The true meaning of the Greek crisis

The current financial turmoil in Greece is far from being only a debt crisis, it is also putting into question the eurozone's true foundations.

In the last 10 years, the European Central Bank in Frankfurt and the European Commission in Brussels have repeatedly reminded member States to adapt to a monetary union among sovereign countries by cutting the public deficit and adjusting salary levels. Some national governments have done so, realizing the true significance of losing their monetary policy and the full control of their currency. The Greek one hasn't. The country is demonstrating today how poorly it has tried to adapt to the eurozone, showing a dramatic divergence between economic policies within EMU. In the last decade, Germany has kept the deficit more or less under control, it has managed to remain competitive by reducing real salary levels, and finally it has introduced in the Basic Law of 1949 a rule imposing a reduction of the public debt from 2016 onwards. On the other end of the spectrum, Greece is coping with a ballooning deficit (13 percent of GDP in 2009), it has seen salaries increase by 40 percent in seven years, and it hasn't reduced in a meaningful way the size of its huge public workforce (8.2 percent of working people, excluding the health and education sectors, compared with 7.2 percent in Germany). Moreover, public employees can enjoy a strong economic and legal protection through article 103 of the Greek Constitution of 1975. In a certain sense, one could argue that while Germany has made the requirements of a monetary union a constitutional commitment, Greece's constitution is almost incompatible with the Maastricht rules. From this point of view, the Greek crisis is particularly worrying. Consolidating public finances or worse bailing out the country is only part of the equation: reducing the divergence between economic policies within EMU is urgently needed to safeguard the future of the eurozone.

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