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 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 reviews the conditions under which Greece entered the Eurozone in 2001. It discusses the controversies surrounding the manipulation of Greek statistics and sets the scene within which the Greek debt crisis unfolded
The chapter discusses the economic record of the New Democracy government in Greece during 2004-2009. It argues that much needed structural reforms were abandoned during that time and that the government lost control of macroeconomic policy, leaving Greece perilously positioned during the onset of the global financial crisis.
This chapter discusses the economic programme of PASOK in the run up to the 2009 election. It argues that the party failed to realise the seriousness of Greece’s economic peril and did not communicate to the electorate the hard choices ahead.
The chapter traces the early economic record of PASOK following its electoral victory in 2009. It argues that the new government failed to act quickly and convincingly in order to calm fears over the health of the Greek economy. Instead the government wasted its energies in diverting attention away from the real economic problems facing the country.
This chapter discusses the strategy of the Greek government in its efforts to avert an escalating economic crisis during the first months of 2009. It is argued that the message sent by Athens over the nature of its economic troubles was unclear. So was its preference over who should lead a potential rescue of the Greek economy, with both the EU and IMF receiving conflicting signals from Athens.