Forget Greece, Europe Must Change Its “Club” Mentality

We must put the interests of the EU as a whole first when sorting out our fiscal and financial matters  

Reviewed by: Christos Costandinides
Edited by: Christos Costandinides

You could argue the Greeks invented drama. There is no doubt that they’re over-spending, their economy is antiquated, inflexible and corrupt, and they have an excessively large public sector. The problems are evident. But the challenge in finding a forward-looking solution has proven to be very difficult within the European Union due to its governance structure.

The Referendum Accentuates Problems

After five months of negotiations, the referendum on 5 July has clearly not solved Greece’s economic problems: it has accentuated them. No surprise there. Successive Greek governments have been unable to articulate how their country could change and reform towards growth.

This episode has highlighted the lack of ability of Europe to govern itself, leading to the rise of the extremes both on the far right and the far left, the lack of European fiscal governance, and has opened the door for conflicts of interest.

The Greek government fights for a mix of uncontrolled spending based on populist ideology of the current leftist Syriza party. However, the German government and its satellite partners use this opportunity to wrestle a European governance structure that suits their own agenda, because that keeps them in power.

Why Austerity? It’s Not Working

But nobody has stepped forward to explain how austerity – and painting it as reform – helps to resolve the EU’s current economic problems. Indeed, mindless square austerity has prevented many countries from being able to pursue meaningful reforms and condemns them to continued depression. It has brought back extremism to the mainstream.

The reason for the focus on austerity is due to the fact that richer countries cannot justify or explain further funding for the European project to their electorates, but neither do they want to give up control by transferring the cost and authority to a central mechanism, perhaps Eurobonds.

But admittedly, the referendum has forcibly united the entire Greek system for the first time. Division has been main reason that prevented all previous governments enacting any reforms and serving to a full term. And now we have prime minister Alexis Tspiras – he has only been in service for five months. But more importantly the referendum has managed to obliterate the country’s long-serving and corrupt political dynasties.

Many argued that the crisis in Greece is not an economic one but a cultural one. If that is true, people have voted out the past, signalling change for the future.

So, was the referendum a good idea? Absolutely.

No Dead Ends In A Democracy

Alexis Tsipras has said and done many wrong things lately, but I do agree with one of his statements: “In democracy there are no dead ends”.

As it stands now, Europe is a club, one that is governed by whoever can throw the strongest economic and political punch.

The Greek referendum was a first rippling tremor through that system. The Italian prime minister talked more confidently last week about necessary changes to bring more democracy and growth to the entire region. There is a UK referendum regarding EU membership in 2017. The elections in Portugal and Spain this year are only going to ensure that the anti-austerity and pro-growth voices get louder. You see that’s the thing about PIGS – as some overpaid investment banker rudely called Portugal, Ireland, Greece and Spain at the outset of the crisis – they may not be very pretty, economically speaking, but they are intelligent creatures, and when they are hungry they scream.

Ultimately, the common currency can only survive if Europe’s fiscal matters keep the interests of the union at the forefront. There is no middle road: events over the last five years have made that resoundingly clear.

Cat-Calling And Mockery

Post WWII, history is once again mocking the Europeans. Sadly, the vast majority of influential leaders can’t resist this circus of name-calling and the camouflaged racism. Christine Lagarde’s statement at a recent Eurogroup meeting about “having adults in the room to resolve the crisis”, could not hold more true for the current European governance issue.

Europe is desperately searching for an ideology or an individual with a vision. Barring that, austerity is the alternative, a paradigm that it is quickly eating away the foundations of the European project.

Euro or drachma, Greece is not the name of the game. The big fight in Europe is all about how the club will be governed in the future. One side – mostly richer – vies for control through political and financial pressure. The other – mostly poorer – aims to evolve past these issues and not give in to bullying. The continued lack of an effective and democratic fiscal management process is working against us; it is helping extreme ideologies flourish and is robbing Europe of its future.

Christos Costandinides is the founder and managing director of BlueHarbor, a firm that provides strategy, marketing and investment services to institutional investors, banks and asset managers. Christos is an award-winning analyst and asset management expert with over 15 years of experience across capital markets. Formerly, Christos was Markit’s director of iBoxx index research & product strategy and head of ETF research & strategy at Deutsche Bank.