In its first eight decades Turkey , as a republic, the biggest question facing Turkey was one of identity. Would it be the secular democracy envisioned by its founder, Ataturk, or a nation governed by the Islamic faith that defined the Ottoman Empire?
Ataturk did his best to secure the former option, sending Turks to use second names, abandon the fez and write in Roman letters. But everything changed in 2002, when Turks voted the Justice and Development Party AKP into government, led by Tayyip Erdogan.
Looking at early days in power reveals how successful the AK party was in overcoming the scepticism of the international community. What at the time were referred to as the “twin anchors” an IMF standby programme designed to repair public finances and membership negotiations with the EU that necessitated deep institutional reforms.
Turkey is now going through a period of normalisation. The latest EU progress report criticised changes in the public procurement law that reduced penalties for bid rigging. It also voiced its opposition to the lack of independece in the Turkish press. And the Kurdish issue remains a key challenge for Turkey’s democracy. It is of crucial importance to government policy, not least in the case of a new constitution continuing to make progress.
The Turkish story was of a country making good progress in dealing with its problems, even the hard ones like the Kurdish question. But as the country prepares for three more polls over the next 15 months, the most pressing issue is no longer about the secular or religious nature of the state. It´s Erdogan.
The government used its mandate to dismantle the old, and in many cases undemocratic, institutions of the old Republican guard. The wings of the Turkish military were clipped. The ability of the court of accounts to audit public expenditure has been constantly undermined. The central bank, though independent, has come under intense pressure to keep interest rates low and growth in motion at the expense of currency stability and the inflation rate.
Another bill tightened executive control over judges and prosecutors, a convenient move as troubling corruption allegations crept toward Erdogan himself. Municipal elections on March 30 will give voters their first say on all this.
Structural reforms in the transition region continue to face serious challenges. A similar political process challenges has taken place in Greece to reform Greece institutions. Since 2010, Greece has endured deep social and economic pain. No other European state has undergone such pain in the last fifty years or more.
Although this will be an abject moment even in Greece’s chequered financial history, a serial defaulter for over half of its existence since becoming an independent state in 1830 it has been in default, with the British most memorably sending the Royal Navy to seize marine assets in 1850 to pay off the country’s debts.
The bail-out strategy for Greece has evolved. The loan it received in May 2010 came with an infamous ‘Memorandum’ that set out reforms required of it, if the loan was to continue. A ‘Troika’ of representatives from the EU Commission, the European Central Bank, and the IMF have visited Athens regularly to monitor Greece’s compliance with the terms of its loan.
Even if EU had thrown money at Greece to ease its debt crisis, no serious analyst could have claimed that the Greek public institutions – and the state administration in particular – were ‘fit for purpose’. The Greek administrative culture drew, historically, upon that of France and Germany.
A very thorough OECD Report of 2011 produced a ‘Review of the Central Administration’, and this detailed a damming set of failings in the system.
Structural reforms to help improve economic institutions: First, they can promote both economic and intellectual integration with advanced economies – through trade, finance and education. Second, they can seek to benchmark themselves internationally and become members of organisations with high institutional standards.
Third, in some settings, they may also be able to pursue constitutional or electoral reform – for example, introducing proportional representation, which although not a panacea, can improve decision-making, particularly in societies that are less polarised or where vested interests are weak. Lastly, they can improve the transparency of political institutions at the regional and local level, as they play a key role in the shaping and reform of the business environment.
Since 1989, every national election in Greece has focussed on the modernisation or reform of the state. But the problem of the public bureaucracy has essentially remained. There have been too many vested interests; the public sector unions are the strongest of all; and the severity of the recession would all have made the political cost of action too high.
Much closer to the real agenda for Greece’s recovery has been the EU Commission’s Taskforce for Greece. Led by Horst Reichenbach, this was created in a later phase of the Greek crisis – October 2011, the TFGR’s first high-level coordination meeting brought together around 100 representatives of the Greek administration, possible providers of technical assistance and Commission services in Brussels, to coordinate the international support for structural reforms in Greece. – and its role is to offer fulsome technical advice and aid to overcome the dysfunctionalities in the administrative system. An incentive is to enable Greece to absorb more EU development (or ‘structural’) funding.
The Task Force organises the delivery of such assistance to support a wide range of structural reforms to be implemented by the Greek government.
The technical assistance provided by the Task Force is a resource available to the Greek authorities, as they seek to strengthen their public administration, modernise their regulatory system and lay the foundations for a new growth model based on enterprise and investment.
This is the underlying dilemma of the Greek crisis: how to make the Greek state institutions operate more effectively. For this is the long-term task that will remain long after the Government has achieved its primary budget surplus. And it is also part of a wider challenge for the European Union: a stable monetary union is increasingly recognised to require it to be able to reach down into domestic systems and oblige them to adapt and follow stringent rules.
A heterogeneous EU, beyond the euro-zone, also poses similarly difficult tasks of EU coordination of macro-economic development (see EU Results of in-depth reviews IDRs). The IDRs discuss relevant features of the Member States’ economies, in particular the evolution of their external accounts, savings and investment balances, etc. In short, the new European agenda will inevitably rest, in part, on its domestic leverage.
Greece alone cannot do this; might it do so in combination with the EU? The task combines institutional re-structuring and a culture shift – both are daunting.
This is where Kyriakos Mitsotakis, as Minister for Administrative Reform, comes in. Not since British ministers were sent to Northern Ireland during the ‘Troubles’ has a minister faced such daunting a challenge. Their agenda is not directly one of ideological contest. Rather, it is one of the reform of the state administration to make it more efficient and flexible, better informed, with higher skilled systems and staff.
Recent reforms are encouraging. As Mitsotakis says: the tax collection system has been re-structured and, more generally, there is more use of the internet and technology. Following the reforms of the previous government – dismissed by Mitsotakis here – Greece now scores very well in international rankings on transparency, given its innovative reforms on e-governance.
A serious reform strategy must plan for the long-term. Though organisational structures can be transformed, cultural mind-sets can’t be ‘abolished’. A smart European plan for Greece must avoid simplistic contrasts or criteria; it must be engaged step by step. The task for the EU is to keep Greece tied to the reform path, but also to allow it the time to implement changes properly.
The main challenges of a cross-country nature now also concern the impact that deleveraging in many countries has on medium-term growth; the sustainability of private and public debts and of the external liabilities in a context of very low inflation; the need to ensure an adequate flow of credit to viable activities – particularly in the non-tradables sector – in the vulnerable economies under a fragmented financial system; and the very high level of unemployment in many economies.
The drivers of imbalances and the risks they raise are different from one economy to another. “Policies should be adapted to the challenges of each economy and appropriate monitoring is necessary”, says EU Results of in-depth reviews No1176/2011) on the prevention and correction of macroeconomic imbalances.
imbalances are long-lasting phenomena and it may take time before the appropriate policies result in a decisive reduction in the macroeconomic risks under the MIP surveillance.
In line with the Council Recommendation addressed to the Euro Area, the Commission intends to put in motion a specific monitoring of the policies recommended by the Council to the Member States with excessive imbalances (Croatia, Italy and Slovenia), as well as for countries where imbalances require decisive policy action (Ireland, Spain and France).
In the case of Greece, Cyprus, Portugal and Romania; the enhanced monitoring of their imbalances and policies will continue in the context of their programmes.
April May 2014
Greek bond frenzy over lingering concerns about the country´s poor economic health and its mountain of debt that has risen to more than 170 percent of gross domestic product. Last year Greece achieved a primary surplus (0.7%). Last month Greece came out of bond exile by returning to global capital markets for the first time since 2010.
This improved confidence and recovery are supported by figures. Exports are increasing and the economic recovery in the euro area this year should support also stronger shipping and record level tourism revenues. As a result it is expected that Greece GDP grows in 2014 for the first time since 2008.
The macro-economic data are good but not yet enough to put all unemployed back to work. The productivity gains are encouraging but more needs to be done to make a better environment for doing business.
Economic data recently released in Portugal shows that the country is making a steady recovery, after emerging last year from a deep, two-year recession. The economy is now expected to grow more than 1 percent both 2014 and 2015. Unemployment has fallen back to 15,2 percent in the first quarter, after peaking at 17,7 percent in early 2013.
On 2 May 2014 Portugal announced a clean exit from the bailout program, following the example of Ireland last year. Portugal had returned to bond markets even before the bailout exit was announced. Government debt has climbed to 129 percent of gross domestic product, from 94 percent at the end of 2010. Under the current redemption schedule, Portugal is set to repay its last loan to the IMF in 2024 and its last European loan in 2042. Portugal did the right things. Many economists say that Portugal´s turnaround is partly the result of booming exports that have helped the country rebalance its trade stands out when compared with progress in other ailing euro zone economies.
The crisis taught us a clear lesson: the economic model based on consumption and borrowing is not sustainable. We need production and productive investment, says Jean-Claude Juncker during his campaign visit to Athens, Greece Athens, 19 May 2014.
With debt, businesses can invest when their sales would otherwise not allow it. And, when they are able to borrow, fiscal authorities can play their role in stabilising the macroeconomy. Furthermore, government debt also provides liquidity services, which can contribute to easing the credit conditions faced by firms and households, thus crowding in private investment.
But, history teaches us that borrowing can create vulnerabilities. The basic form of debt has remained remarkably constant both over history. For all these reasons, financial deepening and rising debt go hand in hand with improvements in economic well-being. Without debt, economies cannot grow and macroeconomic volatility would also be greater than desirable.
Following the third vote on a new President in the Parliament December 2014, the Greek government has just announced general elections on 25 January.
Through this democratic process, the Greek people will once again decide on their future. A strong commitment to Europe and broad support among the Greek voters and political leaders for the necessary growth-friendly reform process will be essential for Greece to thrive again within the euro area.