The Role of Troika in Eurozone Crisis (2008-2012) (Achmad Faizal Arifandi & Muhammad Sigit Andhi Rahman)
tema: Politik
dan Pemerintahan Eropa
Konvensi Eropa 2014
The Role of
Troika in Eurozone Crisis (2008-2012)
Achmad Faizal
Arifandi
Muhammad Sigit
Andhi Rahman
President University
Jababeka
Education Park
Jl. Ki Hajar
Dewantara, Kota Jababeka Cikarang Baru, Bekasi, Jawa Barat, 17550
E-mail:
emsigitar@gmail.com
Keywords:
Troika, Eurozone Crisis, Effectiveness, Cohesiveness
Troika, Eurozone Crisis, Effectiveness, Cohesiveness
Abstract
This study
examines the roles of the Troika in
handling the economic crisis of the Eurozone during the years of 2008-2012.
Troika is a term of newly institutional framework formed that consists of three
international organizations, namely the European Commission (EC), the European
Central Bank (ECB), and the International Monetary Fund (IMF). The impact of this crisis was not
only affecting European economy and countries’ domestic stability, but also in
the cohesiveness of the Union. This study uses liberal institutionalism to understand the
effectiveness of this framework. The
findings has supported the effectiveness of the roles of the Troika in
improving conditions of economic and financial, domestic sociopolitical as well
as the cohesiveness of the Eurozone countries and other EU member states in
2012. This research has found that the two measurements have been showing positive
result to answer this research problem. First in economic-financial sector, there
was not any symptom of macroeconomic imbalances emerged which thus lead to
brighter economic improvement. The annual real average GDP growth of all 27 EU
member states have gained improvement in 2012 in comparison with the biggest
downturn in 2008. This improvement was also fostered with the decrease of
unemployment rate and increase of competitiveness. Secondly, in the
cohesiveness sector, the rumor of Greece leaving euro was ended up only as a
hoax, and there has not been any Eurozone countries exiting euro. On the other
hand, Turkey who is still being persistent to join the European Union despite
of the crisis occurred in the Eurozone member states.
Introduction
The downstream of economic stability in the PIIGS countries –
mentioning Portugal, Ireland, Italy, Greece, and Spain – had been gained a
crucial attention from the European Union, and it is urgent for the countries to
take a unified approach to reduce worse implications that may stimulate such domino effect in the region. The core
problem previewed is the efforts of government (in the aforementioned country)
to alleviate sovereign debt crisis could not balance with the proper living of
the people in the country. “The sovereign debt crisis currently affecting some
developed countries poses serious challenges, and there is a significant risk
of spreading financial and economic distress to the rest of the global economy,
including developing countries and economies in transition.”[1] The policies of the
mentioning countries alone would not be able to hamper the stabilization of
economy because of the crisis.
Causes of the crisis are then identified to be distinguished into
external and internal factors. Post subprime mortgage crisis of the United
States was the root of external factor to the crisis, despite of the impacts
were as hugely contributing as the internal factor in the Eurozone. From the
Down Hit (March 9, 2008) to the collapse of Lehman Brothers (September 15,
2008), the credit flow of the financial market had been interrupted. The damage
had taken three main substances: instability, bailout or closure of fragile
banks; high and rising public debts; and huge liquidity within the financial
market that needed to be withdrawn. Major firms downsizing and businesses went
fold were the worsening troubles due to the impacts which was damaging enough
to spread across all sectors on the global financial market.
Meanwhile on the internal factors of the cause, the crisis within
Europe itself stroke the world’s largest trading block that holds one-third of
the economic atmosphere in the universe by the West side, and almost countries
all over the world interact with the Eurozone. The inability of member states
in ensuring the sustainability of their financing of public debt was the
clearest manifestation of the Euro crisis. However, the core of the problem was
deeply rooted within the market economy in the Eurozone. The economies of PIIGS
countries have lost their competitiveness in the global financial market, and
this problem is highly associated with the adoption of Euro as their national
currency. Starting from the expectation to converge Europe’s northern core
economies while large fall in interest rates and a surge in confidence that
accompanied the adoption of Euro; the price of non-tradable relative to
tradable and of wages relative to productivity were bid up due to the surge of
domestic demand; imports and the current account deficit and the stagnation of
exports as a share of GDP were soared in the middle of plentiful foreign
capital meanwhile growth accelerated which was driven by domestic services,
construction, and an expanding government; to the result of indebtedness in
public, private, or even both escalated quickly.
The union might only take actions on creating emergency loans and
bailouts to help funding countries in recession. Surprisingly, the twist came
in the way with the involvement of the International Monetary Fund (IMF) to the
crisis. Altogether with the European Commission (EC) and European Central Bank,
these tripartite entities, somehow, has created the phenomenon of ‘The Troika’.
By the third-quarter of 2008, IMF and EU responded to Hungary’s request, the
Stand-By Arrangements (SBA), both agreed to provide Hungary additional
financial support by using its Balance-of-Payments (BoP) Assistance Facility
with total front-loaded financing package amounted to 20 billion euros (IMF:
12.3 billion euros, EU: 6.5 billion euros, Worldbank: 1.0 billion euros).[2] Ahead with the given
assistance, Hungary unbound future possibly downturn in the country with
program that set as a precedent in the following programs which resembles with
EU institutional framework in a broader policy. The first financial assistance
for Greece, around the second-quarter of 2010, funded with 110 billion euros
from EU economies (80 billion euros) and IMF (30 billion euros) in the form of
SBA whereas the program jointly elaborated between Geek government and the
Troika.[3] This obviously shows that
Hungary’s attempt on its program was smoothly becoming antecedent for such
problem in Europe. As the Troika system is still ongoing for the crisis,
unfortunately critics against the system appeared mainly from the inside of
distressed countries. This situation is actually the core of the problem in
this research which will further be entailed.
Adhering from the background of the crisis, realizing the internal
damage of the troubled countries would ensure the opinion to no longer work
alone facing the catastrophe. Because even actions taken by the governments had
only made the crisis exacerbated to social implications, especially to what
assailed in Greece.
Exacerbation of Eurozone Crisis is such a never ending domino,
henceforth main focus of the Troika engagement to the crisis is the problem
identified in this research. Recalling back the controversies to the
discussion, IMF involvement to the Eurozone crisis had drawn several serious
cautions. “Getting the IMF on board in recent years was an emergency solution.
In future, we Europeans have to be able to resolve our problems on our own,”[4] stated by Viviane Reding, Vice-President of the
European Commission at the Citizen’s dialogue event in Heidelberg, Germany. The
worries being addressed in the dialogue was about skepticism of the people that
Troika is working behind something which not subject to any form of control.
She also added that previous bailout packages were sensitive decisions which it
supposed to be taken by financial experts, even better now to be incorporated
into EU treaties, and embrace more democratic legitimacy. Escalating the
troubled situation, some European officials argue that the Troika is, stressing
on the IMF-free crisis response, working without following democratic
procedures and proving controversial in Germany which have placed the
Washington-based institution front and center meanwhile it was German
Parliaments of being insistent to give IMF so much sway over the deals on EU
bailout packages.[5]
People also afraid of the slight possibility of the European Stability
Mechanism (ESM) which set by the arrangement of the Troika would fully turned
into an institution. The accusation to the Troika system is then rather
seemingly, somehow, hideous and compulsive for the European way.
However, whenever the contradicting
voice strikes, there has to be positive feedbacks, especially in such economic
burden to a giant union in the world. Flip to encounter with contrasting
argument in the inner circle, Executive Board Member of the European Central
Bank, Jorg Asmussen, has spoken the alternative to reduce the skepticism in the
current system. "The Troika also works very well together, as one sees on
the ground in Athens, for example," he said.[6] "There is no reason, in
the middle of the crisis, to change this proven structure."[7] He
obviously clarified that there would be no functional alternative to the Troika
because the system itself is only conducted as a short-term program. Klaus
Regling, head of the euro zone's bailout fund, added that IMF is not
supposed to play a longer role in term of Eurozone rescue package. The idea is
that abandoning the Troika in such sudden would not be favorable whilst Europe
still lacks the proper tools to deal with the economic crisis alone. Voices
toward this vision are then stressed that a European crisis framework would
bring more democratic accountability through the European Parliament, without
disrespecting the aid and presence of IMF, there should be no worries to the EU
institutional framework.
Underlying significance of the debate
among the Troika has led this research to focus more on the prevailing system
of the Troika, whether like it or not, it is the only hope for the Europe to
maintain its economy recovered. Then the judgment to the overwhelming roles of
the Troika should be converted to the analysis on how effective the roles are
acting. As the Troika system is still ongoing
for the crisis, this paper has been limiting the timeframe of the Eurozone
crisis from 2008 to 2012. There has been a brief recovery of the crisis in 2012
when several countries had gained few improvements, especially in economic
growth. This is the main reason why the research of Eurozone crisis will be
limited to 2012, detailed analysis will be explained in the following chapters.
But unfortunately critics against the system of Troika appeared mainly from the
inside of distressed countries. This situation is actually the core of the
problem in this research which will further be entailed.
Framework
The
Troika will be discussed by using liberal institutionalism approach. Liberal
institutionalism or neoliberal institutionalist, often also called as
rationalist, is originated to the effort on applying concepts of economics to
the study of international institutions.[8]
In this regard, the effectiveness in international institutions framework is
comprehended in the rationalist perspective.
“…effectiveness can be reduced to efficiency,
the extent to which the regime is efficient at changing the behavior of states
and other actors in international relations. The rationalist approach focuses
on regulative rules that clearly specify how actors are expected to behave, and
those same rules can be used as a metric for effectiveness. States either
follow them or they do not; the regime is either effective or not.”[9]
Responding to the sovereign debt crisis
which is occurring in the Eurozone, there have been several policies by the
Troika implemented in the troubled countries. In order to produce a significant
view on the implementation of the policies, there must be exact measurements to
the effectiveness. Since important events of the crisis impacts to the union
and its member states were not only striking PIIGS countries in term of debt
burdens, there are two measurements to the effectiveness in term of Eurozone
crisis. First, the economic-financial
improvement which will analyze the
changes in regard to economic growth and stability, banking sector activities,
as well as consumers and investors’
confidence. This first measurement is very important since the flow of
money for policies implementation is crucial to its actualization in each recipient
country. The second, the cohesiveness improvement will be measured not only in Eurozone countries, but all EU member
states. Due to several rumors of countries that would exit euro or Eurozone, or
any other form of policies infringement, it is imperative to see countries’
behavior after all. The results of measurements in economic-financial
improvement and cohesiveness improvement are then the main focal to this
research question.
The Troika (EC, ECB, IMF)
The main actors in this crisis, the Troika, have their own
mandates and functions in and outside of the Eurozone crisis. In this regard,
Troika interactions to the crisis will only be acknowledged with its policies
to the Eurozone crisis, disregarding unfavorable policies to the crisis. In
regard to this research root problem, Eurozone crisis, the Commission has
stated the official term of Troika implicitly on 11 February 2010. The
statement was then reaffirmed in the European Union Democracy Observatory (EUDO)
2012 Dissemination Conference with the topic of “The European Central Bank: A
Fiscal Policy-making Institution?”
“The
Commission should monitor the implementation of reform measures in liaison with
the ECB and drawing on the expertise of the IMF. „Troika“ was created.”
In the conference, they also discussed the following visit of
Troika to Greece as Greece’s request for international financial assistance on
21 April – 3 May 2010. Months later after the visit, the Troika issued a
statement through European Commission Memo on 17 October 2012, reviewing the
Greek Program. As wellas other Troika members did, the term of Troika was also
signified by the IMF through the IMF Factsheet.
“…cooperation
between the IMF, the EC, and the ECB in program
countries has
become known as the “Troika.”[10]
In the elaboration, the IMF stated that its cooperation through
the Troika is intended to achieve optimum effectiveness and efficiency in the
program discussion with the governments to produce policies which enabling countries
to recover its economies to attain sustainable economic growth and job creation.
The IMF’s 24-member Executive board independently takes the final funding decisions
on financing and policy advice meanwhile IMF works harmoniously with the Troika
counterparts. Hence this means that Troika is not a single entity but instead
it is a term of group that consists of those three IOs.
As we can see at the scheme above, there are many types and
directions of arrows pointing from one actor to other actors or to other
subjects. Each arrow represents how an actor works and thus shows how the
Troika is working as a system model.
a. European Commission. As the representative of the European Union to the world, this
institution works directly with the IMF since the bailout packages for
beneficiary countries designed through policies that agreed by both IMF and
ECB. Thus EC works not only to govern EU economic with its programs but also as
the medium to arrange bailout packages as a borrower. EC
also has other programs that ensure economicstability and growth, such as rules
on certain ratio that must not be exceeding GDP, of Eurozone countries as well
as other EU member states. Besides, as the guardian of
the treaties, EC supervises not only Eurozone but also EU member states as a
whole on the enforcement of European Law.
b. European Central Bank. As an institution that manages single monetary policy in
Eurozone, ECB watches over Eurozone directly to ensure that the countries are
in compliance with the policy. As similar to the commission, ECB is working
cooperatively with the IMF on summarizing the amount of bailout packages that
will be given via the Commission’s management. ECB surely acknowledges the
content of agreements made in the policies produced by EC.
c. International Monetary Fund. This IO is different than the others in the Troika since it works
independently. In regard to the bailout packages system, IMF works similarly
with ECB. The difference is that IMF
conducts surveillance directly to the beneficiary countries instead of
interacting to the Eurozone or EU as a whole, despite of its mandates to work
closely and cooperatively with its member states (which are not only European
countries) on a daily basis.
Troika’s
Policies toward the Crisis
Responding to the global financial crisis, in which then had
brought upon the sovereign debt crisis in Eurozone; EU has been taking concrete
steps through fiscal consolidation and a much stronger integration within the EMU.
Hence most of the policies produced and introduced by EC and ECB are initially
compose from the EMU. This means that the policies itself has the common
initial purpose to not only curbing and preventing the crisis to get worse, but
also to maintain economic stability in the unique system of EMU for longer
term. The policies in this term are referred to kind of rules, agreements, or
programs.
Since both EC and ECB are closely linked in the inner circle of
EU, the several policies which were introduced are having correlation of its
actualization. The policies from EC are actually the policies of EU, meanwhile
policies of EC are its own but still driven from the member states of EU,
especially states Eurozone. In this
regard, even a single policy introduced and implemented by single member of the
Troika is considered as one of the policies of Troika if policy itself has the objective
in relevance to the effort on helping troubled countries in Eurozone crisis.
Here there are six main policies toward the crisis:
1.
European
Financial Stabilization Mechanism (EFSM) and European Financial Stability
Facility (EFSF)/European Stability Mechanism (ESM)
2.
Stability
and Growth Pact (SGP) and the “Six Pack”
3.
Macroeconomic
Imbalance Procedure (MIP)
4. European Semester
5.
New
Supervisory Authorities
6.
Article
IV Consultation
In the implementation of all policies introduced by
the Troika, this research has found three findings on the linkages between the
policies into three dimensional efforts, the financial assistance and stability,
surveillance and policies coordination, and reforms to foster growth and
competitiveness. Each policy is bound to one another and making a comprehensive
work in a synergized pathway. This means that all the three findings were
actually implemented by the Troika comprehensively, instead of working the
policies in fragmentation.
a.
Financial Assistance and Stability
The source of funding has been ultimately crucial in
the crisis management of the Eurozone crisis. In mission to keep fueling the
policies to maintain growth, stability and competitiveness, this research has
found Troika’s design on the financial assistance and stability policies. In
this design, the policies being utilized are mainly the EFSM and EFSF/ESM. As
we can see on the graph model (see Figure 1), all Troika members and the
Eurozone member states are actively engaging to produce the agreement on
keeping the programs being fueled with funding of bailout packages.
Figure 1. Policies Scheme in Financial Assistance and
Stability
Source: Processed by the writer
The European Commission together with the Eurozone
member states under the EFSF/ESM have been actively issuing bonds and other
debt instruments to the capital markets whereby the proceeds of the issuances are then being lent under
certain program. Meanwhile in the EFSM, the Commission on behalf of EU and
under EU budget guarantee is allowed to borrow up to 60 billion euros in which
then being lent with arrangement of no debt-servicing cost for the EU.
In the programs of EFSM and EFSF, they have the
Economic Adjustment Program for Ireland and Portugal. In December 2010, Ireland
and the Troika reached the agreement on comprehensive policy package for the
period 2010-2013. The objectives of the program is to immediately strengthen
and comprehensively overhaul of the banking sector, restore fiscal
sustainability, correction of excessive deficit by 2015, and growth-enhancing
reforms particularly on the labor market.[11] In the program for
Portugal, the agreement on the program was formally adopted in May 2011.
Likewise for Ireland, program for Portugal has several objectives that consist
of structural reforms to boost potential growth, create jobs, and improve
competitiveness, a fiscal consolidation strategy in which supported by
structural fiscal measures and better fiscal better while aiming to reduce
deficit below 3% of GDP by 2014, and a financial sector strategy based on
recapitalization and deleveraging.[12]
Greece had the biggest size of bailout packages
disbursed through two programs. The first program is namely the Greek Loan
Facility that compounded by Eurozone member states, aims to support Greek
government’s efforts to restore fiscal sustainability and to implement
structural reforms in order to improve competitiveness of the economy. In the
program, the Troika conducts joint review missions to monitor Greece’s
compliance with the terms and conditions of the program since each release of
the loan disbursement to Greece must be approved by the Eurogroup and the IMF’s
Executive Board.
In all three Economic Adjustment Programs, there are
other additional financial assistance committed by the IMF, namely the Stand-By
Arrangement (SBA) and the Extended Fund Facility (EFF). SBA is an IMF’s
workhorse lending instrument for emerging and advanced market countries, while
the framework allows the Fund to respond quickly to countries’ external
financing need and to support policies designed to assist them emerge from
crisis and recover sustainable growth. The EFF, as what its name is, provides
assistance under an extended arrangement that features longer program
engagement and a longer repayment period in order to help countries implement
medium-term structural reforms.
Not only from the Troika and Eurozone member states,
the program for Ireland has other special resources of funding. Alongside with
the EFSM and EFSF, Ireland has been supported by bilateral loans from other EU
member states, such as the UK, Denmark and Sweden. Moreover, there is also
Irish Treasury and National Pension Reserve Funds (NPRF) in the program. The
NPRF is a government’s reoriented investment fund focused on domestic
investment on commercial terms that will support economic activity and
employment, which formerly was a long-term pension fund.[13]
In matter of fact, the main sources of the funding
from the Troika’s design, the EFSM and EFSF, are in form of bailout packages
which means they have due of repayment after each disbursement that must be
paid in certain period of time or either a country is facing default. However
the programs are agreed through several measurements that consider the
beneficiary country is in need and capable of repayment as well as achieving
the objectives to recover the economy.
b.
Surveillance and Policies
Coordination
Stepping on the next stage, the policies are
profound in the programs of advanced surveillance and policies coordination.
The policies included in this effort are the Stability and Growth Pact, the
“Six Pack”, and the Macroeconomic Imbalances Procedure within, the New
Supervisory Authorities, and the Article IV Consultation in Eurozone policy by
the IMF. Each policy concentrates on specific surveillance objects (see Figure
2) in objective to generate more comprehensive feedback and stronger policies
coordination.
Figure 2. Policies
Scheme in Surveillance and Policies Coordination
Source: Processed by the writer
First of all, the graph shows that the SGP, MIP, and the reformed SGP as
well directly monitor policies coordination on all EU member states. In this
regard, the MIP Framework and its Scoreboard will be more emphasized as to
represent the reformed SGP. The MIP Framework is based on two pieces of
legislation: the first sets out the surveillance procedure details and covers
all EU member states; the second establishes the mechanism of sanctions and
only applicable for Eurozone member states. Overall, the framework is the
implicit logic of preventive arm and corrective arm of the SGP. In this regard,
we will be focused more in the preventive arm that draws upon MIP Scoreboard.
In the preventive arm of SGP, the
Commission relies on the procedure of alert mechanism which consists of an
indicator-based scoreboard in an annual Alert Mechanism Report (AMR). The
objective is to identify macroeconomic imbalances at early stage to filter
countries and issues in which require more in-depth analysis, thus prevent the
development of severe imbalances. Below is the data of “Completing the
Scoreboard for the MIP on Financial Sector Indicator” by the Commission on the
Commission Staff Working Document, Brussels, 14 November, 2012 (see Table 3).
|
|
2009
|
2010
|
2011
|
||||
|
Portugal
(PT)
|
9.5%
|
10%
|
-0.7%
|
||||
|
Ireland
(IE)
|
2.8%
|
6.2%
|
-0.6%
|
||||
|
Italy
(IT)
|
5.7%
|
1.7%
|
3.8%
|
||||
|
Greece
(EL)
|
10.2%
|
8.5%
|
-3.4%
|
||||
|
Spain
(ES)
|
3.8%
|
-2.2%
|
3.7%
|
||||
Table 3. Total Financial Liabilities (year-on-year growth
rate)
Source: Eurostat
The New Supervisory Authorities with its formation
of EBA, EIOPA, ESMA, and ESRB have been actively engaging policies coordination
with mostly banking sector in all EU member states and also surveillance
programs on other financial sector including insurance, occupational pensions,
securities, and capital markets. The programs of supervision are also monitored
thoroughly by the Commission and the ECB.
As well as other Troika members, the IMF which has
been actively conducting Article IV Consultations still monitors the policies
coordination of Eurozone in term of economic and financial policies regularly.
The report also keeps on giving positive feedback toward the progress in
Eurozone crisis management.
c.
Reforms to Foster Growth and
Competitiveness
The last comprehensive policy of the Troika is
aiming on the reforms to foster growth and competitiveness. In this stage, the
Commission, adequately the EU as a whole and its institutions namely the
European Parliament, European Council, and the Council of the EU, plays great
role on the implementation. The policies being utilized are the European
Semester and the reformed SGP, emphasizing on its SCP, NRP and MTO.
Figure 4. Policies
Scheme in Reforms to Foster Growth and Competitiveness
Source: Processed by the writer
Since its reinforcement in 2010, the European
Semester has been producing fruitful results as guidance towards following six
months period through its Annual Growth Survey. In the Annual Growth Survey
2011, the Commission highlighted three main areas of actions.[14] First is action in
fundamental prerequisite for growth which requires on implementing a rigorous
fiscal consolidation, correcting macroeconomic imbalances, and ensuring
stability of the financial sector. Second is mobilizing labor markets and thus
creating job opportunities by making work more attractive, reforming pension
systems, getting the unemployed back to work, and balancing security and
flexibility. Third action is frontloading growth which is done by tapping the
potential of the Single Market, attracting private capital to finance growth,
and creating cost-effective access to energy. The following 2012 Annual Growth
Survey was presented on 23 November 2011 by the Commission, embodied with focus
on five priorities.[15] The survey calls for the
EU and member states to focus on pursuing differentiated, growth-friendly
fiscal consolidation, restoring normal lending to the economy, promoting growth
and competitiveness, tackling unemployment and the social consequences of the
crisis, and modernizing public administration.
The
Effectiveness of Troika’s Roles
Policies that have been implemented by the Troika
are equipped with each own objectives towards the same goal to help restoring
economic, social and political stability of countries in crisis as well as their
cohesiveness on supporting Troika’s programs. Several policies have achieved
their goals and several others might not result in expected ways, but there
emerged proposals on future projects or untold achievements that cannot be
considered in this research due to the timeframe limitation of the topic.
Starting from EFSM and EFSF/ESM, both of them have
different timetable agreement on their financial assistance programs. Meanwhile
the EFSM is still on the running of its loan disbursements of each program for
Ireland and program for Portugal, the EFSF and ESM have a brighter future for
their programs. This does not mean that EFSM did not have a clear projection,
but instead the EFSF and ESM programs compounded with expiry where a country
officially exited the financial assistance program. Ireland officially exited
EFSF program later on 8 December 2013 in which considered as success for ESFS
to support Ireland’s economic adjustment program within 10 loan disbursements.[16] Meanwhile for ESM,
Spain’s ESM financial assistance program later expired on 31 December 2013 with
total of 41.3 billion euros disbursed. The program claims that it was the first
time instrument of banks recapitalization through the utilization of granted
loans to a government without any contributions from other lenders.[17]
One of the biggest policies, the SGP and “Six Pack”
has not been finished transforming to a more advanced policy. With remarkable
progress on its rigorous reform in 2011, the “Two-Pack” regulation was entered
into force later on 30 May, 2013. This new proposal would aim to further
strengthening the surveillance mechanism in the Eurozone. Besides in the key
provisions of SGP, 25 EU member states signed the Treaty on Stability,
Coordination and Governance (TSCG), in which contains the “Fiscal Compact” and
later enforced on 1 January, 2013. Fiscal Compact would require the member
states to enshrine in national law a balanced budget rule with a lower
structural deficit of 0.5% GDP.[18]
The second cycle of MIP with the publication of AMR
has been launched by the Commission on 28 November, 2012, with the calls for
in-depth reviews in 14 EU member states. The Vice-President for EMU and the
Euro, Olli Rehn, said that, “The EU is going through a difficult process of
unwinding macroeconomic imbalances that built up in the decade before the
crisis.”[19]
The AMR provides evidence that adjustment of macroeconomic imbalances is
progressing with narrowing current account deficits in the countries with
largest external imbalances. But however the Commission considers taking a
closer look at the progress underway in unwinding imbalances in those member
states.
As to consideration of this research timeframe
limitation, the Annual Growth Survey 2013 will be the closure of European
Semester implementation. Namely the “Annual Growth Survey 2013: Charting the
Course to Recovery”, the Commission adopted it in Brussels, 28 November, 2012,
with the setting of five priorities.[20] The
five priorities for the following semester are: pursuing differentiated, growth
friendly fiscal consolidation; restoring normal lending to the economy;
promoting growth and competitiveness for today and tomorrow; tackling
unemployment and the social consequences of the crisis; and modernizing public
administration. The AGS ensures the member states to align their budgetary and
economic plans with the SGP and Europe 2020 strategy.
Moreover the AGS 2013 is enriched with several
supporting importance. It stated that each of the mentioned priorities is
focused on delivering growth and jobs, with a special emphasis on fairness. It
underlines that the labor market situation has finally called for an urgent
response. The AGS emphasizes on protecting the most vulnerable while also
concerning youth unemployment that hit 50% in many countries. Alongside the
AGS, the Commission is publishing its first Annual Report on Single Market
Integration and the second Alert Mechanism Report on macroeconomic imbalances.
The Executive Board of the IMF concluded the Euro
Area Policies: 2012 Article IV Consultation on 16 July 2012 with suggestions on
deeper integration among banks, sovereigns, and growth prospects. They stated
that it requires three major fronts to implement: first, steps toward a banking
union together with a common supervisory; second, greater fiscal integration
with stronger governance arrangements and risk sharing; third, structural
reforms in both deficit and surplus countries to raise trend growth and address
external imbalances within the Eurozone.[21] Besides, the Directors
also underlined importance on several policies: first, continued official
funding support, welcoming the authorities’ commitment to use EFSF/ESM
resources flexibly, and continue ECB’s role in liquidity provision and security
purchases; second, supportive monetary policy; and third, fiscal consolidation
that is as growth friendly as possible. Those importances are necessary due to
time-consuming upon the implementation of suggested actions to have full
effect.
In summary the table matrix below presents the
efforts that have been done by the Troika for approximately past five years
(see Table 5). All of the developments of the Troika’s policies influence the
result of Troika’s roles toward the three measurements of effectiveness, both
directly and indirectly.
|
|
Objective
|
Development in 2012
|
|
EFSM and EFSF/ESM
|
Provide financial assistance to EU
member states in financial difficulties; Safeguard financial stability in the
Eurozone.
|
Later Ireland successfully exits ESFS
financial aid program; Spain successfully exits ESM financial assistance
program.
|
|
SGP and “Six Pack”
|
Ensure stability and prevents spillover effect of a single nation’s
economic decisions that may cause elsewhere; Strengthened fiscal surveillance
and enforcement provisions of the SGP.
|
Addressing the prospects of the “Two-Pack” and the “Fiscal Compact.”
|
|
MIP
|
Prevent the emergence of harmful
macroeconomic imbalances and correct the imbalances.
|
In-depth analysis of development regarding
to the accumulation and unwinding of macroeconomic imbalances in 14 EU member
states.
|
|
European Semester
|
Ensure sound public finances; foster economic growth; prevent excessive
macroeconomic imbalances in the EU.
|
Progress on Annual Growth Survey, focused on growth and jobs; EU future
projection on European 2020.
|
|
Article IV
Consultation
|
Analyze weaknesses that may cause or
lead to economic and financial instability through the process of
surveillance.
|
Suggestion on deeper integration;
Welcoming the Fiscal Compact and the proposed “Two-Pack”
|
Table 5. Troika’s Policies Assessment
Source: Processed by the writer
Improvement
in the Two Measurements
a.
Economic-Financial Improvement
As the most crucial sector, the improvement in
economic-financial changes will be discussed first. The changes that will be
compared have often been mentioned in this research, namely in term of GDP
growth rate, budget deficit, government debt level, and sustainable
competitiveness.
First of all, the competitiveness of Eurozone
countries including countries in crisis are being exercised by an independent
IO. Regarding to the World Economic Forum annual rankings of 144 nations, the
European economies are diverging in competitiveness. Despite of a huge gap in
the EU member states, between Greece which ranked the 96th spot and
Sweden which ranked in the 4th position, the Eurozone still can
boast its competitiveness with Netherlands in 5th place and Germany
in 6th place.[22] Meanwhile other Eurozone
countries which suffer from crisis are ranked in the middle, Spain in 36th,
Italy in 42nd, and Portugal in 49th place.
In comparison to the economies outside the European
region, EU member states have had boast comparison to the United States and
Japan in term of nations’ deficit budget and government debt. In 2011 the EU
countries in the euro area had a lower deficit on the state budgets (4.1 % of
GDP) than the United States (9.6 % of GDP) and Japan (8.2 % of GDP).[23] Meanwhile in the same
year, the EU countries in the euro area had a lower government debt (87 % of
GDP) than the United States (102.9 % of GDP) and Japan (229.8 % of GDP).[24] The percentages show that
European economies as a whole are still competitive and sustainable despite of
the crisis that have triggered factor which degrades competitiveness such as
market confidence.
Figure 6. Annual GDP
Growth in the 27 EU Countries
Source: European
Commission
Last but not least, the measurement in annual GDP
growth rate is one of the ultimate factors in the economic-financial
improvement. As seen obviously in the chart above (see Figure 4.7), collective
GDP growth of 27 EU countries fell hardly from 2008 to 2009 due to the first
hit of global financial crisis. With the time goes by alongside the involvement
of the Troika in the Eurozone crisis, the GDP growth of 27 EU countries
increased smoothly in 2012.
b.
Cohesiveness Improvement
Lastly, the utmost part of behavior that every EU
member state must comply is the cohesiveness in the union. In this sector,
there are several indicators that initiated by the impacts of the crisis toward
this problem.
Regarding to the issue on Greece’s exit from the
euro, this will not be possibly happened. The first concern is that Greece is
currently experiencing outright price and wage deflation. Greek wages have
declined by around 10% over the past three years, while over the past year
consumer prices have been falling by almost 2%. The condition of falling wages
and prices could hinder Greek economy while deflation also could make it
impossible for Greece to deal with its public debt and simply leave the euro.
Notwithstanding all the impacts explained before,
several possibilities on favorable actions in relevance with cohesiveness are
still likely to be emerged. The first action which is implemented by the
Eurozone member states and other six on-euro member states, namely Bulgaria,
Denmark, Latvia, Lithuania, Poland, and Romania, is the agreement of Euro Plus
Pact.[25] This Pact is a series of
measures, in which also known as the Pact for the Euro, that was agreed in
2011. Despite of all threats possibilities toward EU member states’
cohesiveness, those countries are still reflecting the deeper interdependence
of their economies and the intention to intensify the coordination of national
economic policies.
This pact has the main objective to improve
competitiveness and foster a higher degree of growth among the participating
countries. The Pact for the Euro is considered as an important instrument for
linking economic and fiscal policy to everyday economic activity, such as
industry, education, and research and development. A period of 12 months is the
time limit for the participating countries to set concrete actions to be
achieved based on indicators and principles contained in the pact.
Besides of the initiative to create an independent
agreement, other actions are seen on several countries’ persistency. EU
candidate countries such as Iceland, Montenegro, Serbia, Macedonia, and Turkey
are still persistent on trying to be taking part of the European Union
membership even though the Eurozone crisis has been hurting the economies so
badly. Special case for Turkey, this country has been in the association
agreement since 1964 but still negotiating toward its membership
acknowledgement. But surprisingly, according to a Turkish-German Foundation for
Education and Scientific Research (TAVAK), they found that only 17% of Turks
believe their country will become a member one day.[26]
In short form, all of effectiveness measurements can
be seen in the matrix table below (see Table 4.5). It shows all key findings of
this research that prove the Troika’s effectiveness in its roles toward the
Eurozone crisis. The results that have
been elaborated might not come directly from the roles of the Troika. But
however since most of the policies implementation on helping the countries in
crisis is driven by the Troika, the results in this matter are considered as
results of the Troika.
|
|
Impacts of Crisis
|
Results of Troika
|
|
Economic-financial
|
Contraction on annual
real GDP growth; Loss of competitiveness and market confidence; Increase
in unemployment rate;
|
Improvement in Real
GDP Growth in 2012; Decreasing in unemployment rate; Eurozone countries had
lower government debt and budget deficit.
|
|
Cohesiveness
|
Rumor on Greece’s exit
from euro; Possible threats on EU member states’ cohesiveness due to the crisis.
|
Greece did not leave euro and no Eurozone countries exit
euro; The creation of Euro+ Pact; Turkey’s persistent on joining EU.
|
Table 7. The Effectiveness Assessment in the Two Measurements
Source: Processed by the writer
Conclusion
The Troika in which is consisted of the European
Commission, European Central Bank, and the International Monetary Fund, is the
main actor in this research. The involvement of ECB and IMF is the being
questioned on why must be those international organizations and how the Troika
is effective on implementing their policies. In regard to the policies
implementation done by the Troika, there have been findings on three efforts
helping the countries in crisis in this thesis. First, the effort in financial
assistance in stability which applies the system of bailout packages stimulated
by the European Financial Stabilization Mechanism (EFSM) and the European
Financial Stability Facility (EFSF) which then changed into European Stability
Mechanism (ESM). Second is effort in surveillance and policy requirements,
aiming to enhance monitoring system to the Eurozone and EU member states and
coordinate better policies implementation. This effort contains the Stability
and Growth Pact (SGP) and the “Six Pack” (reinforced SGP), the Macroeconomic
Imbalances Procedure (MIP), New Supervisory Authorities to supervise banking
sector in EU countries, and the Article IV Consultation of the IMF toward
Eurozone economies. Lastly, the policies are made in order to reforms to foster
growth and competitiveness. This effort implements SGP and the Six Pack and the
European Semester, six months term of economic policy guidance and surveillance
cycle, on regular basis.
In order to prove the effectiveness of roles of the
Troika in Eurozone crisis from 2008 to 2012, there are two measurements which
were the two main impacts that are improved because of the policies
implementation done by the Troika. This research has found that the three
measurements have been showing positive result to answer this research
question. First in economic-financial sector, there was not any symptom of
macroeconomic imbalances emerged which thus lead to brighter economic
improvement. The annual real average GDP growth of all 27 EU member states have
gained improvement in 2012 in comparison with the biggest downturn in 2008.
This improvement was also fostered with the decrease of unemployment rate and
increase of competitiveness. Secondly, in the cohesiveness sector, the rumor of
Greece leaving euro was ended up only as a hoax, and there has not been any
Eurozone countries exiting euro. On the other hand, Turkey who is still being
persistent to join the European Union despite of the crisis occurred in the
Eurozone member states.
This concludes that the efforts of Troika as a model
of association compounded by three different IOs have been temporarily
successful on achieving their objectives, since the timeframe of this research
is limited to 2012. In regard to the effectiveness, this thesis has answered
the research question by proving that the findings have covered all problematic
impacts of the crisis with the active involvement of Troika in the Eurozone
crisis. Despite of the limited operation done by the Troika, other unmentioned
counterparts and their policies involvement in the Eurozone crisis due to the
scope and limitation of the research might have been resulting in a better
comprehension whether the Eurozone crisis has been handled well or not.
However, the model of the Troika is still utilized in the real crises and
therefore further research in favorable with this topic would be still
effective within certain measurements taken to the analysis.
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[8]
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