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Chapter 5. Conclusion
Summary of Findings
The world we live in right now is predominantly a world in which nations are connected extensively both politically and economically. Moreover, the line between politics and
economics has become ever more blurred. For instance, in the first half of the twentieth century, nations cared mainly about real “hot wars” with other nations. Yet, in the twenty-first century, nations concern more about economic growth and trade disputes. The European Debt Crisis that first came to the surface in 2009 is one great example of the emphasis on
economic. On top of the fact that the euro has already become a currency that is used, traded, and kept globally, or sometimes even coveted as a safe investment, the European integration is often deemed as the most ambitious regional integration unprecedented in the history. If there happen to be problems with the euro, the EMU, or the EU, the world would be
devastated. Economically, the Euro would become worthless and would have huge impacts on international trade and finance, whereas politically, the liberal institutionalism that the world economy is based on would suffer a huge blow. Therefore, it is important to understand why the crisis happened in the first place and how it could pan out.
The European Debt Crisis is an umbrella term that refers to several Eurozone member states’ sovereign debt crises. Of all the countries that underwent a crisis, Greece is currently the most troublesome. Its share of the entire Eurozone, merely around 2% of EU’s GDP, does
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not alter the fact that it cannot survive its debt crisis without assistance from other countries or institutions. Although Greece is a small country, its departure from the Eurozone could generate tremendous ripple effects. In addition, the Greek sovereign debt crisis is still
ongoing. As a result, this thesis intends to specifically study the Greek sovereign debt crisis.
This thesis aims at answering three questions: What caused the Greek sovereign debt crisis? Why has the crisis not ended after pouring in hundreds of billion euros of rescue funds? Will the latest third economic adjustment program solve the crisis?
The second chapter deals with the causes of the Greek sovereign debt crisis. In essence, there were external and internal factors. For external factors, EMU’s structural defects and the 2008 Financial Tsunami were the main contributors. The EMU lacked, and still does not have, a common budget and an institution that overlooks member states’ fiscal conditions. In other words, the Eurozone member states use the same currency whose value hinges on the confidence of its more dominant members such as Germany and France. However, for
economically weak countries, such as Greece, it poses potential threats since they can borrow money just as easily as the big countries but without the same debt service capacity. The 2008 Financial Tsunami was a catalyst for the crisis. After the Financial Tsunami, people started to wonder whether the countries they loaned to before were actually capable of servicing their debt. Greece was among those debtor countries. Soon, rounds of repatriation of funds ensued and Greece no longer had the money to support its expenditure and pay back its debt.
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Nevertheless, Greece could not just shove all the responsibilities to others. It should have realized that it was living beyond its means and that it was essentially borrowing to support its spending. Worse, it in fact was not capable of earning that much money. In other words, were it not for the money borrowed from other countries and institutions, Greece would have become bankrupted much earlier. Furthermore, serious problems of tax evasion and corruptions were picking at the scabs. These two phenomena were draining the disposal funds for Greece.
One may ask, should there not at least be some revenues from the money invested? Yes, but unfortunately not enough. One facet of Greece’s government spending that was viciously criticized was its excessive social welfare system and state-owned enterprises, which in general are programs that do not usually promise remunerations. Notwithstanding the Greek government plotted to fix the glitches of the welfare system and the state-controlled economy, opposition from the vested interests and labor unions was overwhelming. As a result,
conditions exacerbated and provided the hotbed to the sovereign debt crisis.
The third chapter attempts to deal with the failures of the past bailouts. To tackle the Greek sovereign debt crisis, Troika activated two economic adjustment programs between 2010 and 2012, along with the extra rescue funds from the EFSF. The total imbursement reached almost 400 billion euros. Regrettably, the crisis went on regardless. In 2015, Greece filed for financial assistance for the third time. It is concluded that the reasons that Greece has
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been mired in its debt crisis for so long were that the bailouts were not calibrated at the core problems, nor were they carried out effectively. Moreover, the conditionality was rather overly demanding for Greece.
The economic adjustment programs did not deal with the structural defects of the EMU and was designed mainly for Greece to pay back to the debtors instead of using the rescue funds on restructuring its economy or generating future revenue. The chief goal for Greece was to achieve a fiscal surplus through austerity, which in essence cut back economic growth.
The not-long-enough maturity date and the high interest rates also made it more difficult for Greece to overcome the crisis.
The fourth chapter discusses the third economic adjustment program for Greece that was discussed in 2015 and came out in 2016. Parties involved, from both the creditor and debtor countries, immediately asked the question of whether this time the program is going to be any different, or is it just going to be money wasted again. To find out, this chapter compares the terms of the third economic adjustment program to the reasons that made the previous efforts in vain, the missing target of the packages, incomplete implementation, too-stringent terms, and the recession caused by austerity.
The result reveals that generally the third economic adjustment program does not show significant changes. It still does not touch upon reforms in the EMU structure. Also, the funds are still mainly set to be finding their way back to the creditors; only a minute portion of the
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funds is believed to be funneled to generating future growth. The path of reaching fiscal surplus through austerity is not changed, either. Therefore, the likelihood of recession is still high. Luckily, the conditionality in the third economic adjustment program does appear to be more generous, which offers a beam of hope for prospective improvements. With regard to the implementation of the reforms, though, due to the ongoing nature of the program, there can be no assurance as to whether the Greek government would fully dedicate to carry out the reforms. Only time will tell and there needs to be a long-term observation.
Implications
Briefly summing up, the thesis answers the research questions. One advantage of this thesis is that it compiles the information that scatters around in various publications, and provides a relatively comprehensive description of the Greek sovereign debt crisis from the beginning in 2009 to 2016. It also lays the foundation for future studies and observations and fills the void of research regarding the Greek sovereign debt crisis done by the academic community in Taiwan.
There are, admittedly, weaknesses for this thesis. First off, the thesis does not take reference to any source of information in the Greek language, and thus does not include perspectives of the Greek academia and the Greek people who are at the epicenter of the crisis and who are influenced the most. The thesis also provides no definite conclusion as to how the crisis would end up being like. The Greek sovereign debt crisis is still ongoing and it
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is not realistic to predict what will happen in the future. The point of views of this thesis are so far explorative.
Till the end of 2016, there is not yet books or scholarly works that explore the Greek sovereign debt crisis in a comprehensive manner. Works that are relevant to the subject matter mostly discuss only partial aspects of the crisis. Some explain the causes of the crisis while others study the failure of the adjustment programs. If one desires to learn about the crisis, he or she needs to study several books and papers. On the one hand, this is probably because the crisis is still ongoing and it remains an open-ended topic and that no professionals feel motivated to compose one thorough work on this issue. On the other hand, the details involved are simply too complicated and too broad to be concluded in one scholarly work.
For instance, the structural defect of the EMU could already be written into one thesis.
Nevertheless, this thesis endeavors to compile as much information as possible and contribute to readers a comprehensive thesis that could inform about as many facets of the Greek
sovereign debt crisis, from how it started, to what have been done to fix it, to what might happen in the future. It is the intention of this thesis that readers can gain extensive, if not full, understanding of the Greek sovereign debt crisis as discussed in this thesis. And while it is beyond this thesis’s capacity to induce any policy changes with regard to the Greek
sovereign debt crisis, this thesis wishes to draw the attention to the interconnectedness of all factors that are influencing the crisis. Perhaps policies makers of the adjustment programs
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could start, instead of keep on pouring money into debtor countries, contemplating initiating reforms on the EMU structure, or perhaps the Greek officials could stop criticizing external forces for causing the seemingly everlasting pain and debt but to reflect on its own behavior and begin mending the mistakes. The world should also recognize that the crisis is not only Greece or the EU’s business. As suggested throughout this thesis, the world is extremely interdependent nowadays and that every person could be affected should there be
deterioration of the Greek, or more broadly the European, sovereign debt crisis.
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