A guest post by Amy Verdun. With our thanks for being the first colleague to join us in this blog’s discussions.
In the past days the euro debt crisis has cost the political lives of Greek Prime Minister George Papandreou and Italian Prime Minister Silvio Berlusconi. What is going on here? It seems that the management of the euro area has now become serious stuff. Political leaders are required to ensure they are able to meet the requirements of being in Economic and Monetary Union, in particular the euro area, whilst maintaining domestic political credibility.
What may look on the surface as two similar situations in reality represents quite different situations. The Greek Prime Minister spent the last months of his political life as prime minister juggling between the needs of Europe and the needs of his domestic political constituency. All this time he sought to strike the right balance. He came home with a financial package agreed to by the European Union leaders in the early hours of 27 October to ensure he would be able to attract enough funding to refinance his debt. As a last surprise action he called for a referendum. It was a daring step, for one who held democratic ideals in high regard, but it proved to be a bridge too far. He had failed to inform his European counterparts, who were taken by surprise, and not amused. The financial markets reacted the same way. The result: tremendous financial and political turmoil and talk of Greece needing to leave the euro area, perhaps even the European Union (EU). Papandreou capitalized on the dire situation to obtain approval from the opposition parties to support the reform package. He survived a motion of no confidence but still needed to make room for a coalition government under a different leader. Meanwhile Lucas Papademos, formerly with the Greek and European central banks, has now stepped up to the plate and has been sworn in as the new Prime Minister. It is noteworthy that the choice has been made for a technocrat (an economist) with tons of experience in the European Central Bank, a prominent European institution, but with no political experience. Yet, it probably is the right step at the current junction. The country needs stability and good communication with European partners. The hope is he can communicate equally well with the coalition partners and convince the Greek public of the difficult steps that need to be taken.
The situation of Berlusconi may seem similar: Political leader makes room because of euro debt crisis and market speculation. In my opinion the situation is quite different. For starters, Berlusconi, contrary to Papandreou, failed to obtain a motion of confidence in the Italian parliament on Tuesday, although he did manage, at the eleventh hour, to push through reform packages. Contrary to Papandreou, Berlusconi has not been trying hard to make the necessary reforms in Italy, to address the urgency of the situation, or to liaise with Europe or with opposition parties. His goal for many years seems to have been to stay in power, to stay out of jail, not having spent too much attention to improving the lives of ordinary Italians. Probably his most remarkable achievement has been to stay in power so long. Italy was long known as a country that had as many governments as years since the Second World War. Berlusconi served off and on since 1994.
What is of course similar to the Greek situation is that the person replacing Berlusconi as Prime Minister will be Mario Monti – again a technocrat, economist, with strong European credentials. Mr Monti is a former EU Commissioner for Competition Policy. He too has a clear understanding of how European institutions work. At the present time it is unclear what the new government will look like whether it will be made up of more technocrats or a mix of technocrats and elected officials.
This step in European economic history is an important one, not only for the two countries involved. The rest of the euro area will be keeping a close eye on the new leaders of Greece and Italy in the hope that under their rule Europe can make another step in the direction of moving on toward more integration rather than disintegration. Let’s hope the technocrats will do a good job balancing their jobs as prudent economists and clever domestic and European political leaders.