Economic crisis in the European periphery: An assessment of EMU membership and home policy effects based on the Greek experience

Abstract

Our objective in this paper is threefold. First, to identify the major common shocks that hit these countries upon entry into the EMU. Second, taking Greece as our case study, to construct a simple macroeconomic model of the policies Greek governments pursued in the presence of these shocks, and to employ its solution so as to highlight the outcomes that were expected to result. From this endeavor, we find that the policies which were put in place led unavoidably to a severe economic crisis and eventual bankruptcy. Finally, in view of these findings and what happened in 2009,we raise and attempt to answer questions like, for example: How can we explain the policies that were adopted in the advent of monetary union shocks? Could they have been anticipated? And if so, why did they escape the attention of the designers of the Maastricht Treaty? The answer to which we are led by the analysis is that the shocks in all these countries were perceived by their governments as opportunities to hold on to their entrenched positions. That this happened, we conclude, reflects a failure in the mechanisms of economic convergence that were embedded in the Maastricht Treaty as well as in the effectiveness of European Union (EU) institutions that were empowered with their enforcement. JEL Classification: E3, F15 F16, F32, F36, H62, H63 L16Key Words: Economic crises, economic integration, balance-of payments deficits, budget deficits and indebtedness, structural imbalances. George C. Bitros is Emeritus Professor of Economics, Athens University of Economics and Business. He is the corresponding author for this paper and he can be contacted at bitros@aueb.gr. † Bala Batavia is Professor of Economics, DePaul University, Chicago, USA, and his e-mail is bbatavia@depaul.edu. ‡ Parameswar Nandakumar is Emeritus Professor of Economics, Indian Institute of Management, Kozhikode, India, and he can be reached at nanda7285@yahoo.com.

Macroeconomic Dynamics in the Greek Economy during the Pre- and Post-Euro Adoption Periods

“…Kammas and Sarantides (2020) delved into how the spread of democracy influenced tax structures in Greece's economy. Bitros et al (2016) explored the influence of European Monetary Union transfers and Greek domestic policies on the economy, highlighting a close relationship with the great financial crisis. Papatheodorou (1990) examined the impact of energy on Greece's macroeconomy with the aid of simulations, while Samitas and Polyzos (2016) highlighted the devastating effects of delayed banking capital controls in Greece.…”