The chapter discusses the political context within which the financial crisis in Greece developed. It is argued that the country’s political leadership became complacent and was unable to either foresee the crisis or articulate a credible plan for its solution. These shortcomings reveal longer-term pathologies of Greek politics rooted in history.
The chapter discusses the spreading of the Eurozone crisis to Italy, leading to the formation of the Monti government in November 2011. The uncertainty over Italy was compounded by fears that the firepower of the EFSF would not suffice in case Italy needed rescue. The launch of the Fiscal Pact and the accelerated entry into force of the European Stability Mechanism were meant to calm fears over the ability of the Eurozone to respond to future iterations of the crisis. Yet, the opting out of the UK from the Fiscal Pact and its apparent intergovernmental nature, created sceptism over the institutional design of economic governance in the Eurozone.
The chapter discusses the intensification of the Eurozone crisis in the aftermath of the Greek election of May 2012, particularly as concerns over the health of the Spanish economy put pressure on the value of the Euro. The ECB warned that the very design of EMU was no longer sustainable, but the building of consensus over the reform of the Eurozone’s architecture proved elusive.
The chapter discusses developments in the Eurozone during the early months of 2012. It is argued that in Greece the Papademos government was fatally undermined by the unwillingness of the coalition partners to endow it with a longer-term mission. Yet, the prospect of a new election halted the domestic reform momentum. At the European level, hopes for the containment of the crisis did not materialise as both Italy and Spain remained under severe pressure from the markets. The prospect of an imminent Lehman Brothers moment for the European economy alarmed the US which pressed Germany for a relaxation of austerity in the Eurozone, but to no avail. The election of Hollande in France raised expectations in Greece that the German policy was about to be reversed. Such expectations, however, proved rather unrealistic.
The chapter discusses the circumstances under which the Greek crisis spread to the European Union. It is argued that, despite the creation of the European Financial Stability Facility (EFSF) in May 2010, the financial markets remained sceptical over the sustainability of debt in a number of Eurozone countries. This led both Ireland and Portugal to resort to the EU/IMF for a bailout package.
The chapter discusses the causes of the Cypriot crisis and circumstances of its bailout by the EU and the IMF. It is argued that the excesses of the Cypriot banking system had been largely responsible for the implosion of the Cypriot economy. On a different level, the delays in dealing with the Cypriot crisis in a timely manner, highlighted the limitations of the Eurozone institutions to manage risk.
The chapter discusses the difficulties in the implementation of the ‘July agreement’ and the spreading of the crisis to Italy and Spain. Central to these discussions was the extent of the losses inflicted on private investors holding Greek debt. In Greece the government’s negotiations with the Troika stalled, as the opposition calls for the re-negotiation of the Memorandum intensified. The Greek government’s position on the PSI appeared contradictory.
The chapter focuses on the circumstances leading to the decision of the European Council, in July 2011, to initiate the restructuring of Greek debt, involving the voluntary contribution of private investors. Amidst intense party political infighting and mounting economic problems in Greece, European leaders performed a major policy u-turn accepting the inevitability of a debt write-off, which, until then, was firmly off the agenda. In exchange the Greek government accepted the intensification of its economic adjustment programme, through a revised Memorandum. These decisions gave European leaders some breathing space, but the underlying problems of economic governance in the Eurozone remained.
The chapter discusses the June 2012 election and the increasing fluidity of the Greek political scene. It is argued that the election result made it imperative that pro-European parties should form a new coalition government. Domestically calls for a renegotiation of Greece’s bailout terms grew louder, although the maximalist tone of these demands met with an outright opposition by Germany and the ECB. Amidst intra-coalition disagreements over how best to deal with the intransigence of Greece’s creditors, the PM decided to stick to the deficit reduction commitments previously undertaken by the Greek government.
The chapter discusses the election of 6 May which brought a seismic change to the party system of Greece. It is argued that New Democracy’s underperformance in the election was due to the inconsistencies of its leadership which had initially opposed the Memorandum and subsequently made an embarrassing u term. PASOK too was punished by its traditional power base for not defending the pre-crisis status quo. Anti systemic parties, on the other hand, made significant gains. The electoral impasse that followed necessitated another general election, causing widespread uncertainty over the future of Greece in the Eurozone.