PARIS  - On October 4, 2009, the Greek Socialist Party Pasok scored a large victory in early national elections. With a clear majority (160 out of 300 seats) in the Greek legislature, Pasok’s top candidate George Papandreou became prime minister. A few days later, the new government announced that the budget deficit would be at least 12.5 percent of GDP, double what the previous conservative government had predicted.

Things quickly went downhill from there. The markets, the rating agencies, and finally the European Commission all condemned Greece for tampering with public finance data. Even the government’s declaration that it intends to clean up its fiscal stables had a perverse effect: markets ignored a three-year plan introduced in January to reduce the deficit, including the launch of a new government bond with an attractive interest rate at 6.41 percent (10 years). Papandreou has a chance here to demonstrate that he is a statesman; but the job is a challenge too – not least because the exact amount of the country’s deficit remains unclear, and a sizable chunk of the Greek GDP is produced out of sight of the authorities (estimates of the illegal economy range between 10-20 percent of GDP).  

Greece’s economy only constitutes a tiny fraction (2.5 percent) of the 16-member-Eurozone. But the Greek case raises important issues of responsibility and solidarity within the Eurozone. Moreover, other European countries are grappling with deficits as well as with the problem of pervasive tax evasion or do not respect the four Maastricht treaty criteria. If Greece were to default on its debt after all, that might spread panic to other European economies and continue to shake up the markets. So, calibrating the right response to the Greek crisis is crucial– not just for Greece, but for the European Union.

In mid-February, the European Union responded by giving Greece a one-month reprieve. The European Council and then the Eurozone finance ministers sternly told the Greek government to cut its budget deficit by four percentage points in 2010, and to stick to its austerity program. Additional steps demanded by the EU included a VAT increase, chopping bureaucracy, and reforms in the pension system. The EU’s counter-pledge of support remained vague in substance. But the 27 member states promised “determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole” – the first time such a strong political message was sent to global markets.

For the next month, Greece is obliged to give up part of its economic sovereignty. The Commission, the European Central Bank, and the other European member states will monitor Greece’s development carefully; if by mid-March the situation has not improved, the Eurozone partners can ask for more cuts.

It is no secret that the German Chancellor Angela Merkel resisted the deal fiercely. If Article 125 of the Lisbon Treaty forbids bailing out a country, article 122 allows the European Council “in a spirit of solidarity” to “take measures” to help a member state with severe economic difficulties. But Merkel and her advisors worry about running afoul of a recent constitutional court ruling that emphasized national sovereignty over economic policymaking, sharp criticism of Greece in public opinion polls, and – most of all – about setting a precedent for other countries.

All this has forced European leaders for the first time to think seriously about greater economic coordination. Might it be desirable, even necessary, to institute some form of European economic governance – despite the hope that the Lisbon Treaty would put an end to EU architectural reform for a while?

This would imply – at the very least – better coordination of national budget drafting processes, so as to avoid Greek-style surprises in the future. That would already go some way to limit free-riding by individual member states. But some European economic experts think much more is needed. For example, greater coordination of member states’ fiscal policy  and stronger banking regulations.   The EU’s large countries (Germany, France and Italy) will need to play more strictly by the existing common rules if they want all the Eurozone members to respect the Treaty, and accept greater control over their economies to bring them back into line. The European institutions (the Commission, the European Parliament and the ECB) will also need to upgrade their role in supervision and monitoring, but also in initiating proposals. But that would really be a new path for all the European economies, and not only the weakest ones.

Francois Lafond  is the director of the German Marshall Fund’s office  in Paris.

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PARIS — On Saturday morning, Le Figaro dedicated one full page and its editorial (signed by Pierre Rousselin) to the Georgia crisis. After a description of what happened Friday, Temour Iakobachvili, the Georgian Minister in charge of the re-integration of separatist territories, put the full responsibility of the Georgian reaction to numerous secessionist provocations and to the Russian government, which sent some troops via the Rokky tunnel. He said that “the war has not been declared from his government, neither from Russian government, but the Russian aggression is a fact and has to be stopped.”   In particular, the bombarding, confirmed by OSCE observers, will not impede Georgia “to restore our sovereignty, our military and civilian control, on all the Ossetian territory.”

According to Rousselin’s editorial, this “War in the Caucasus” has to be taken seriously because this is a new test of the NATO-Russia relationship. The Olympic game timing is so obvious that both reactions could have been anticipated. Calling for an immediate ceasefire and for the respect of the internationally recognized borders are obviously necessary even if the unilateral declaration of independence of Kosovo will also be used by the Russians in favor of the secessionists.

More importantly, Rousselin wrote, the International community should try to prevent the extension of the conflict in Abkhazia, despite the obvious reality that it will be very difficult. Is Russia, in its strong nationalism renewal period, ready to lose this new Caucasian challenge? Georgian President Mikheil Saakashvili thinks that Western countries will back him in this conflict, not just because of his NATO request to get in, but also for its key strategic situation in the energy issues. According to Rousselin, the Georgian president may be surprised by the NATO countries’ reactions: the price to save his presidency could be too high for everybody, and nobody will take the risk of a war against Russia. In any case, Rousselin concludes his editorial by considering that this conflict was in preparation for a long time, but in front of a war, the French EU Presidency, after the last German attempts, should take initiative in order to avoid irremediable consequences with Russia.

Le Monde also dedicated its Sunday editorial (published Saturday afternoon) to Georgia. The piece Recalled first how this situation is the historical consequence of Stalinism (Ossetians’ nationalism better managed if divided), then how the independence from the Soviet Union and the three secessionist Georgian zones that have evolved in different ways. If the Ajarian territory on the Black Sea coast and its autonomy requests have been managed smoothly, the two others have been more complex to handle from Tbilisi. Between local requests of independence (in order to go back to Russian protection) and defense of territorial integrity from the Georgian capital, both players were very logical in their respective antagonistic games. Again, NATO’s last sequences certainly have been an accelerator of the current crisis. In front of such situations, the Le Monde editorial underlines how Western countries have no real concrete choice. They could not strongly and publicly encourage Georgians to restrain their requests, but they do not have any means to force Russia not to intervene. President Dmitri Medvedev could recall Kosovo’s case as an example. In a certain way, realism should be strongly rooted in Georgians’ minds, in particular to not push the Western countries too far to have to make a choice. According to Le Monde, between Russia and Georgia, “this is not difficult to imagine toward which side they will tend.” This is why the Georgians restrain to make provocations and to not answer Russian ones.

Libération, the center-left newspaper, gave space to an interview with Charles Kupchan, who criticizes the American administration for having forgotten the importance of this latent conflict, and for having given the impression to the Georgian president that the Americans were completely backing his country and policies. President Saakashvili may have overestimated Washington’s support. In any case, according to Kupchan, talking so often of “territorial integrity” in such a provocative way was not very wise, and the U.S. administration could have asked him for moderation and to spend more time to resolve the Ablhazia and Ossetian conflicts.

The French government did not make any public comment on the crisis Saturday afternoon, and the Ministry of Foreign Affairs website gave no new information.

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