The Effects of the Economic Adjustment Programmes for Greece: A Quasi-Experimental Approach

Julio Revuelta

doi:10.3390/su13094970

Abstract

Three Economic Adjustment Programmes (EAPs) were implemented in Greece, between 2010 and 2015, without achieving the proposed economic objectives. This article analyses the impact of the EAPs in Greece using the synthetic control method (SCM) and has three main contributions. First, it identifies a long-term negative impact worth 35.3 per cent of the Greek GDP per capita caused by the application of the EAPs. Second, it finds that three-quarters of the estimated negative and unsustainable impact accumulated over the 2010–2012 period. Third, it identifies a regressive effect of the EAPs on income distribution, the Greek population with lower incomes experienced a greater negative effect caused by the adjustment programmes. These results underscore the need to review and correct the conditional financial assistance framework currently in force in the European Union.

Highlights

Managing the Great Recession has been one of the biggest challenges in the history of the European Union (EU) [1,2]
It is necessary to identify the optimal counterfactual to estimate the effect of the Economic Adjustment Programmes (EAPs) in Greece
During the debt crisis in 2010, those who defended the approach of financial assistance to Greece subject to strict fiscal austerity and structural measures argued that it would allow the country to access financial flows for a period long enough to avoid bankruptcy

Summary

Introduction

Managing the Great Recession has been one of the biggest challenges in the history of the European Union (EU) [1,2]. After an initial response involving expansionary policies, the Eurozone economies failed to return to the desired stable growth pattern and moved to progressively adopt fiscal consolidation measures [3,4]. In the second quarter of 2011, the growth to which the Eurozone had returned after the 2008–2009 recession started to decline resulting in a new recession in 2012. The main factors that led to this economic contraction include financial imbalances due to the high degree of indebtedness of the economic agents, the risk of financial contagion, macroeconomic divergences in the Eurozone, the decrease in fiscal space, the rigidity of the monetary union, and the absence of economic policy tools to compensate for this rigidity [5,6]. The economic problems had an asymmetrical impact on the countries in the European Monetary Union (EMU). The case of Greece stood out due to the severity of its economic and financial situation [7]

Methods

Results

Discussion

Conclusion