The Eurozone Crisis--GREECE--Annnotated Bibliography
The Eurozone Crisis began on October 18 2009--more or less 10 years ago.
That was the day that the newly elected Greek Prime Minister George Papandreou announced that the previous Conservative Government of Costas Karamanlis had been cooking the books and Greece was much more indebted than anyone realized. EU officials expressed shock and concern
As the FT of Oct 20 2009 reported:
George Papaconstantinou, finance minister in Greece’s new socialist government, disclosed that the nation’s deficit would soar this year to almost 12.5 per cent of gross domestic product, far higher than estimates provided by the former conservative government.
The news, delivered at a meeting of European Union finance ministers, came as an unpleasant but not entirely unexpected surprise to Greece’s 15 eurozone partners. They already suspected that the global financial crisis and recession would have a much more serious impact on Greece’s deficit and public debt than had been admitted in Athens.
Germany and other countries that emphasise fiscal rigour are determined that the eurozone’s stability, watched more closely than ever by markets since the eruption of the crisis, should not be jeopardised by the inability or reluctance of Greece and other less disciplined states to keep their finances in order.
Jean-Claude Juncker, chairman of the so-called Eurogroup of countries, declared: “The game is over. We need serious statistics.”
The extent of Greece’s troubles was underlined on Tuesday by the national central bank, which said Greece’s public debt had soared to 111.5 per cent of GDP in June from 99.2 per cent at the end of last year.
Some private sector economists predict that Greece’s debt will climb to as high as 150 per cent by 2016, a figure unmatched in any European country since the euro’s launch in 1999 and far above the 60 per cent level set for new eurozone entrants.
The uproar over the size of Greece’s deficit recalled an incident at the start of the decade, when Greece under-reported its deficit in order to qualify as the 12th member of the eurozone in 2001.
NB: These figures were to be further revised upwards in coming years. And the worst-case predictions in 2009 were actually quite optimistic--Greek Debt in 2016 reached 320 billion euros or 180% GDP. Everyone knew that the Greek economy was not doing well. But no one knew things were this bad. Papandreou had fought and won the election on the promise of boosting public expenditure (As a contemporaneous article observed: "The main challenge for PASOK [Papandreou's Socialist party] will be to deliver on its promises of wage increases, infrastructure investments, and sustainable development at a time when the economy is predicted to slide into recession.")
For some useful background documentaries: see:
Greece and the Euro Crisis(2012) BBC Documentary (Michael Portillo)
Greece Debt Crisis and the Future of Europe (I don't know the producer/writer--a socialist of some stripe which balances Portillo's conservative take).
https://fieldofvision.
Timelines of the Greek Crisis can be found here and here and here.
Background:
The Requirements of the European Monetary Union Growth and Stability Pact:
1. Government deficit less than 3% of GDP
2. Sovereign debt less than 60% of GDP
3. If more than 60% it should decline each subsequent year at a satisfactory pace.
Greece's Difficulty in Meeting these Requirements
The Greek story can be summed up by following the story presented in graphs; see here:
The key event, mentioned earlier, was the announcement by the incoming Greek PM Papandreou in October 2009 that Greece's deficits were much higher than earlier announced.
Greece Deficit
Greek Debt:
Unit Labour Costs:
Broadly stated, there are five different (non-mutually exclusive) positions on the Greek chapter of the EZ Crisis:
1. The EMU is structurally flawed. (De Grauwe; Krugman)
2. The Troika (EU/ECB/IMF) mismanaged the crisis--they chose to bailout Northern European Banks in 2010 rather than let Greece Default. (Sandbu--who thinks that there is nothing structurally wrong with EMU; and Eichengreen, Krugman, and Stiglitz--who thinks that there is).
3. It's all the fault of the Germans (Simon Wren Lewis and John Weeks and Adam Posen and Peter Bofinger--for a more developed discussion of this topic, see Servaas Storm, "German Wage Moderation and the Eurozone Crisis: A Critical Analysis");
4. It's substantially the fault of Greek politicians and policy-makers (German economists who hold this view include Jens Weidmann [Head of the Bundesbank], Hans Werner Sinn, and in a more nuanced version, the Greek Political Scientist Stathis Kalyvas);
Storm (a critic) summarizes this view as follows:
In this narrative, rising unit labor costs are due to fiscal profligacy and “rigid” “over-regulated” labor markets, powerful unions, and strong employment protection. Rising relative unit labor costs supposedly killed Southern Europe’s export growth, raised current account deficits, created unsustainable external debts and reduced fiscal policy space, and hence, when the crisis broke, these countries lacked the resilience to absorb the shock. It follows in this story that the only escape from recession is for the Southern European countries rebuild their cost competitiveness—cutting wage costs (because Eurozone members cannot devalue their currency) by as much as 30% (as proposed by Sinn 2014), which requires in turn that their labor markets be thoroughly deregulated.
5. It's a consequence of Greece's unfortunate history, but in no way the fault of contemporary Greeks.
My view, for what it is worth, is some combination of 1. and 4. and 5.
The 2010 Greek Bailout
Greece Accepts Bailout Package
From CNN May 2 2010
Greece has accepted a bailout deal including tough austerity measures, Finance Minister George Papaconstantinou announced Sunday.
The international aid package, negotiated with the European Central Bank, European Commission and the International Monetary Fund, will be worth 110 billion euros (US $146 billion) over three years, Eurogroup President Jean-Claude Juncker said in announcing the agreement Sunday evening from Brussels, Belgium.
Of the overall amount, 80 billion euros will be made available through euro-area members, with up to 30 billion available in the first year, Juncker said.
The first disbursement of bailout money will be made before May 19, Juncker said.
The program will "help restore confidence and safeguard financial stability in the Euro area," Juncker said in praising the deal.
The package includes a promise by Greece to cut its budget deficit to 3 percent of gross domestic product, as required by European Union rules, by 2014, according to Papaconstantinou.
Greece had a choice between "destruction" and saving the country, and "we have chosen of course to save the country," Papaconstantinou said.
Olli Rehn, the commissioner of Eurogroup, said that "the steps being taken, while difficult, are necessary to restore confidence in the Greek economy and to secure a better future for the Greek people."
The head of the European Commission Sunday praised the Greek government for committing to "a difficult but necessary reform process."
The program "constitutes a solid and credible package," Commission President Jose Manuel Barroso said in a statement.
The planned austerity measures are unpopular among Greeks. Protesters clashed with police Saturday during May Day demonstrations, and strikes have been announced for later this week.
Papaconstantinou confirmed Sunday that the government would tighten its belt significantly, despite the protests.
"The expenses of the public sector will go down very considerably," he said.
The program includes cuts in the salaries of public-sector workers, including lawmakers, higher taxes on cigarettes, fuel, gambling and luxuries, an increase in the value-added tax consumers pay on purchases, and an increase in the retirement age for women in the public sector, Papaconstantinou said.
Prime Minister George Papandreou earlier Sunday tried to rally the country behind the government.
"I know that our compatriots are being asked to make big sacrifices, but the alternative way would be disastrous and painful for us," he said in a televised Cabinet meeting.
"It's not a pleasant decision for me, for any of us, but we are here to make the right decisions for our country," he insisted.
He spoke a day after Greek protesters clashed with police who fired tear gas during the annual May Day rally in Athens.
Waving red flags, the crowd at times surged toward the line of police, who wore helmets and carried riot shields. The police pushed them back each time.
Protesters threw objects toward police, and scattered fires were burning on the streets.
Seven police officers were injured, police said. Nine people were arrested -- three for attacks on police and six for theft from stores.
Twenty-seven people were questioned in connection with violence. A van belonging to state broadcaster ERT was set on fire.
About 12,000 people were protesting in Athens, and rallies were also taking place in the northern city of Thessaloniki, a police spokesman said.
Protesters there smashed two ATMs, the glass frontage of a bank, and a car, but no one was arrested or being questioned, the spokesman said.
The Greek government is facing a large deficit and massive debt, ultimately threatening the stability of the euro. The currency is used by 16 countries across Europe, including Greece.
Greece's national debt of 300 billion euros ($394 billion) is bigger than the country's economy, and some estimates predict it will reach 120 percent of gross domestic product in 2010.
Options available to EU in 2010:
1. Bailout Greece and Impose Austerity and require Structural Reform (the policy adopted). [Note much of the money loaned to Greece was used by Greece to pay off its debts to Northern European banks and other Eurozone Countries).
2. Bailout out as above but with much less austerity.
3. Let Greece default within the EMU and use the money to bailout Northern European and Greek banks.
4, Encourage or force Greece out of the EMU-- use the money to bailout Northern European and Greek banks.
The bailout of 2010 did not work and further bailouts in 2012 (130 billion euros) and 2015 (86 billion euros) were necessary. It is likely that another bailout will be needed in a few years.
The 2012 Greek Crisis
Key Events:
November 11 Papandreou Resigns
Interim Govt. Nov 11-May 2012 under Loukas Papademou (MIT educated economist)
Feb 2012 Restructuring of Greek Debt (206Bn Sovereign debt)--haircuts to private sector
Feb 2012 Second Greek Bailout (185 Billion Loan package)
May Election --Coalition Govt. New Democracy/PASOK--Syriza wins seats.
Default fears arise in Southern Europe
July 2012--Mario Draghi (Head of ECB) "We will do whatever it takes."
--Mario Draghi introduces Outright Monetary Transaction (OMT) program that agrees to buy sovereign bonds on the secondary market. For assessments, see here and here.
"OMT is the program put in place by the ECB following Mario Draghi’s vow in the summer of 2012 that the ECB was “ready to do whatever it takes to preserve the euro.” Under this program, the ECB can buy government bonds of a euro area member state in the secondary market, keeping the primary market for these bonds open and driving down the bond yields (Whelan)."
OMT presupposes signing up to European Stability Mechanism (ESM)--i.e. conditionality.
ESM--a bailout set up Sept 2012--all EMU countries to contribute.
GREECE IN COMPARATIVE PERSPECTIVE
Margarita Katsimi and Gylfi Zoega, Greece and Ireland IMF Programmes Compared VOX
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