Abstract
This paper examines three questions regarding the controversial relationship between Greece and the eurozone during the current crisis. First, why was Greece ?bailed-out? in 2010? Second, why the Greek economy collapsed despite the largest ?bail-out? in global financial history? Third, was the electoral mandate of the Syriza government for ending austerity while remaining in the eurozone contradictory? There are conflicting answers to all three questions and the paper compares the answers of the so called ?dominant narrative? to those provided by the ?counter-narrative? of the eurozone crisis. The paper reaches the following conclusions. First, the primary motivation for the ?bail-out? of Greece was the maintenance of European and global financial stability. Second, although programme implementation was less successful in Greece than in other ?programme? countries the catastrophic collapse of the Greek economy had more to do with the programme itself than its implementation. Third, the meaning of democratic decision-making in the Euro-group needs re-appraisal and must go beyond seeing the Greek demand of a policy reversal in the eurozone as simply a clash of democratic mandates in a 19 member monetary union. Political unity will not only improve efficiency but also democracy and accountability in eurozone policymaking.
Highlights
What is the explanation for this apparent paradox? Despite receiving 240 billion euros in 2010 and 2011and a Private Sector Involvement (PSI) partial debt restructuring in 2012, at the beginning of 2015 the Greek economy shrank by 25% from its pre-crisis level, its debt to GDP ratio shot up to 175%, unemployment, long term unemployment and youth unemployment sky rocketed and the country was facing a serious humanitarian crisis
The aim of the strategy of simultaneously implementing rapid fiscal consolidation, internal devaluation and “structural reforms” was to promote economic growth that could in turn enable a heavily indebted economy to achieve debt sustainability
In this paper we focused on three important questions concerning the troubled relationship between Greece and the eurozone: first, why instead of “Grexit” Greece was “baled-out” in 2010; second, why despite the biggest “bail-out” in global financial history the Greek economy collapsed and third what is the meaning of democratic choice in a monetary union?
Summary
Greece having repeatedly flouted the Maastricht rules and lied about it was “bailedout” in May 2010 in a clear breach of the same rules. With regard to the effects of a Greek default on the European banking system it was estimated that most of the Greek government debt was held by non-domestic banks, notably French and German (based on data from the Bank of International Settlements - BIS; see Treanor 2010) This would have meant that the taxpayers of these countries would have had to foot the bill for the “bail-out” of their “systemic” banks in the event of a Greek default. The “bail-out” plan for Greece was proposed by Jean-Claude Trichet, the president of the ECB and vigorously advocated by the President Sarkosy of France who managed to convince the German government, allegedly by threatening to leave the euro (as Spain’s former prime minister, José Luis Rodriguez Zapatero, later revealed to the newspaper El País); namely that this was an operation not to save Greece but to rescue the whole of the eurozone It had the desired effect of preventing default and “contagion” in the eurozone. The first answer is the one most commonly provided by the “dominant narrative” of the crisis that Greece was “saved” by the Euro-group decision to bend the rules of the monetary union in 2010 and this was a generous altruistic act of community solidarity
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