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.
The book examines the European debt crisis with particular reference to the case of Greece. It investigates its spillover from a Greek-specific problem to a Eurozone-wide crisis and chronicles the policy responses to combat it. The central argument of the book is that the principal cause of the Eurozone’s problems was, and still remains, the indecisiveness of European elites to tackle its underlying deficiencies. Leading Eurozone countries have been unwilling to commit to a common long-term plan which could deal convincingly with complex and inter-related problems affecting both its ‘core’ and its ‘periphery’. The guiding principle of policy responses thus far has been the pursuit of permanent fiscal discipline. Yet, fiscal discipline alone would not provide the long-term solutions required; a steady course towards economic governance and political unification is necessary. Through the detailed tracing of the evolution of the crisis, the book provides valuable insights into the crucial interconnection between Greece’s own economic troubles and the wider European search for macroeconomic stability and sustainable economic growth. As such, the book appeals well beyond those with a narrow academic interest in Greece. This is very much a discussion about the future of the Eurozone and the European Union as a whole.
The chapter provides an assessment of the two Memoranda that accompanied Greece’s bailouts. It is argued that initial assessments over the sustainability of the Greek debt were overly optimistic and based on projections that did not account for the realities of the Greek economy. The same is also true for some of the assumptions of the second Memorandum. The severe austerity paradigm that underpinned the two programmes was based on a defensive reading of the crisis and a high degree of moralism. Fiscal discipline, although necessary, does not, on its own, constitute a credible exit strategy from the crisis.
The chapter reviews the two most comprehensive assessments of the Greek bailout programmes today. The first one, published by the Bruegel group maintains that the programmes suffered by inconsistencies at the European level and inadequate implementation by the Greek authorities. It is also argued that policy mix should have paid greater attention to the side-effects of excessive austerity and the issue of debt sustainability. The IMF report also acknowledges problems with the policy mix and the underlying assumptions that underpinned it.
The chapter examines the provisions of Greece’s first Memorandum of Understanding with the IMF and the EU. It is argued that the targets set by the Memorandum were not realistic and the severity of the envisaged macroeconomic adjustment was unprecedented in the developed world. It is also argued that the Greek government failed to negotiate with its creditors a deal that would be better tailored to the socio-economic realities in the country.
The chapter discusses the tasks facing the new coalition government in Greece, under Loucas Papademos, in the aftermath of Papandreou’s resignation. It is argued that government was confronted with a huge workload, including the negotiation of the terms of Greece’s second bailout, the implementation of the PSI programme and the recapitalisation of Greek banks. This agenda had to be pursued against a background of growing suspicion on behalf of Greece’s international partners and increasing public hostility within Greece.