The Eurozone Crisis--GREECE--Annotated Bibliography (PART THREE)
Watch the documentaries mentioned earlier.
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 1995-2018
Greek Debt:
The German and Greek 10 Year Bonds 1993-2015 (remember Greece entered the EU 1986):
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)--it prevents countries that experience an asymmetrical shock from devaluing.
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.
6. It's a consequence of globalization and Europeanization--it forced Greece to compete with China and East Europe--they couldn't.
My view, for what it is worth, is some combination of 1. and 4. and 5 and 6.
There is an enormous amount of debate about especially the 2010 Bailout but also the 2012 Bailout.
Many critics of the Troika argue that the Bailout was in effect a Bailout of Northern European (esp French and German banks) at the expense of Greece. Those who hold this view argue that Greece should have been allowed to default in 2010--even at the expense of bankruptcy for all its domestic banks.
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).
Thus even Karl Otto Pohl, a Conservative German economist, who was one of the initial (albeit reluctant) architects of the Euro had this to say:
Pöhl: It was about protecting German banks, but especially the French banks, from debt write offs. On the day that the rescue package was agreed on, shares of French banks rose by up to 24 percent. Looking at that, you can see what this was really about -- namely, rescuing the banks and the rich Greeks.
SPIEGEL: In the current crisis situation, and with all the turbulence in the markets, has there really been any opportunity to share the costs of the rescue plan with creditors?
Pöhl: I believe so. They could have slashed the debts by one-third. The banks would then have had to write off a third of their securities.
SPIEGEL: There was fear that investors would not have touched Greek government bonds for years, nor would they have touched the bonds of any other southern European countries.
Pöhl: I believe the opposite would have happened. Investors would quickly have seen that Greece could get a handle on its debt problems. And for that reason, trust would quickly have been restored. But that moment has passed. Now we have this mess.
SPIEGEL: How is it possible that the foundation of the euro was abandoned, essentially overnight?
Pöhl: It did indeed happen with the stroke of a pen -- in the German parliament as well. Everyone was busy complaining about speculators and all of a sudden, anything seems possible.
For a skeptical view of this, see Dan Davies "
2010 and All That: Relitigating the 2010 Bailout."
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
Source: Baldwin and Wiplosz (2011)
