Capital Flows of the Greek Debt Crisis

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GE2202: Economy and Space
Research Essay

Capital Flows of the Greek Debt Crisis
Word Count: 1957

Done by:
Ng Hong Qing (A0093512)
Tutorial Group DE4

The Greek Debt Crisis (GDC) saw the plunge of a country into one of the worst economic disasters it has experienced. Having historically run budget deficits to finance social benefits and policies, Greece has also incurred fairly high levels of public debt. However, the GDC was not an outcome of domestic problems. Following the global financial crisis in 2008, Greece’s core industries of shipping and tourism (i.e. central pillars of its economy) suffered major drawbacks from a general decline in government and consumer spending globally. The declining GDP meant that Greece was likely unable to finance its debt and eventually forced to default. While the economic situation could be salvaged through the execution of unilateral monetary policies, Greece as a member of the European Union (EU) was constrained by policies set by the European Commission and the European Central Bank (ECB). Hence, Greece approached the ECB for assistance, resulting in a bailout plan formulated with the International Monetary Fund (IMF) and the ECB. To expedite the process of granting the bailout and to draft a long-term sustainable budget policy for Greece, the Troika, consisting of the European Commission, the IMF and the ECB was set up. After lengthy deliberations, a new round of austerity measures was announced and the next day, a loan agreement granting €45 billion to Greece in 2010 (with more funds to be made available later), was struck. Later, two more austerity packages were passed paving the way for Greece to receive additional funds, and opened up the option for the write-down of debt. While the GDC is fundamentally an economic issue (i.e. caused by a prolonged deficit in the government’s budget), it is also inherently a geographical phenomenon. It is how global finance is in fact geographically organized and is structured, flowing through specific channels and actors. It is also through times of crisis that many of us focus and think more critically about the world of finance (Clark, 2005) and this paper seeks to utilize the metaphor ‘Money Flows Like Mercury’ (Clark, 2005) together with the GDC to understand and unpack certain aspects of the crisis, and evaluate its relevance to the crisis. Having provided an overview of the paper and its objectives, the next section will review selected literature in the geography of finance. Section 3 will describe methodologies employed over the course of this paper. Section 4 will highlight the ‘toxic’ aspects of finance, combined with a discussion on why such effects are usually delayed. This is followed by an analysis of how capital flows occur in the context of this crisis tied together through an extension of Clark (2005)’s metaphor of how finance ‘runs together at speed’ in Section 5. Finally Section 6 will review and summarize the main points made, as well as suggest future directions to enhance our understanding of the crisis and the global finance in general. Literature Review

We have become firmly reliant on global finance and its related services in going about our everyday lives and hence with such large impacts, finance has also been extensively researched in academia. Much of it coincided with improvements in communication technologies and its potential in making geography irrelevant in global finance. From this also came a contrary vein of thought that highlighted how locations and spatial characteristics continue to matter in the financial world (Leyshon, 1994). The financial system was recognized as central to management and the circulatory flows of money and capital are deeply intertwined within nations, financial institutions and consumers (Clark, 2005). Consumers became part of the system through pension funds (involuntarily) or as information flooded the market, as savvy individual investors....
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