After the Greek referendum: what consequences for the European Union?

The “No” vote at the Greek bailout referendum brings the country closer to a “Grexit” scenario. A disaster for the whole European Union likely to affect the other countries at risk

varoufakis greek referendum oxi noWhat impact would have the Grexit scenario on the European project? Would the southern countries of the Eurozone be more affected than the other Eu countries? Would they bare the negative consequences from this solution? These questions are being insistently repeated in the last days and now with more valid concerns after the “no” vote at the Greek bailout referendum.

Indeed, the whole project of the EU could suffer from the Grexit. Instability will be the unwanted result in internal and external level. The attractiveness of the Eu and the consequent resources of the EU soft power will suffer from this loss. The Eurosceptic political forces and populism will gain more power in other Eu countries and the international role of the Eu will be reduced for a loss of credibility. The Eu institution will be accused.

After the 2007-2008 crisis, PIIGS countries interpreted on their own the austerity measures proposed by the Eu. Ireland refused to rise the fiscal imposition on companies and reduced the total fiscal pressure, reducing also the public spending and the state interposition in economics. The Oecd forecast for Ireland is 3-4% growth, more than the Eurozone average. Spain did the same regarding business fiscal pressure, but it failed in reducing the current public expenditure. For Spain Oecd forecast is around 3% in 2015.

Even Portugal and Italy gained the positive numbers in the external commercial balance, though they increased the state interposition on the economy (tax pressure + public expenditure) of 6 points in Lisbon and 8 points in Rome. The Oecd forecast for both is positive for 2015, being around or close 1%. Regarding Greece, the austerity policy of Athens was opposite of the one implemented by Dublin. The general tax for companies rose of 5 points, like public expenditure, with the consequence of having an increase of 10 points of state interposition in economics. And with regards of the commercial balance, Greece is the only countries in the Eu still negative.

Today, the situation is partially different. The reforms of the last years are a credibility net the southern Eu countries can use for defending their stability. Yet, we still don’t know what will happen if the speculation starts again to operate in that countries. In many countries like Italy, the reforms have just started or they have just completed the legislative procedure. Thus, it is still early to appreciate them. The consequences is that many countries are still fragile and they cannot neutralize the financial speculative movements.

When political elite claims more space for politics in the Eu and less power to the technocrats they should take the risk of defending a position, like Tsipras did, even risking of failing and thus losing electoral consensus and power. On the contrary, the common stance is of asking for more power without a net and alternative European policy in mind. If the southern Eu countries will follow the example the government of Ireland in reforming the economy, they will probably exit the Eu crisis relatively easy. If not, the risk that Grexit could be followed by the disruption of the Eu project is real.

Domenico Fracchiolla

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