Although Greece has implemented structural reforms that were substantial enough to bring about a turning point in its relationship with the EU, these reforms have been overly localised, badly sequenced and implemented by short-sighted political elites.
One unappreciated dichotomy in the recent Greek crisis is embodied in the conventional view that its solution entails implementing ‘the structural reforms required for debt sustainability.’ Regarding debt sustainability, there are solid theoretical foundations, measurement expertise, and broad econometric consensus on offer by academic economists. In contrast, regarding structural reforms, academic economists remain puzzled over not only how these reforms start and evolve (and could thus hopefully help solve the crisis), but also how to properly measure and econometrically assess their implementation. It is ironic that both stances are ignored outside of academia, where evident certainties and obvious truths abound instead. This column argues that this unappreciated dichotomy played a role in over-extending the crisis. Had this advice been heeded (Baldwin 2015), the evidence properly assessed, and the lessons from the political economy of reform literature learned, structural reforms would have been dealt with differently – that is, the overly localised reform mix would not have been implemented in such a badly sequenced fashion, and nor it would have been instigated and implemented by short-sighted political elites.
Greece has implemented substantial structural reforms, before and after the Crisis. Yet these reforms were unbalanced, localised, not properly sequenced, and – arguably the most important factor – implemented by short-sighted political elites. The Greek elites have been able to alternate in office in what looks like a fully functioning democracy and yet many of these alternations show worrisome features of a captured democracy. Although the future of the Eurozone depends on deepening political integration (Campos et al. 2015), one thing this crisis has shown is that accountability and other democratic principles should also be taken seriously, not only regarding Athens or Brussels, but also in many other corners of the Union. For a long time there has been widespread concern about the so-called ‘democratic deficit’. History will show that a key factor that prolonged the Crisis unnecessarily was an acute leadership deficit across the whole of the EU.
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