Greece and the Euro: The Chronicle of an Expected Collapse
By George Galanos, Angelos Kotios, George Pavlidis
Ten years after Greece’s accession to EMU, the venture has proved to be almost a complete failure. Obviously, the country joined EMU disappointingly unprepared. After EMU accession, Greece failed to seek the necessary adaptations. Its economic policy was inconsistent with the economic logic and rules of the game of a monetary union. EMU did not in itself lead to the Greek crisis. Nevertheless, the supervisory arrangements clearly failed to work. Moreover, the unfolding of the crisis was assisted by EMU’s inherent weakness in managing asymmetric disturbances and the absence of early warning and rapid intervention mechanisms.
On 1 January 2001, Greece joined the eurozone, following a collective effort to adapt to meet the convergence criteria of the EU Treaty (1992). The country’s participation in the third phase of EMU had become a key national objective. Through its EMU membership, the country was looking forward to significant economic and political advantages. Greece’s path in EMU, despite frequent disruptions, seemed manageable. However, the debt crisis that erupted in 2009 and peaked in 2010 has amply revealed the chronic weaknesses of the Greek economic and political system.
This raises some questions of great interest to both policy and academic research: what are the outcomes of Greece’s membership and progress in EMU? Did EMU contribute to the Greek crisis and financial collapse? After this phase of financial suffering, what does the country’s European future look like? This paper attempts to answer these questions, focusing on some key economic and institutional issues. Evaluation of Ten Years of Greece’s Participation in the Euro Area
After ten years of Greece’s participation in the eurozone, it is useful to attempt an assessment of its main achievements and failures.1 It is logical to begin by examining the main expectations at the time of EMU accession. The Expected Effects
Before Greece’s entry into EMU, there was a general consensus on the expected benefits.2 The reduction of transaction costs and the elimination of exchange rate uncertainty were expected to boost trade and production. The transfer of responsibility for monetary policy to the new common institutions would release Greek monetary policy from domestic political pressures, thus ensuring price stability. Monetary stability was expected to enhance the propensity to invest. A decrease in the nominal and real interest rates and their stabilisation at low levels was also expected to help with this aim. Due to the adoption of an international currency, it was expected that the external liquidity of the Greek economy would be ensured to a great extent. Also, the country would be compelled to proceed, at last, with the reforms needed to endow the Greek economy with modern institutions and structures. Political benefits were also expected from joining the euro3, provided that EMU had a positive effect on the process of European political integration.
Despite the frequent emphasis of these benefits, realistic analysis in Greece and abroad regarded the country’s participation in the euro as a major challenge that entailed significant risks.4 Concerns were raised over the state of the Greek economy and its ability to meet the requirements of the new competitive environment. The country would no longer be able to use monetary or exchange rate adjustments to remedy competitive disadvantages or adverse economic developments at a national level. Due to the reduced mobility of certain factors of production, but also because of restrictions on fiscal policy, future incomes and structural policies would have to bear the weight of the actual adjustment.
In the case of national macroeconomic disturbances, EMU member states would no longer have the necessary economic policy arsenal. Therefore, the weight would have to be carried by a limited number of policies, such as income and structural policies. EMU did not provide any mechanism for the management of a national or collective disturbance. Fiscal disturbances, such as the excessive indebtedness of a country, were considered impossible, due to the rules on budgetary discipline.
Има и много още който го интересува
By George Galanos, Angelos Kotios, George Pavlidis
Ten years after Greece’s accession to EMU, the venture has proved to be almost a complete failure. Obviously, the country joined EMU disappointingly unprepared. After EMU accession, Greece failed to seek the necessary adaptations. Its economic policy was inconsistent with the economic logic and rules of the game of a monetary union. EMU did not in itself lead to the Greek crisis. Nevertheless, the supervisory arrangements clearly failed to work. Moreover, the unfolding of the crisis was assisted by EMU’s inherent weakness in managing asymmetric disturbances and the absence of early warning and rapid intervention mechanisms.
On 1 January 2001, Greece joined the eurozone, following a collective effort to adapt to meet the convergence criteria of the EU Treaty (1992). The country’s participation in the third phase of EMU had become a key national objective. Through its EMU membership, the country was looking forward to significant economic and political advantages. Greece’s path in EMU, despite frequent disruptions, seemed manageable. However, the debt crisis that erupted in 2009 and peaked in 2010 has amply revealed the chronic weaknesses of the Greek economic and political system.
This raises some questions of great interest to both policy and academic research: what are the outcomes of Greece’s membership and progress in EMU? Did EMU contribute to the Greek crisis and financial collapse? After this phase of financial suffering, what does the country’s European future look like? This paper attempts to answer these questions, focusing on some key economic and institutional issues. Evaluation of Ten Years of Greece’s Participation in the Euro Area
After ten years of Greece’s participation in the eurozone, it is useful to attempt an assessment of its main achievements and failures.1 It is logical to begin by examining the main expectations at the time of EMU accession. The Expected Effects
Before Greece’s entry into EMU, there was a general consensus on the expected benefits.2 The reduction of transaction costs and the elimination of exchange rate uncertainty were expected to boost trade and production. The transfer of responsibility for monetary policy to the new common institutions would release Greek monetary policy from domestic political pressures, thus ensuring price stability. Monetary stability was expected to enhance the propensity to invest. A decrease in the nominal and real interest rates and their stabilisation at low levels was also expected to help with this aim. Due to the adoption of an international currency, it was expected that the external liquidity of the Greek economy would be ensured to a great extent. Also, the country would be compelled to proceed, at last, with the reforms needed to endow the Greek economy with modern institutions and structures. Political benefits were also expected from joining the euro3, provided that EMU had a positive effect on the process of European political integration.
Despite the frequent emphasis of these benefits, realistic analysis in Greece and abroad regarded the country’s participation in the euro as a major challenge that entailed significant risks.4 Concerns were raised over the state of the Greek economy and its ability to meet the requirements of the new competitive environment. The country would no longer be able to use monetary or exchange rate adjustments to remedy competitive disadvantages or adverse economic developments at a national level. Due to the reduced mobility of certain factors of production, but also because of restrictions on fiscal policy, future incomes and structural policies would have to bear the weight of the actual adjustment.
In the case of national macroeconomic disturbances, EMU member states would no longer have the necessary economic policy arsenal. Therefore, the weight would have to be carried by a limited number of policies, such as income and structural policies. EMU did not provide any mechanism for the management of a national or collective disturbance. Fiscal disturbances, such as the excessive indebtedness of a country, were considered impossible, due to the rules on budgetary discipline.
Има и много още който го интересува
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