Greece During a Crisis. Evaluation or Actions Made by Government

Topics: European Union, Euro, Economics Pages: 10 (3491 words) Published: December 4, 2012
Greece during a crisis. Evaluation or actions made by government.

Since late 2009, Greece has been submerged in a financial crisis unprecedented in its modern history. During this time, Greece has implemented structural adjustment policies of cutting social expenditures and raising taxes. This has been accompanied by a dramatic attempt to reform of Greece’s economic system in the image of neoliberalism through liberalization and deregulation measures. Additionally, Greece has embarked on a massive privatization plan of many state-owned companies. In May 2010, Greece was given a bailout worth 110 billion euro in loans from the European Union (EU) and International Monetary Fund (IMF). This first bailout has kept Greece from defaulting on its loans; however, it became quite apparent in the last few months that Greece would need additional financial support to continue servicing its debt-payments. Recently, on July 21, 2011, the EU and IMF confirmed that Greece would be receiving a second bailout worth 109 billion euro (Council of the European Union 2011). The details of this plan are still being worked out.

The combination of structural adjustment, privatization, liquidity injections, and the reform of Greece’s economic system have all been implemented with the hope of containing and ultimately solving Greece’s current financial crisis. Much of the mass media discussion surrounding Greece’s current financial crisis has centered on the notion of ‘containment’ so that Greece’s ‘disease’ does not spread to the rest of the highly-indebted and fiscally unstable peripheral eurozone countries of Portugal, Italy, Ireland, and Spain (PIIGS). Greece is viewed by the mass media as the cause and focal point in the European financial crisis; “the sick man of Europe” that needs to be cured (Malkoutzis 2011b). If Greece cannot be cured of its disease, then at least Greece’s disease needs to be contained so that it does not spread to the rest of the eurozone countries.

EU officials fear that if Greece defaults on its debt-payment obligations, then some or all of the PIIGS with high debts will also default, causing a domino contagion scenario (Lynn 2011). As Nouriel Roubini stated, “Greece is just the tip of the iceberg” (Anon 2010b). Since the start of the single currency, euro-countries’ financial markets have become far more integrated than ever before. They share the same currency, hold each other’s debts, and have increased trade with one another. It is feared that a default by any one of the highly indebted eurozone countries will put the whole European banking system at risk, and possibly lead into an intensified recession (Castle and Saltmarsh 2010; Simeunovic 2010; Kitsantonis 2011; Dixon and Unmack 2011).Overall, Greece is given complete agency in creating the European financial crisis. The structural adjustment measures, privatization plan, and reforms to the structure of Greece’s political economic system are meant to alleviate Greece’s debt-burden so that its ‘disease’ does not spread to the other PIIGS. The bailout injections are implemented to keep Greece solvent during this containment process. It is ultimately hoped that Greece will stay liquid long enough to pay down much of its debts, while Portugal, Ireland, Italy, and Spain recapitalize their banks and trim their own government deficits. Greece may still default on some of its debts, however, by that time the contagion effects will be contained within Greece, and an intensified European financial crisis can be averted. The global impact "will be a mere hiccup instead of a new financial crisis." (Cowen 2011) This is an optimistic view of how the European financial crisis will play out. It adopted by most European officials, Greek politicians, IMF officials, and most of the economic world and justifies the structural adjustment measures forced upon the PIIGS. The overarching, macro causes of the Greek financial crisis are historically fixed in...

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