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 discusses the way in which the European Union has sought to resolve the Eurozone crisis. It is argued that the crisis revealed major shortcoming in the architecture of Economic and Monetary Union which did not attract sufficient attention early on. The response to the crisis was also coloured by the dominance of centre right political forces in the EU as well as by the weakening of the European Commission in recent years. In this context a radical overhaul of economic governance within the Eurozone is required, based on the empowering of European institutions and on greater solidarity, rather than retreat to economic nationalism.
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 attempts of the Greek government to improve the country’s profile amongst its partners as speculation grew that Greece’s might be pushed out of the Eurozone as a means of restoring confidence in the Euro and applying pressure on Spain and Italy to pursue further reforms. Owing to a number of concessions by the Greek government in the Eurogroup meeting of October 2012, the climate towards Greece began to change for the better. Yet disagreements between the EU and the IMF over the sustainability of the Greek debt, raised fears that the latter may opt out of the Greek programme. These differences were resolved in a compromise stuck at the Eurogroup meeting of November 2012, which allowed for the partial restoration of confidence in the Greek economy.
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 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 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 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 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 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.