will succeed. And it is true that although there are ugly and unpleasant aspects, for example the extreme right and the phenomenon of Golden Dawn in Greece, or maybe even the National Front in France, phenomena such as these are not very pleasant, one could still say that politicization as such is a condition that one needs to somehow welcome because otherwise the European project would become empty of the real sources of political content and contestation.

I think we are now entering this phase of politicization that will include a number of unpleasant phenomena as well but it will probably lead also to (a) a number of overt patterns of conflict over the EU, and (b) possibly one or two new cleavage lines. I would like to talk about these cleavage lines and of course hear also your views about them. And then I would like to include the Greek case which is fascinating, and like I said I cannot simply pretend that this change in Greece is not happening and press on with the paper I had initially planned to present. It is happening, it is very interesting for political scientists and I think one can see it from a number of different optics, and I’ll try two such different optics today.

Stateness and the European Project So to begin with, “stateness” is a concept, more or less familiar to some of us, not necessarily familiar to all.

Political scientists and political philosophers and international relations specialists and so on may recognize a concept that has actually travelled a lot since it was introduced in its modern incarnation in the 1960s by Nettl in a rightly famous article on “stateness as a conceptual variable”, utilized more recently by scholars like Fukuyama. And the reason why I want to focus on “stateness” as a variable rather than “sovereignty” is because sovereignty of course in today’s Europe is becoming such a complicated concept that for me at least – obviously not for everybody however – it creates all sorts of problems to use to if we want to address different relations between states. Obviously, sovereignty has a formal aspect that is necessary to international lawyers.

But it also has now certain behavioral aspects as well as certain semantical aspects and very often now we talk about sovereignty in ways that ultimately point to the intersubjective realm rather than legal concepts or even political concepts. And much of the debate when it comes to sovereignty in Europe has moved a lot from this more traditional notion of the pulling of sovereignty in integration and moved in a number of directions and I have found it increasingly unnecessary to become entangled with this. By contrast, I think that stateness is again, as it used to be in the past, a fascinating concept to approach the problems in today’s Europe, because stateness as a concept involves a combination of a number of different dimensions of actual state practice and state behavior. It involves the proactive, the coercive, as well as infrastructural aspects of states’ existence and behavior and the main question therefore is: what has the European integration project done to stateness— what is the impact of EU integration on stateness? Not just on particular states, say on France or on Germany or Italy or Greece or Malta for that matter, but on stateness in today’s Europe.

To talk about stateness meaningfully in this context one needs to at least distinguish between states’ capacities, states’ autonomy and the legitimacy of states. Table 1 summarizes this debate, focusing in particular on two crucial dimensions of stateness: capacities and autonomy. What happens to these dimensions of stateness, as European unification evolves in its asymmetric and often erratic ways? This is a question we need to Page 1

A JUNCTURE OF STATENESS: POLITICAL CHALLENGES AND THE EURO CRISIS IN SOUTHERN EUROPE ... Transcript of Proceedings

ask again and again. By capacities, I mean the relation between the scope and extent of state activity and the strength and effectiveness of state activity. By autonomy I obviously allude to a degree of collusion with interest groups and organized interests and the different modes of access that interests possess in the different political systems and also the extent to which the formation of goals of state activity is through processes of relative autonomy. Finally, I’ll be looking at issues of political legitimacy. And legitimacy, one can look at from different perspectives. I’ll be looking basically at legitimacy from three specific perspectives: one is the role of opposition, the role of political and social opposition which is crucial. The second is support for the political system in the very traditional systems-analysis perspective. And, finally, the notion of political justification.

Table 1: Dimensions of Stateness: capacities/autonomization

I think we are all aware of four (or maybe four and a half) ways to approach the relation between the EU and member states, they have been present for the past two, maybe three decades and I don’t want to rehearse them here: federalism, neo-functionalism, intergovernmentalism, multi-level governance and maybe constructivism of late. But I do wish to argue that there are some ways to view this relationship as a relationship between stateness and the European project. A rather clear-cut one had been proposed years ago by eminent historian Alan Milward in the UK who interestingly suggested that the European project has in fact rescued stateness, rescued the European state from a process of attrition and near irrelevance. But of course there are other approaches as well. And what I want to do is basically play with such possible approaches that have tried to talk meaningfully about stateness as a concept in transformation. However the input which is not symmetrical indicates that different transformations take place in different parts of the EU and therefore we need to talk about the EU as a catalyst for asymmetric or non-symmetric transformations of stateness in different parts of the European Union.

So, yes, definitely there have been transformations of stateness, but these are asymmetric. And because they are asymmetric they tend to assume different forms and they become significant in different ways for the European Union. So first I want to walk us very quickly through political and economic developments and then after I have done this I will, as promised, focus on certain major issues concerning the EU and the Greek case today. Now, there is no way one can talk meaningfully about the EU today without reminding oneself that part of the issues have been the result of the crisis in the EU, not just the Eurozone, and in fact the parameters of the management of the crisis became first evident in the management of the crisis in the European Union Page 2

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before it became a crisis of the Eurozone. The case of Latvia, Hungary, and Romania are very important in this context, and they are very important because it is with these cases outside the Eurozone but obviously in the European Union, that most of the major parameters in the approach to crisis management and the attempted implementation of a new order in the European Union were decided. Basically, I would agree with the approach proposed by people like Susanne Lütz & Matthias Kranke and others who have suggested that in fact what happened with Latvia, Hungary, and to some extent Romania, is that the IMF was brought in for two different reasons.

One reason was that countries like Sweden—the banks of which were very worried about exposure in Latvia — were insistent that an external enforcer should be brought in, and that an experienced external enforcer, in this case the IMF, should be considered part of a solution for providing structural assistance and rescue packages to countries like Latvia, Hungary and Romania. So one reason why the IMF was brought in was because the EU was in need of an external enforcer. Why so? Basically, because as we know, the EU even after Maastricht was keen to work basically with both carrots and sticks but the results of sticks – the whole enforcement and compliance culture – were weak and notoriously difficult to improve for a number of very good reasons – consider, for example, the work of scholars such as Maria Mendrinou, to use a Greek name. So games of enforcement and compliance have not just been difficult but also very tricky for the EU, and therefore Stockholm and Berlin and other capitals insisted that an external enforcer with a long experience in compliance and regimes of compliance should be brought in and help with areas of expertise and other ways to make sure that agreements could be implemented. The second reason originated in the IMF itself rather than the need of people in Sweden or Germany or other places to have an external enforcer on agreed rescue packages. And that was the search of the IMF itself for a new role and interestingly this search for the new role came at a time when the IMF had become much more flexible in terms of its stance with regards to economic conditionality. To put it differently, when the IMF was asked to help Hungary and Latvia, the IMF had become much more flexible than the EU itself with regard to the ways in which they should manage the rescue of Latvia and Hungary.

Dealing with demands for debt haircut is an entirely different story to which I will return.

The EU on the other hand was more worried for two reasons. First because as I said you have this legacy of very problematic compliance by many states but also because crucially these were after all EU countries that were simultaneously eurozone applicant states and were designated to join at some point in the single currency area, therefore it was also a question of conditionality associated with future accession to the eurozone. So you had to apply certain criteria and these criteria became merged with the rescue packages, hence the IMF became the more relaxed partner in this approach in comparison to the EU partly because of this problematic legacy, partly because these countries being designated future single currency members resulted in the EU becoming more concerned. And so of course you have the rescue packages – I don’t want to bore you to death with it, we are familiar with them more or less here. The most impressive in terms of scale and money spent is the Greek one. It’s interesting for a number of reasons but also Ireland, Portugal, Spain and Cyprus received substantial packages. This is also the process by which the particular crisis management has entered the Eurozone itself and not just the EU and this is also the process that leads to institutional development within the Eurozone, for example the passage from the EFSF to the ESM and so on. So this is also important for institutional development. However, if you look at ESM contributions, very briefly, obviously Germany at 27.14 % comes first, and France follows, and so forth. Frankly the ESM is a fascinating institution, I’m not so sure I would be prepared to talk a lot about its future direction but it is definitely a fascinating new institution, it’s an in-house sort of IMF let’s say, and we’ll need to come back to the ESM.

An EU crisis Now, the truth of the matter is that this is not simply a problem of certain member states in need. Of course, if you look at figures and you look at the data, clearly the crisis was to an extent a collective crisis. And it was a huge one. If you look at real GDP growth rate, you see how the United States and Japan appear to be bouncing back much better after the crisis in 2008-2009 in comparison to the Eurozone and the European Union Page 3

A JUNCTURE OF STATENESS: POLITICAL CHALLENGES AND THE EURO CRISIS IN SOUTHERN EUROPE ... Transcript of Proceedings

(see Figures 1-4). I’ve also used Iceland for comparison and we may want to come back to Iceland and look into an interesting case. But definitely both the United States and Japan were able to bounce back more easily in comparison to the EU as a whole and the Eurozone in particular. Also, although the crisis was more or less common for everyone, actual recovery was different, so although there was conformity in crisis there was huge diversity in recovery and if you look at these very interesting figures, you realize how recovery became a very interesting and actually very problematic process for some states, including for example Spain, Greece, and so on.

Figure 1: Real GDP Growth Rate Percentage (%) change on previous year (2005-2013)

Source: Compiled from the Eurostat, http://eceurope.eu/eurostat/data/. “GDP and main components volumes [name_gdp_k],” accessed 01/09/14

Figure 2: Real GDP Growth Rate Percentage (%) change on previous year (2007-2013)

Source: Compiled from the Eurostat, http://eceurope.eu/eurostat/data/. “GDP and main components volumes [name_gdp_k],” accessed 01/09/14

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Figure 3: Debt to GDP Ratio for Selected European Countries

Figure 4: Unemployment Rate Comparison between January 2008 and January 2014

Source: Compiled from the Eurostat seasonally adjusted monthly average total unemployment, % [uno_rt_m] http://eceurope.eu/eurostat/data/. Accessed 02/09/14

Some of the so-called problem cases in fact were not problem cases at all when it comes to that, such as Spain for example. If you look at Spain back in 2008, before the onset of the financial crisis in the US, Spain even if you compare it to Germany, but certainly other countries like Italy and Greece, had a relatively healthy sort of situation in 2008. And because we are going to come back to Greece later, just to keep in mind the recent breakdown of Greece’s debt which is one of the reasons why I think the EFSF part of it needs to be looked at very carefully, and also to see what the government is going to do about the ESF part because it is the most important one (Figure 5). Unemployment tells the same story: if you compare unemployment rates, monthly average and changes in Japan, the United States, the EU as a whole and the Eurozone, you also get the same impression that of course some political systems in Japan and the United States have bounced back rather more easily. And this is a comparison between January 2008 before the financial crisis and early 2014.

The comparison is very interesting in cases like the Spanish one or the Greek one but also others. And of course there’s only one exception where unemployment is going better rather than worse and that’s Germany.

It’s the sole exception. But then there’s some good news as well—this was published just yesterday actually.

It’s the projection for 2015. If you look at projections for 2015, they’re supposed to be rosy in the sense that in Page 5

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Figure 5: Greece’s Debt Breakdown The Greek government has 315.5B euros in general debt, according to the country’s Statistical Authority

Source: Greek Statistical Authority, Greek Finance Ministry, EU Commission, IMF, December 2014 Note: Figures are approximate, refer to stock of debt, not interest charges.

(Information was cited on Bloomberg Business.)

Figure 6: European Commission Winter Forecast 2015

Source: European Commission

many cases, the projections are much better in comparison to last year. Greek growth for example from 1% is supposed to be at 2.5 % and that’s a projection for 2015, France at 1, and so on and so forth—Malta e.g. at 3.3% (see Figure 6).

This projection then leads to issues and questions about the politics of it. And to talk meaningfully about the politics of it, we need to talk about two different levels, one is the EP (European Parliament) level and the other of course is the national level. The EP level is something that I think will keep us preoccupied for some time as a result of the May 2014 Euro-election. The May 2014 election, as most of us are aware, was a shock for the European Union because it brought in a number of very interesting if unpleasant characters, interesting sort of Euro-skeptic parties, and a clear rise in anti-European populism: both right-wing and leftist radical populism (Table 2). And so basically, this goes hand in hand with this long term trend between 1979 and last year in the 2014 election of less and less people voting (Figure 7). Of course, that’s obvious, I don’t even need to say this, we are talking essentially about a different group of states. In 1979 the states were fewer but also a different set, more homogenous, in 2014 the states are more in number and also much more diverse. Still, it’s interesting to reflect on this for a number of reasons that I think will become clearer in a moment.

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Figure 7: European Parliament Elections Turnout Since 1979

Source: Compiled from the European Parliament. http://www.europarl.europa.eu/elections2014.

Table 2: European Parliament Groups after 2009 and 2014 Elections

Source: Compiled from the European Parliament. http://www.europarl.europa.eu/elections2014/ results/en/elections-results-2014.html and http://www.europarl.europa.eu/elections2009/results/en/ elections-results-2014.html. Accessed on January 3, 2015.

Now, in today’s EP, before we turn to the states, the crisis I think manifests itself in the form of internal balances between different groupings, taking a number of different directions and forms. Perhaps the most fascinating grouping to watch is the Europe of Freedom and Direct Democracy with the UK Independence party, and of course for the first time perhaps the grouping of non-attached parties has become such an interesting grouping partly because the National Front is there and partly because it’s the result of the National Front’s inability last year to form a new group with the Dutch and some other right-wing Euro-Skeptics. So the non-attached group has become important because the National Front and the Dutch interlocutors failed to actually form a new group in June 2014. And then of course you have the, let us say, pillars of stability which is clearly both Page 7

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the European People’s Party and the Socialists and Democrats. The People’s Party remains the dominant party despite losses, losses that are significant but it still is the major grouping in the European Parliament. The Socialists and Democrats are also interesting because they are the second largest group but if you look at their internal development and compare and contrast these two, the left in the European Parliament, then Socialists and Democrats appear resilient I think, but that’s to remind us of comparison between 2014 and 2009, which is interesting partly because of shifts in the groups. Partly because, clearly, a number of major national parties such as for example the SPD in the Federal Republic and the Labor Party in the United Kingdom have made the Socialists and Democrats such a powerful player whereas on the other hand the decision of the British Tories not to be a part of the historical European People’s Party has created this strange co-existence with the European Conservatives and Reformists and the rest of the mainstream conservatives. Let me remind us, just as a footnote, that in the European Conservatives and Reformists where the dominant part is clearly the United Kingdom Conservative Party, we have all sorts of different and difficult to compare parties including Independent Greeks, the small right-wing party that is now a coalition governing party with SYRIZA in Athens.

Because we now enter politics proper, the political implications therefore in the states, not just at the EP level, are fascinating for a number of reasons and first I will be very schematic and then I hope to discuss these reasons with you. First, we need to keep in mind that there are a number of states in which unexpected and unanticipated political outcomes were the results of direct or indirect factors clearly linked to developments in the Eurozone or outside the Eurozone but in the EU such as austerity packages. Figure 8 is maybe too neat but still very useful. This very clear comparison of “red” and “blue” states indicates states in which you had a number of political governmental changes as a result of the normal domestic line of developments (blue states) and states that have been affected directly by the crisis in terms of change of government or coalition formation or breakdown. And you’ll discover that a number of states from the south to the north, from Greece and Italy to Ireland and the Netherlands, you have major changes as a result of the impact of policy developments agreed upon at the European level ultimately. And this becomes even more interesting of course be-

Figure 8: Unscheduled Change of Governments in Euro Countries (marked red) Due to Crisis

Source: https://en.wikipedia.org/wiki/European_debt_crisis

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cause, like Elizabeth Prodromou said in her very kind introduction, this is just the beginning. This is going to be a year of national elections, some of them are going to be very, very interesting and important. For example Finland in April, the United Kingdom in May, then you have Denmark and Portugal, crucially, then you have the parliamentary elections in Poland, and in Spain you have parliamentary elections in November. And this is only February. And of course, timing is very important, therefore, for example, with the new Greek government now the fact that this election took place before the Spanish election or before the Portuguese election is very interesting in a number of ways, both constraining and also in terms of opportunity. So both opportunities and constraints relate to the fact of where elections take place first, what follows, etc. Obviously we can think counterfactually and consider various scenarios. For example, consider a Spanish election in February and a Greek election in November, or simply the Greeks avoiding an early election, and so on and so forth. So this sequence is, I think, an interesting and perhaps also entertaining area in the sense that it makes you think counterfactually.

Now, the implications for political systems can be grouped in two broad categories. One, implications for party systems; next, implications for cleavage lines. Implications for party systems concern both fragmentation and polarization – as perhaps most of us remember the notions from Sartori’s influential work. It implies number of parties but also ideological distance. So, for example, it is not self-evident that a two party system would necessarily be polarized because we are talking about ideological distance, but obviously it would be low in fragmentation. Whether it will be polarized as well is a question of ideological developments, issues, politics, and so on. And I think in most cases, the impact in these four years—and it’s still very early—has increased in terms of both fragmentation and polarization. Fragmentation increases in terms of new parties being produced in conditions of the crisis and the party systems therefore in most cases becoming more fragmented. Polarization also increases because in many, I think, in most systems, ideological distance with regard to, for example, bailout vs. anti-bailout, becomes important not just in states in receipt of assistance but also in states that belong to the group that provides funds for assistance.

And the related issue of course is whether we have an impact on the cleavage lines in European states. Now, I’m sure we’ll have the opportunity to talk about it in more depth in Q&A, but let’s just say that cleavage lines are not necessarily as crystallized as Rokkan and Lipset thought many years ago, obviously cleavage lines change and the connection now is in many states whether this pro- and anti-bailout stance is a transition to a European cleavage rather than simply a cleavage on policy preferences or particular packages of assistance.

In fact I think there is increasing evidence that we’re witnessing such a transition. And if that’s the case then we’re witnessing a very major shift in European politics. The first people to notice this were British analysts because it was evident in the United Kingdom well before the onset of the crisis and the debate of pro- and anti-bailout politics. But now it takes different forms in states in need of assistance (such as Greece) and also in states that have been invited to provide assistance (such as Finland).

Very briefly, let’s now turn utilizing this framework to some national cases that are particularly interesting — I cannot spend too much time on them as there are other aspects we may want to discuss in depth. Beginning with France, not because it’s a “red” state, it’s a “blue” state, in the sense that it was not affected in a way that directly provoked government change, but the rise of the National Front is so spectacular and interesting in that last European election that clearly the shocking triumph of the National Front was based on a number of issues some of which are clearly linked to European decisions and choices, this therefore makes for a very interesting case. Finland is a fascinating case because in Finland which is clearly not a state in need of structural assistance, you had a number of changes, clearly it’s a red state in our map, you had a number of changes which had to do with the European issue actually affecting the government, because it was a question of whether the Fins, the very strong new anti-bailout party, objected to Finnish assistance to member states in need. So, you have the Finnish system being preoccupied by a political crisis in the sense that there is a very strong opposition between people who think that Finland should be involved in the ESM and intuitions such as these and the Fins who are strongly opposed. Ireland—I wouldn’t use red again, perhaps green—Ireland is an interesting case because obviously it was a case in which a rescue package was used but it’s also a red case in the sense that it was a case that the government had to go to an early election. The same with Portugal and Page 9

A JUNCTURE OF STATENESS: POLITICAL CHALLENGES AND THE EURO CRISIS IN SOUTHERN EUROPE ... Transcript of Proceedings

with Spain. They were “red” cases, coalitions dissolved and brought down governments, had to go to early elections and so on. Then characteristically, when in 2012 an early election was again called for a second time, the Prime Minister said, we need to be fresh with new electoral legitimacy and then he fell of course and Rajoy came in. And the same applies to the Netherlands, which is obviously not a state in need of assistance but is still a state in which a government fell because they could not persuade the parliament to vote on the measures required for the Dutch economy. So it’s again a red state and a very interesting case. Slovenia is, again, a red case, an interesting one as well, and Italy, which is fascinating for a number of reasons apart from the fascinating adventures of Mr. Berlusconi, but it’s interesting because it’s a country that had to go through a number of elections – not necessarily such a big shock for Italian politics – but still the way in which Mr. Berlusconi had to resign, the way in which Mr. Monti had to come in, the way in which later Professor Monti had to give way to the next one, and then within the Democratic Party, Mr. Letta to Mr. Renzi, all these are shifts and changes that cannot be analyzed in the absence of the European factor, and the European factor has become very powerful indeed in domestic Italian politics. Finally Greece, one of the most interesting “red” cases. And Greece is a case in which the Prime Minister, George Papandreou, had to resign, and then they had to call another election, and then you had to call yet another early election, then again another early election this year, last month. Last month’s early election was a disaster for the mainstream established parties, both Pasok and New Democracy, but especially Pasok – between 2012 and 2015, Pasok lost approximately 62% of its voters, which is staggering. New Democracy lost about 7% of its voters, but again they had to actually leave office and give power to a new party in a national election marked again by substantial abstention.

Stateness and European commitment in the Greek case The Greek case is a fascinating one because it’s still in a bailout plan with an obvious need for an extension, it’s expiring on the 28th of February and therefore dates are important and we have to keep them in mind.

Now, let’s move forward to a comparison between Greece and another case, a comparison that’s very interesting in terms of comparative analysis. There have been a couple of papers already this year and last year of pundits comparing them: Greece and Portugal. Why is this comparison interesting? Well, first because the current Portuguese government has become very hawkish when it comes to reform implementation elsewhere, it’s very interesting, even more so than the German government. A few days ago, the economy minister in Lisbon said that Greece should abide by its commitments and it would be very difficult to talk about possible changes in agreed upon plans and so on. And Portugal is a case that maybe we have tried to compare with Greece because of its relative position in the European political system, because of the fact Portugal exited a three-year bailout last year, because of the fact that Portugal also had severe problems in 2010 and they had to go through a number of rescue packages and so on. And one of the questions that people want to answer is that why is it that Portugal exited successfully its three year bailout last year and started growing as an economy in 2013-14 while Greece still presents more interesting and perhaps more complicated problems. The comparison makes some sense also because the previous Portuguese government enacted really deep spending cuts, enacted interesting economic and in some cases – in comparison to Greece – sweeping economic reforms and privatizations without however feeling this heat of an extreme social and political opposition like in Greece, or in Spain for that matter. In this case Greece and Spain would be comparable and Portugal would be a different case. What explains this difference? And of course Portugal as we saw 10 minutes ago will have an election in October. And you don’t have any far left parties inspired by the Greek or the Spanish example that appear to be rocking the boat seriously in Portugal. So, again, that’s an interesting contrast between Portugal and Spain and Greece.

What can account for the differences? One can think of a number of factors beginning with the obvious and perhaps moving to the less and less obvious. The first is of course that although there are commonalities, the nature of the crisis is different in different countries. So for example public debt which was a huge issue in Italy and Greece was not a huge issue in Portugal. But public debt was low in Spain as well. So you can differentiate in terms of public debt between Portugal and Greece but not Portugal, Greece, and Spain so it doesn’t make sense as a major factor to help us reach some solid conclusions. A second set of parameters would involve domestic political economy and clientelism and the roles played by political and party systems and so Page 10

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on, but also – crucially – by the interest intermediation systems. In terms of party systems there have been attempts to explain the differences by looking at different modalities of clientelism in Greece and Portugal. In a contribution that is especially interesting, Afonso, Zartaloudis & Papadopoulos (2014) have made a number of crucial comparisons and I will draw on them here to an extent. According to this approach, Greek mass parties evolved since the 1970s at least with very extensive and also very demanding clientelistic networks and you can see this by comparing memberships of parties in Greece and Portugal, whereas in Portugal parties always had much smaller memberships and therefore less demanding clienteles so the clientele in the case of the Portugese party was smaller, less closely attached demanding and less, let’s say, less of a burden for the party and it was possible to say that the links that tie voters and parties in Portugal could be less clientelistic and more ideological than the links that tie voters and parties in the Greek case.

There have been a number of attempts to argue along these lines. To some extent I think this makes some sense, and to some extent this explains why Portuguese parties in opposition did not present the systematic, fierce resistance to reforms that Greek opposition parties presented from the 1990s to the January 2015 election. This is a systematically reform-resistant approach, which I think is very characteristic of the Greek case. You also have definitely looser connections with unions in Portugal and in addition to the weaker smaller reliance on clientelistic linkages this can to some extent help explain different outcomes. And, like I said, not only was the environment less reform-resistant but Portuguese parties themselves did not undergo the process of electoral collapse that Pasok and to some extent New Democracy went through. Adversarial politics, coupled with deep clientelistic linkages, were the norm in Greece in the 1990s up until last year. I don’t want to dwell too much on this, but it’s also important to take into account differences in the system of interest intermediation, because in Greece the interest-groups system is a much more complicated and much more composite one, comprises of sectors that are clearly corporatist as well as sectors that one could only describe as segmented pluralist. I had labeled the Greek system one of “disjointed corporatism” in a book several years ago. In Portugal, the system was more conducive to using, utilizing corporatism for reform and if you look at something very, very specific: the role of interest groups in the implementation of reforms in Portugal in 2010-11, 2012-13, and the role of interest groups in the implementation of reform in Greece, the contrast is fascinating because in fact there was no actual role for interest groups in Greece including for SEV, the alliance of business federations.

In the implementation of reforms in Greece there was an adversarial relation prevalent, whereas in Portugal, you had an attempt to incorporate these corporatist-consensual residues in the implementation of reform. This is something that people used to call—Martin Rhodes and others—some years ago, “competitive corporatism”: the idea that you can use corporatism not just as a classic tripartite scheme over years of growth like in Austria and Switzerland and so on, but you can also use it—and the label there was “competitive corporatism,” perhaps it’s not a felicitous label but anyway—you can also use it to try to adjust to change, not just manage traditional corporatist politics.

But again, although all these, like I said, they are very interesting variables, it still begs the historical question why Greece has been so prone to successive defaults. So for example, if you compare Greece with let’s say Portugal, and you ask a question how many times there was default, either official or semi-official, clearly Greece, Portugal, Spain are different. If you want to focus only on the 1970s, 80s, 90s, and the last decades and say: okay it is a different political system, let’s just focus on the political system after ’74 in Portugal and Greece and after ’76 in Spain, of course you can do that. However, if you take a much more macro-historic view, then you’ll discover of course that default is much more familiar in the Greek case (Figure 9). Although the explanation is – always is – complex and complicated, I think we need to be reminded at this point that states are not companies. We need to bring in another dimension which is the remarkably different role of military expenditure and military over-extension, in other words, of the military dimension of stateness in the Greek case, which also leads to particular issues of international relations and security in Eastern Mediterranean, which is something that we often leave out when talking about default, economic difficulties and so on.

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Figure 9: Sovereign Debt Defaults and Rescheduling, 1800 (or independence year) - 2010

Source: Business Insider

I want us to be reminded that Greece was the fourth largest importer of arms between 2003-2008, and even after the crisis, it remains the 15th and then 16th largest importer of arms, including sophisticated arms, sophisticated equipment, missile, aircraft, and so on. So this is a very interesting dimension because it obviously doesn’t apply to Portugal, it does not even apply to the same extent to Spain. Actually today, Greece has more submarines on duty in case of a military conflict than Germany itself, despite the fact that Germany produces submarines. If you just google it right now, let’s say at www. globalfirepower.com – a very good site for comparisons – you’ll discover some interesting features. So there’s a lot going on there in terms of money and interestingly this money is to some extent well spent. I’m not interested in the familiar argument that this is corruption and so on – there is corruption in defense procurement of course but the real issue is deeper, structural and obviously also geopolitical, and it also has a lot to do with the way in which the Greek political economy has been able to reproduce itself in a very delicate neighborhood. And the problem there is that although Greece spends a lot and in terms of NATO burden sharing should be a very valuable partner obviously, it does conform to very recent notions of burden sharing in NATO but it is not necessarily selling it this way.

Greece is selling this in a very different way. We have problems with the Turks, Greek-Turkish rivalry and so forth, it’s a very unfortunate way to sell this because as you guys probably know, we take part, for example, in NATO air policing which is a very expensive thing, and not all NATO members do that because they don’t have the everyday capacity to do it, and yet most Greek citizens don’t even know that, that we also spend money to do that. Money well spent. But the way Greece sells this is extremely strange although obviously it can be explained historically.

So there are many reasons that can help explain the divergences between Portugal and Greece. And in the Greek case, if we think back to this year of early elections, the year began with a bang. And the bang was the election of a left-wing radical populist government in Greece and maybe the promise of, let’s say, surprises for Paeg 12

Minda de Gunzburg CENTER FOR EUROPEAN STUDIES at Harvard

Spain later on. So, basically, we can think of both changes and continuities in trying to explain what happened in Greece in January. Obviously it is very early, I realize this, I don’t even need to say this, and when it comes to change, it’s pretty obvious, I think in terms of political symbolism is the most significant electoral change since 1981 when Pasok came to power. Also, it’s important in terms of political personnel change and political elite circulation that many government members now are former Communist party members and members of the Communist youth and some of the pro-European left and so on which is almost a first with very few exceptions from the Pasok era in the 1980s. But, then, if you take a slightly more detached view, there are also continuities. One continuity that strikes me as being crucial, even determining of developments is the reproduction of adversarial relations between the main political parties. That is to say the reproduction of adversarial conflictual and ritualistic politics between major polarized views on the country’s present and future. This is very important because it is not so self-evident as people take it in contemporary Greek political culture. Of course, other states have dealt with crises in different ways by shifting coalitions and trying to build coalition politics, consensus on the crucial choices and by what Lijphart used to call consociational politics. In Greece, we see the reproduction of adversarial ritualistic politics even after this obviously important change in January 2015.

We also see continuity in terms of nationalist and nationalistic discourse which I think is present in the new government but of course it was present also in a number of other governments as well, so it’s nothing new.

And, another continuity which I think is also striking is the notion of a public-sector centered development. So the public sector is again for SYRIZA the cornerstone of development, supposed to be the place where solutions are going to come from, but again that’s not something very novel because if you look at public discourse at both the left and the right, not just the left, for the past three or four decades, you see this being reproduced in a very systematic way and I think this is a very clear case of continuity. And obviously, in the next few days we are going to see a number of interesting developments regarding both the major electoral pledge on public debt restructuring and the major electoral pledge on the supposed end to austerity.

To conclude I’d like now to move more quickly toward the conclusions and focus on them for five minutes perhaps. So I think that if we focus on the real problems for Greece today then move on to conclusions on Europe and finally back to Greece, I think the problems for Greece today after the January election should not necessarily be linked to the negotiations on public debt. Debt write-off is not the real issue. After all, the country’s largest creditor is the EFSF (141.8 billion euros), and the average maturity of EFSF loans to Greece is just over 32 years, with the last payment due in 2053. Greece pays about 1.5 percent on those loans, and, in fact, any write-off will have only a minor impact in easing the debt-servicing costs before 2023. Greece’s real economic problems lie elsewhere, and so should SYRIZA’s negotiating focus. Of course, tackling debt is a very major political decision, if they want to focus on that. I can understand that as a political decision, because it creates coalitions, it creates contestation, politics, it creates new issues and so on and so forth, so maybe it makes domestic sense from a strictly political view, but I really don’t think that is the major issue for Greece today (Figure 5).

By contrast, there are other issues that are really crucial and rather urgent for today’s Greece. One is to relax the rigid troika focus on fiscal targets. This is becoming, frankly, unmanageable and I think that one of the reasons why the previous, moderate government was unable to govern, found it exceedingly difficult to govern was on the one hand very systematic and fierce political and social opposition, unlike Portugal for example, but on the other hand it was also the very rigid, very inflexible approach of the troika to fiscal targets, not to actual reforms and much-needed but demonized privatizations, which became a bit of a red herring, but really to fiscal targets. That was a big issue because it deprived Greek government and Greek opposition and Greek interest groups and Greek associations the ability to try and build meaningful coalitions on a tailor-made plan for adjustment, where the interest groups and the labor unions and so on could also play a constructive role.

So that’s a major issue, and one would only hope that the EU and Greece might find a solution to that. And

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then the other real issue is to break the impasse by starting to attract more foreign investment. Irrespective of what will happen with sovereign debt, I think that the only possibility for Greek economic development for the next ten, fifteen years is to boost foreign investment and that’s one of the reasons why Greece has been different from, say, Ireland or to some extent also Portugal. Foreign investment has consistently lagged behind, and without improvement on that area I think we’d still have problems irrespective of what happens with debt in 10 or 15 years. So, one of the things is that one would like to insist on is the link between questions of political stability and improving conditions for foreign investment, between focusing on the real issues for Greek development rather than spending more time on adversarial politics. And unfortunately I don’t see this happening. My early pessimism on Greece’s Europeanization in view of a porous and interests-colonized state coupled with very substantial military expenditures linked to the wrong rationale seems to be corroborated (Lavdas 1997).

So let’s reach some conclusions first on Europe, then on some of the cases including Greece. First, to reach some general conclusions, let’s go back to the “red” states on that map distinguishing between “red” and “blue” states, “red” meaning states directly impacted by the EU in today’s domestic politics and “blue” states that did it their way or didn’t actually experience an impact. In many of those troubled “red” states, electorates in 2011, 2012 and 2013 returned moderate governments, investing, if you like, in their ability to get a better deal. But from the perspective of the electorates this better deal didn’t materialize. So, for example, when Greeks voted for a member of the European People’s Party, New Democracy, they ended up with a government that often found it very difficult to negotiate with the troika and even with other governments that were partners within the European People’s Party. A better, more flexible, humane approach to fiscal targets is urgently needed.

So electorates went for moderate governments, and the moderate governments found it very difficult to find accommodation in Europe in many cases. And therefore as a result you have more fragmentation, but also more issue polarization and I think this is important, you need to keep it in mind. Secondly, 2015 is going to be a crucial year and to reach conclusions you will have to go on a state by state case, but some of the conclusions that can be general have to do with developments at EU level. The question there, the basic question is whether the long term horizon of cooperation will prevail. Think about it for a moment in terms of tit-for-tat games or, alternatively, games of diffuse or mixed reciprocity because as all of us know that reciprocity can be either tit-for-tat – specific reciprocity – or it can be reciprocity based on the relaxation of contingency (meaning, timing) and equivalence (meaning, the content of exchanges). And, if you have reciprocity based on relative relaxation of both contingency and equivalence, what people like Joseph Lepgold branded “diffuse reciprocity”, then probably we are going to see a number of compromises including compromises with Greece. If specific reciprocity becomes a norm, which is unlikely however in the EU, based on past experience, then we might also see ruptures and so on. And therefore if I were to generalize I would go through models of reciprocity be it specific, mixed or diffuse and ask to what extent actors are prepared to relax the contingency or the equivalence requirement, or both, and I’m prepared to talk about it in detail if you like in Q&A to try and build a more general scheme, trying to escape particular contexts in different countries. Because as I indicated, even comparing Portugal and Greece, the contexts are seriously different, there’s no question about it. So, third, another general conclusion would be that populism is going to be with us for a number of years and this applies to both left and right. There is left-wing populism which is on the rise and there is also, obviously, very ugly right-wing populism which is also on the rise, and this brings me back to some things I tried to spell out in the beginning at the possibility of a new European cleavage becoming the final product of this transitional focus on bailout and anti-bailout dividing lines in a number of countries. And of course, some of the things that Stiglitz and others have been saying make some sense and therefore obviously we need to look at them simultaneously. At EU and national levels, Greece could take this example of Portugal for that matter, it definitely needs structural reform but there is also a need to rethink some of the ingredients of the policy mix at EU level as well. And, finally, before we turn to Greece as a case study, timing is crucial because as I said in the beginning if the Greek election was after the Spanish election or the Portuguese election later on, and so on, developments would be different and the constellation of factors that result in today’s interesting policy games would be different and obviously counter-factual thinking can be weak but timing as such is crucial. To look at the Spanish case of

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course the strategy of political and social opposition in Spain will depend on some extent at least on the way in which the SYRIZA government will be able to negotiate whatever they want to negotiate.

So let’s now turn for a final look at Greece. Perhaps the first conclusion regarding Greece will cause an uproar but we will handle it. I think that recent years (2010-2014) have seen a modest and asymmetric increase in state capacities in Greece. If by state capacities we mean the scope, the reach, and the strength of state institutions. Why? Because there have been systematic – not always successful and definitely not symmetric – attempts to increase the presence of the state for example in highly oligopolistic markets, trying to increase competition, in some cases entirely unsuccessfully, but the attempt has been made more systematically since 2010 than I think any time since the regime change in 1974. The same applies to modest but real attempts to increase the revenue-extracting capacities of the state. There have been systematic attempts but these attempts have been, like I said, asymmetric and have often been frustrated. So when it comes to capacities my conclusion – which is perhaps counter-intuitive – is that through the crisis the capacities have increased, while the autonomy has not increased, there’s no question about it. Relations and the fusion of interests have gone through shifts but the overall autonomy of states and institutions has not increased while legitimacy has obviously suffered significant losses, especially democratic legitimacy and these losses have been, again, non-symmetric but they are significant, dramatic, and even dangerous.

What about future directions? Well, I’d like first of all to call your attention once again to the view of some people – including myself – that this focus on debt leads to an impasse in the short term at least, it will be counter-productive and can only serve domestic political purposes. But Greece’s incipient and fragile recovery (in the third quarter of 2014, Greece’s growth was higher than that of any other Eurozone member) was halted by politics, i.e., by the country’s early elections. The second point is that whatever we may want to name or label the features and possible outcome of this ongoing negotiation, it will have to be concluded real soon, this or next week or the week after, it will have to be very quick because if it doesn’t, even if Greece stays in the euro – and I think it’s 99% certain it will remain in the Euro and that’s a statement – there will be losses and they may have to use capital controls if they don’t fix the negotiation soon, preferably next week. So I think whatever they call it, a bridge, an extension, it will have to be quick. My third point is that we would have to go back to the debate again and again about fiscal targets, depending on developments. Fourth point, we will need to focus very urgently on predictability. Predictability has been one of the main weaknesses in the Greek case for businesses, for citizens, and so on because people cannot actually invest on the basis of medium-term, let alone long-term predictability. There is a tax system that changes every now and then so that alone is crucial.

Next point, how to bring in more centripetal politics and gradually leave behind the politics of adversarial ritualistic confrontation I talked about. Last but not least, a point about comparative military commitments. Greece’s substantial military budget can be seen from a number of perspectives and can be made to appear also from a diplomatic perspective much more meaningful – for example, in the context of NATO burden- sharing. But it definitely needs to be taken into account properly in this debate on stateness and EU development and it is not. This is a bizarre omission and I’d like to conclude by calling our attention to it. It is bizarre to compare and contrast say, Portugal with its practically minimal military commitments and expenditure and Greece with substantial military commitments and expenditure and pretend that there is no difference there, there is a difference and it has an impact and it’s huge.

Thanks very much.

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Chrysoloras, N. (2015). Greece Seeks Third Debt Restructuring: Who’s on the Hook? http://www.bloomberg. com/news/articles/2015-02-02/greece-seeks-third-debt-restructuring-who-s-on-the-hook. Accessed on February 4, 2015 Fukuyama, F. (2004). State Building: Governance and World Order in the Twentieth-First Century. London: Profile Books.

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