Drawing lessons from the Greek crisis for West Africa (I): A regional integration perspective
Several policy-makers have cautioned African countries to carefully learn lessons from the Greek debt crisis. Given the importance of debt sustainability to supporting economic growth in Africa, and elsewhere, a series of blog entries, aimed at promoting debate and distilling the key lessons of the Greek crisis that are applicable in West African countries, shall be posted in the coming weeks.
The past years of Greek-led European crisis have sparked much debate on regional integration in Europe, and elsewhere, including in Africa. Certainly, such debates can be very informative and useful for regional integration initiatives in West Africa. One first lesson in the case of Greece is that a distinction should be made on the effects of European integration in the run-up to the crisis (i.e. whether it played a role or not in the case of Greece), versus the effects of such integration on the outcomes and management of the crisis. Considering that West African regional integration is still in its early stages, many insightful and lessons can come from the former.
Before joining the European Union (EU), Greece suffered from major sectoral, structural and macroeconomic challenges. The country was a predominantly weak agricultural economy with a frail industrial base managed through rigid labour policies. In that respect, the Greek economy needed some far-reaching radical reforms and changes in order to align itself with the rest of countries in the EU. Interestingly, at the time of Greek accession to the EU, the European Commission proposed a transition period for adjusting policies which the Greek government did not accept. As history shows us, the misalignment of the Greek economic structure with the rest of the Union, as well as its weak governance arrangements proved to be major factor leading to the crisis.
Regional integration as a “commitment device” to spur change
An opportunity to make deep-rooted reforms and changes in the country was offered to Greece as it entered the EU, and later the European Monetary System. Considering the internal difficulties the country had to reform, the EU was set to be used as a ‘commitment device’ to anchor reform. This strategy essentially sets to “shift” the responsibility for the proposed reforms on the EU as a supranational institution, leveraging the process of regional integration to spur the necessary structural changes and enhance competitiveness.
In this regard, both the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (WAEMU) offer reform springboards for their members. Within the region, there are several examples of regional integration as a way to either undertake reforms or secure better macroeconomic management. In 1997, Guinea-Bissau joined WAEMU so as to benefit from monetary stability. The transposition of most WAEMU directives into member country national laws is also part of it: impetus for change as embodied in such directives come from a supranational body. Not following the proposed reform path would be (politically) too costly for the country.
One difference however from the European case is that West Africa is home to a multitude of regional integration initiatives: there are over a dozen sub-regional groupings most of which are linked to either ECOWAS and/or WAEMU. The current arrangements pose a challenge: having too many supranational institutions dilutes their power. As a consequence, none may be strong enough to offer a credible opportunity to leverage far-reaching reforms. An equal situation is found on the Eastern side of the continent as seen in the analysis done in the AfDB’s “Integrating Africa” blog: while “variable geometry could be a legitimate policy tool for realization of economic integration, its current deployment in the East African Community has a political approach that could lead to defragmentation of the region”.
What strength for the carrot and/or the stick?
In the case of Greece, the EU did not manage to offer the necessary push for a structural transformation of the economy (Oltheten, Pinteris, Sougiannis, 2003). As an immediate consequence of the absence of EU devices to help Greece’s macro-economic situation, Greek economic policy-making was never viewed as highly credible and this had repercussions on the conduct of macro policies.
Yet, it is important to consider the strength of the regional ‘stick’. Even if it serves as a ‘loose’ constraint, it allows the continuation of special interest representation in the domestic agenda. On the other hand, tighter and stricter policies can fuel dissent. If all reforms are “blamed” on the EU, citizens may feel disempowered. Ultimately, a degree of strength is required so as to increase the short-term costs of policy reversal and help accompany countries in reforms which last more than a political cycle. At the same time, regional groupings should not be overly prescriptive. For over 20 years Greece benefitted from loose constraints and it failed. As the crisis erupted and the constraints are strong, social conflict and dissent is on the rise.
The case of Greece provides insights as to how regional integration can be an asset for reform. It also shows how power, when diluted and poorly implemented, can bring about adverse outcomes. As West Africa trails along the regional integration path, the Greek story offers an important lesson.
 In the academic world, commitment devices of this type are defined as “an arrangement [that] increases the credibility of a reform programme by artificially raising the short-term cost of reneging on the policy path that ex-ante seemed the best long-term choice.” (Bronk 2002)
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