European integration and the reform programs between 1985 and 2010 1. Reform programs before 2010

The adjustment costs of European integration and especially of the EMU were higher for Greece than for Germany because both the mandate of the ECB and the con-text in Greece diverged considerably from the EMU, which promoted market competi-tion and sound finance.

Both preparation for and then the accession to the European Community in 1981 brought about certain transformation in Greece. These changes especially con-cerned stronger formal autonomy of the social institutions as well as a formal introduc-tion of further channels for inclusion of interest groups into policy making. The acces-sion certainly redefined

“the contours of public-private relations and the substance, instruments and limits of state involvement in the economy. Regulatory change, conceived as the redesigning of the rules governing public-private rela-tions, has been associated with a shift in the modes of state involvement from ownership to regulation” (Lavdas 1997: 186).

The paradox of the Greek case is that, despite the elite consensus (with the exception of the communist party) and very high levels of public support¹⁵, Greece had one of the poorest records in implementing and upholding the EU legislation (Feather-stone/Papadimitriou 2008: 5; Lavdas 1997: 155). The process of reforms itself also proves the difficulties of adjustment.

Within forty years, the Greek state experienced direct or indirect interventions in its economic policy a total of four times. The reform programs were attached to the balance of payments support loan in 1985 and 1991, the conditionality of EMU mem-bership in late 1990s, and the austerity program of the Troika in the Greek ‘debt crisis’

from 2010. All these programs were focused on economic stabilization through the re-duction of public deficits and expenditures, including some measures of privatization and structural reforms.

The Greek state appealed first for the assistance of the EC in 1985 due to the rapidly worsening fiscal position. The EC’s stabilization program was abandoned after two years, in 1987, in the face of mounting social pressures and was followed by an-other wave of state economic expansion (Ioakimidis 2001: 81; Pagoulatos 2001: 194).

In 1991 the government under the leadership of the Nea Demokratia requested another balance of payments support loan from the EC. Again the Commission prepared an austerity program as well as a stricter surveillance mechanism. The 1991 stabilization program failed to achieve its goals, leaving the reforms incomplete and facing strong resistance of organized interests (Pagoulatos 2001: 197).

Between 1993 and 1994, Greece prepared and gradually implemented its new convergence program, aimed at the reduction of the budgetary deficit, redefinition of state’s economic role, privatization, and complete liberalization of the banking system (Ioakimidis 2001: 81-82). Nevertheless, these reforms did not suffice in order to achieve the goal of the membership in the EMU. The main transformation happened between 1996 and 2004, when the policies in almost all areas, including education, training, unemployment, pension system, etc., have been adjusted according to the Maastricht and EU guidelines (Basios/Karayiannis 2012). In the 1990s, the govern-ment under the leadership Simitis attempted to simultaneously implegovern-ment liberaliza-tion and fiscal responsibility with a sense of urgency. At that time, governmental mod-

15 The public support for the single currency in Greece was one of the highest in the EU from 1997 to 2003 and reached 82% in 2003 (Standard Eurobarometer 33-69; see also Featherstone/Papadimitriou 2008: 7).

ernization discourse was extended with the risks of exclusion from the EMU. Although this government was able to implement some serious reforms, they often exhibited path-dependent changes, largely following their pre-existing institutional patterns.

Therefore, the reforms in Greece in light of the accession to the EMU included the institutional transformation of the Bank of Greece, budgetary consolidation, cuts in the budgetary spending, privatization, and structural reforms.

First, concerning the new Bank of Greece, the law 2548 “Provisions Relating to the Bank of Greece” adopted in December of 1997 “established BoG independence from any government instructions or advice, exclusive authority in the exercise of monetary policy, a six-year renewable term for the governor and deputy governors, and a Monetary Policy Council (comprising the governor, the two deputy governors, and three additional members)” (Pagoulatos 2009: 173). Earlier, before securing its full independence, the BoG gained influence through its participation in the governmental efforts to achieve the economic stability. The normative framework of the European single market and the earlier elite networking within the expert community of central bankers through “numerous informal cooperation practices and networks, cultivating their mutual relations” are often regarded as important factors for the establishment of the monetarist paradigm within the Bank of Greece (Pagoulatos 2009: 170). After be-coming a part of the Euro-system, the BoG focused on the banking supervision as well as research and information.

Being an agent of the ECB in Greece, the BoG significantly lost popularity, as it promoted wage moderation and structural reforms, including liberalization and pen-sion reforms (Pagoulatos 2009: 179-180).

“In other words, the national central banks’s depoliticization, by way of independence from national governmental political objectives, has sub-jected it to far greater political controversy than it had ever elicited dur-ing its long period of supposed ‘politicization’. The answer to this ap-parent paradox is, of course, that, for all its technocratic robustness, central banking orthodoxy is not distributionally neutral: it affects so-cio-economic interests in different ways, it involves gains and losses”

(Pagoulatos 2009: 180).

Second, as in the case of any other member state, the EMU also separated the

‘technical’ monetary policy from the ‘political’ economic policy in Greece. As a result, economic policy formally remained the competence of the national government. How-ever, the SGP criteria put serious limitations and pressures of adjustment on the eco-nomic policy in Greece as its indicators originally diverged from those required in the

SGP. The efforts to achieve budgetary consolidation resulted in a decrease of the debt and public deficit levels from 97,8% of GDP in 1995 to 93,9% in 1998 and from -9,7%

of GDP in 1995 to -6,3% in 1998 correspondingly (OECD data). Yet despite all the efforts, the re-examination of the Greek budgetary deficit by the Commission in 2004 led to the accusations of cheating and formally improving the statistic in order to se-cure the membership in the Euro-zone (Featherstone/Papadimitriou 2008: 15; Poly-chroniou 2011: 7). The revision of the calculations by the Greek government in 2002 resulted in significant corrections, where surpluses turned into deficit (Kazakos 2004:

908).

Third, a privatization program was implemented in Greece. According to Lav-das, the main objective of privatization was dealing with the deficit and public debt in order to meet the convergence criteria for participation in the EMU. Therefore, it was not part of the neoliberal policy ideas or party platforms (Lavdas 1997: 202). Kazakos argues further, “privatization in Greece seemed largely to take place under the confin-ing condition that it must not disturb significantly the sclerotic and heavily politicised public-private networks and covert collusions” (Kazakos 2004: 910). It often took the form of partial privatization where some money was provided to the state, but the con-trol over a ‘privatized’ company still remained in the hands of the state (Kazakos 2004:

910). Finally, some structural reforms also took place.

Summing up, the requirements of the EMU and the reforms it encouraged chal-lenged the economic policy model in Greece where the state played a crucial role in economic growth and economic activity, which was mainly oriented on the domestic demand. As it was described in the previous chapter, the dominating mode of govern-ance in Greece was characterized by a strong fragmentation of interest groups and cli-entelism, with some features of corporatism. This mode did not only persist but, in my opinion, was even strengthened due to the increase in competition for resources be-tween the stronger interest groups, especially in the light of the increasing pressures of economic policy adjustment. Subsequently, the system was biased; benefitting the bet-ter-organized groups of population with a better access to the decision makers and dis-advantaging the under-represented, weaker, yet legitimate interests.

The assessment of the scale and depth of reforms vary significantly among the researchers. For example, Kalaitzidis drew a rather, in my opinion, too optimistic pic-ture of Greece’s modernization, including “changing from a truly statist society where the political party dominated the government and produced policies to a more

state-directed, liberalized, and Europeanized state” with the “economic growth rate signifi-cantly up”, and “modernization discourse has overtaken the political elites of both dominant parties” (Kalaitzidis 2010: 176). On the contrary, Featherstone and Papadi-mitriou while analysing the reform process in two case studies, claim that the achieve-ments of reforms in both policy sectors were rather limited (Feather-stone/Papadimitriou 2008: 19; see also Bitros 2013). As a combination of reasons, the authors mention the bad quality of administration (“institutionally weak government, with a large, low-skilled, and ill-coordinated bureaucracy”), clientelism, abuse of state resources by the prevailing interests, corruption, conflicting relationships with the so-cial partners, and also “a number of embedded values, norms, and practices associated with the Greek identity” (normative objections) (Featherstone/Papadimitriou 2008).

“The contrasts are stark: unrestrained leadership, but lacking implemen-tational strength; liberal democratic norms and structures with ‘rent-seeking’ behavior; social dialogue and distorted interest representation;

and a small state facing daunting external challenges with a domestic structure not of consensus but of severe conflict” (Feather-stone/Papadimitriou 2008: 201).

Kazakos also confirms a slow, inconsistent, and fragmented character of structural re-forms in Greece. Moreover, according to him, “there has been a clear tendency to take measures that have a lesser impact on well-established interest groups and a greater impact on outsiders” (Kazakos 2004: 911; see also Matsaganis 2013: 33-34). The au-thor argues that the absence of strong political and societal coalitions in favour of re-forms in this period was the main reason for such an inefficient reform process (Ka-zakos 2004: 911). Generally, along with the stabilization measures, there was little done to improve the competitiveness of production structures (Frangakis 2012).

Trantidis emphasizes that the reason why all of these reform programs failed lies in clientelism and “reproduction by adaptation” of Greece’s clientelist system:

“In response to external pressures for reform, politicians in a highly cli-entelist system will seek to mitigate the cost of its policies on client groups and will design a reform package that preserves clientelist sup-ply as much as possible (clientelist bias in economic reform)” (Trantidis 2016: 227).

Therefore, Trantidis explains that measures such as new taxes or general wage freeze are preferred, as these measures diffuse the costs of fiscal consolidation across the population (Trantidis 2016: 227). Yet the author admits that ideology and political miscalculations due to the lack of full information about other actors’ preferences also play an important role (Trantidis 2016: 227).

6.2.2. Reform programs after 2010

With the Euro zone crisis of 2010, Greece received the financial assistance in exchange for implementation of the reform programs offered by the Troika (the Euro-pean Commission, the ECB and the IMF) in form of the Memorandum of Economic and Financial Policies (Memorandum). The implementation of these programs includ-ed austerity measures, such as cuts in wages in the public sector, rinclud-eduction of employ-ment in the public sector, general spending cuts (in health, education, and social ser-vices), cuts in pensions, increase in taxes, extension of the tax base to include unem-ployment benefits, large family, and non-contributory disability benefits (Frangakis 2013). Moreover, the labour market experienced a strong transformation as the Nation-al Collective Wage Agreement increasingly lost its vNation-alidity, and the statist approach intensified (Bratsis 2010): first, in the private sector, the definition of wages moved to the industry and firm level, as the wage rates below the ones in the National Collective Wage Agreement became allowed; and second, the government unilateraly sets the minimum wage. This development resulted in a 20-50 % reduction in wages in the pri-vate sector (Frangakis 2013). While the debt cut was completely ruled out as an option in the first and third Memoranda, partial debt cut was present in the second Memoran-dum through voluntary participation of the private sector.

The economic crisis was accompanied by a deep political and institutional cri-sis. While distrust and indifference among the population was growing, the differences between the two main political parties almost disappeared. The democratic crisis cul-minated in the letters of intent, which members of the coalition government under the leadership of Lucas Papademos and the leaders of the two largest parties wrote to the IMF, confirming the intention to pursue the reforms despite the political pressures. The crisis of trust and legitimacy of the Greek elites did not appear out of the economic cri-sis, but the former significantly intensified with the latter (Frangakis 2012; Mylonas 2014; Tsakalotos 2010). This situation “complicates even further the idea of getting people to cooperate in the making and implementation of decisions” (Martin/Dinas 2010). Additionally, Kritidis mentions de facto censorship in the media that was ena-bled through the suspension of journalists and the cut of financial loans for the inde-pendent newspapers (Kritidis 2013).

The budgetary targets set in the Memoranda were often missed, whether due to the too-optimistic calculations of the Troika or the lack of action by the Greek gov-ernment. In July 2011, the Ministers within the Eurogroup stated that “‘the

responsibil-ity for resolving the crisis in Greece lies primarily with Greece’ but they also ‘recog-nized the need for a broader and more forward-looking policy response to assist the government in its efforts” (Drossos 2011: 12). The one-sided austerity approach ig-nores that the deficit problem in Greece is rather due to the missing revenues than high expenditures (Tsakalotos 2010: figure 5 and 6). It also overlooks that the public em-ployment was meant to compensate for the underdeveloped welfare state.

“The concrete functioning of the Greek political system … ended up to constitute the basic impediment for the national and economic devel-opment; and not only: it became a vehicle of selling out the country, in exchange for the ability (of political system) to proceed to material giv-ing’s in exchange for givgiv-ing’s in votes. No constitutional or other legal disposition has imposed this outcome; but not impeded it either”

(Drossos 2011: 27).