Eric Reguly

The vanishing sovereignty of Greece

ATHENS — The Globe and Mail

(BNN Video)

Greece is the birthplace of democracy. As a result of the financial crisis, it might become the first European Union country to, in effect, give up democracy as the debt crisis morphs into a political crisis.

We all know that Greece has already become a client state of the so-called Troika - the EU, the International Monetary Fund and the European Central Bank. The first two supplied €110-billion ($157-billion) in bailout loans to Athens a year ago and are preparing a second bailout package, worth perhaps €60-billion, as Greece teeters on the brink of bankruptcy. For its part, the ECB loaded up on Greek bonds and supplied liquidity to Greek banks.

Story continues below ad

In other words, Greece's economic sovereignty has already vanished. Unless Greece does what the Troika wants it to do to get its financial house in order, it will collapse and become Cuba by the Aegean. If the government does regain control of its finances, economic sovereignty and the national pride that goes with it will be restored.

Or maybe not, because the euro zone debt crisis has handed the EU and the ECB a golden opportunity to create a supranational government. Actually, "government" might be the wrong word, because it implies that it is democratically elected. Better to call it a supranational bureaucracy that assumes it has the power of an elected government.

Ever-expanding power has always been the dream of the technocrats in Brussels and it is apparently the new dream of the ECB. Jean-Claude Trichet, president of the ECB, said as much earlier this month, when he accepted the Charlemagne Prize for European unity at a ceremony in Aachen, Germany.

He suggested the creation of a euro zone finance ministry, which in itself does not seem outrageous, depending on the degree of power it is allowed to exert over the national finance ministries. If a common currency and a common central bank (the ECB) already exist, why not a central finance ministry?

But he didn't stop there. He suggested that euro zone "authorities" might be given the right "to veto some national economic policy decisions" in countries, like Greece, that prove incapable of living within their means. The veto could apply to "major fiscal spending items and elements essential for a country's competitiveness."

Then came the most ominous paragraph in his speech: "We can see before our eyes that membership in the EU, and even more so of EMU [European monetary union]introduces a new understanding of the way sovereignty is exerted. Interdependence means that countries de facto do not have complete internal authority. They can experience crises caused entirely by the unsound economic policies of others."

That sounds almost like a declaration of war against the sovereignty of sovereign states.

By definition, each member of the euro zone agreed to give up some degree of economic sovereignty - namely control over its currency and interest rates - the moment it joined the euro zone. But it pretty much stopped there. National budgets remained national matters that were concocted by elected ministers.

The bailouts of Greece, Ireland and Portugal obviously changed the rules of the sovereignty game. If taxpayers in wealthy EU countries were shipping bailout loot to clapped-out economies, they gained the right to impose conditions, notably spending reductions required to crunch budget deficits.

But it's going way beyond that in Greece's case. The Troika is demanding a €50-billion privatization program. After dithering for a year, the government of George Papandreou finally capitulated and the first sale of a state asset (a 10-per-cent stake in phone company OTE) got under way this week. Athens is under pressure to hand the entire privatization process to an independent body, one that presumably would be controlled from afar by the Troika. There is also talk that Athens will lose direct control of tax collection, because government tax collectors are letting too much revenue slip away. Where will the control grab end?

You could argue that Greece - corrupt, inefficient, fiscally reckless - deserves everything it gets. You could also argue that the EU and the ECB are exploiting Greece's weakness for a power grab of epic proportions. These faceless "authorities," as Mr. Trichet calls them, would have no accountability to the people who are the target of any of the economic and financial regimes they impose.

The danger is that the authorities would take their cues from the market, that is, the banks and investment banks that, above all, want policies designed to protect their exposures to struggling countries, never mind the pain caused at street level. This is happening already. Note that the ECB won't even hear talk about a Greek debt restructuring. Taxpayers, not private bond investors, are bearing the brunt of the three euro zone bailouts.

The British have always been wary of creeping intrusion by the gnomes of Brussels, which is one of the main reasons why Britain is a member of the EU but not the euro zone. Maybe the Brits weren't being paranoid after all. The EU power grab seems set to intensify. Sovereignty is vanishing, and democracy might go with it. Countries that are lining up to join the euro zone might consider that membership demands might soon entail relinquishing political as well as economic control within their borders.

Follow on Twitter: @ereguly