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The Political Origins of the Greek Crisis: Domestic Failures and the EU Factor

This article argues that the origins of the Greek malaise are primarily political rather than economic and rooted in the delay, postponement, and half-hearted implementation of public policy reforms that preceded the crisis. The 2007-08 global economic crisis triggered market scrutiny over Greece, as it brought to an end a period of abundant liquidity and a relaxed attitude by global markets vis a vis Eurozone members. Greece’s impossible fiscal position was brutally exposed, and a downward spiral began. The article also argues that although Greece set itself up for failure, the Eurozone’s inability to act swiftly and early, to diagnose the problem correctly and to combine a policy mix consisting of budgetary consolidation and policy reform further exacerbated the problem. Despite the fact that disorderly default has been avoided and a sense of normalcy has returned, Greece has to move swiftly on the reforms front to avoid disaster.

The Political Origins of the Greek Crisis Domestic Failures and
A poster depicting German Chancellor Merkel and the IMF head Lagarde hangs in front of the Greek parliament during an anti-austerity demonstration in Athens’ Syntagma square.
 

The 2008 financial crisis led to a rapid downturn of global output. The collapse of Lehman Brothers set in motion dormant forces in the lightly regulated financial sector and led to a series of bank mergers, nationalizations and takeovers in the US, the UK and elsewhere. The failure of subprime mortgages was followed by pressure on the official banking sector, and governments felt compelled to intervene so as to rescue the banking system from a dangerous and unpredictable collapse. For a while, the neoliberal orthodoxy of the preceding 30 years came under fire. This time, it was not only die-hard socialists who fired at the banks and their profit-motivated “greed.” As the crisis moved further into to the real economy, civil society took up the case of income inequality and launched the “99 percent” campaign, highlighting how the economic spoils of the present economic system are distributed so unevenly as to threaten the stability and reproduction of the capitalist system. 

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