The chapter discusses the efforts of the European Council to articulate a holistic plan for the resolution of the Eurozone’s problems. The proposals of the German government on a Competitiveness Pact, however, met with opposition within the EU, leading to further delays in its response to the crisis.
The chapter discusses the increasing international scepticism over the sustainability of the Greek debt during the first half of 2011, despite an agreement by the European Council to improve the repayment terms of Greece’s 110billion Euro loan. The commitments undertaken by the Greek government in the field domestic economic reform (particularly privatisations) were unrealistic. At the EU level, the launch of the Euro Plus Pact, failed to calm nerves in the financial markets.
The chapter reviews the evolution of the Greek crisis on the first anniversary of the Memorandum. It is argued that, international ‘good will’ towards Greece began to weather amidst fears over the reliability of the Greek government to implement the necessary reforms. Domestically, the government’s efforts to forge consensus were undermined by the opposition. In response the PM stated toying with the idea of a referendum as a means of enhancing the legitimacy of government policy.
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 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 discusses the Troika report on the sustainability of Greece’s debt, published in October 2011. In there, the country’s creditors acknowledged that support for the Greek economy should be extended beyond the provisions of the July 2011 package. This admission of failure undermined the credibility of the programme and created a widespread impression amongst public opinion in Greece that the government had lost control. In the EU, much of the discussion centred around the financing of the EFSF, where France and Germany openly disagreed, thus further aggravating fears that the Eurozone could not speak with one voice on the crisis.
The chapter discusses the negotiations leading up to the Eurozone Summit of 26 October 2011. It highlights the prominent role of Germany and France in the negotiations and the inability of the Greek government to make a substantial contribution to them. The decision to trigger the Private Sector Involvement (PSI) clause and the corresponding haircut in the value of Greek debt held by private investors did not dispel all doubts over the sustainability of public finances in Greece. The agreement over the financing of the EFSF also raised doubts on whether its firepower was sufficient to deal with a potential spreading of the crisis.
The chapter discusses the decision of the Greek Prime Minister, George Papandreou, to call for a referendum on the decisions of the Eurozone Summit of 26 October 2011. It argues that the referendum call was a mistake that undermined the credibility of the government both domestically and abroad. It also severely endangered the position of Greece as a member of the Eurozone and the European Union. The referendum call was reflective of a wider lack of leadership that plagued Greece’s response to the crisis from its very outset.
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.
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.