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terms, and austerity-induced recession.
It is logical to think that the reason that the bailouts did not work out is that the bailouts did not deal with the causes of the crisis. Therefore, the root causes mentioned in chapter two are taken reference in this section. Nevertheless, since some of the root causes of the crisis were one-off event and could not be changed in anyways (no one could change the past), they are not considered the factors that rendered the bailouts to fail. Thus, “the 2008 Financial Tsunami” and “cooking the books” are not included in this section.
One the other hand, “missing targets of the programs” refers to the fact that the
“structural flaws of the EMU” and the Greek “non-competitive economy” problems were not solved. “Incomplete implementation of the programs” deals with the “extravagant spending behavior”, “tax evasion problem”, and “corruption, political clientelism, and rent seeking”
problems. “Too stringent terms” deals with the “debt maturity profile” problem, along with discussions on other terms of the bailouts, such as the interest rates. Lastly, “austerity-induced recession” does not deal with the causes of the crisis. Yet, it is proposed by many scholars as one key detriment to the bailout packages.
Missing target of the programs. The most debated reason that the sovereign debt crisis
has been stubborn is that the Eurozone never attempted to fix the systematic flaws of its structure. As mentioned in chapter two, the EMU is not a complete design; it is a monetary union without coordinated fiscal policies and budget, and, according to many scholars, if that
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structural problem is not disposed of, sovereign debt crises would never come to an end.
Pisani-Ferry (2012) points out that should the bailout packages never address the problem of the absence fiscal consolidation for the EMU, the solution will remain elusive. According to Pisani-Ferry (2012), should there appear macroeconomics imbalances, member states could not wield monetary policies as a countermeasure. What is left then, is fiscal policies. If, however, countries wish to use the same currency, fiscal consolidation among them is a prerequisite. These elements are exactly what is missing: there is no supranational entity controlling the spending of member states, and when economic imbalances occur member states do not have the power to adjust monetarily. Political integration as the most needed component for the EMU, especially if member states really desire the success of European integration. The future of the Euro depends on the political will of the member states. Stiglitz (2016) points out that for a single currency to work among different countries, there needs to be an array of institutions to assist the countries that are ill-adapted to the common policies, and the EMU failed to do that. Monastiriotis (2011) also stands up for the idea and blames the systemic defects in the EMU design for creating a structural asymmetry within the Eurozone and hence resulting in real currency appreciation and continuous loss of competitiveness in the European south. If the structural flaws were not corrected, there is no possible way out for Greece.
Meanwhile, some scholars contend that the bailout packages did not fit Greece’s need.
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Instead of focusing on EMU’s structural defects, these scholars reckon that Greece does not need just more funds, but the know-how to capitalize on those funds. Nevertheless, the bailout packages never really instructed Greece on how to properly use the money. Chamley and Pinto (2011) and Sinn (2014) speculate that the bailout prescription was ill-designed to solve Greece’s true problems. They believe that the economic adjustment programs were not exactly what the Greek financial disorder needed. Rather, the cause of Greece’s illness lied within the Greek economy itself. Simply put it, Greece’s problem was not its liquidity, but solvency. The funds, on the contrary, ended up merely providing liquidity to Greece while adding new debt onto Greece’s balance sheets, instead of calibrating at reforming the
country’s economic structure. The rescue funds injected into Greece did not guarantee future surge in NPV. In other words, the money did not generate future revenue. Monastiriotis (2011) accuses the Troika, whose emphasis remained calibrated at inducing structural reforms rather than growth stimulation through public investment, for having parochial views,
showing “little, if any, attention to the geography of the austerity measures.” Burietz (2016) also uses mathematics to prove that the Greek sovereign debt crisis should be handled not in the same way because of its uniqueness.
Meanwhile, there was also cacophonies on the international stage in terms of the value of the Greek sovereign bonds (Monastiriotis et al., 2013). The failure of coordinated
international actions, such as the fact that the ECB occasionally rejected Greek sovereign
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bonds as collateral for liquidity provision to commercial banks in Greece, proved that the world was not on the same page on solving the Greek problem. From his point of view, the Troika was more concerned about “convincing themselves and appeasing the markets” rather than about “getting the numbers right.”
Incomplete implementation of the programs. Another reason that has been cited the
most frequently by various scholars is the substandard performance of the Greek government in terms of spending the rescue funds and carrying out the necessary reforms.
It was also argued that the reason Greece has not been able to escape the crisis is, not economically, but politically the government was not doing everything it could. To him, it would not be a surprise even if the international society refuses to rescue Greece since that is exactly what the Greek inertia deserves, and the inertia is mainly caused by the lack of capacity and resolution of the Greek government to make changes.
Some interesting numbers could be discovered. Assuming the interest rate is at 6% for Greece’s loans, Greece on a yearly basis would have to spend around 20% to 25% of its tax revenue for paying interests to, mainly overseas, bondholders (Abboushi, 2011). This is a sizeable portion of the bailout funds, and could attenuate Greece’s economic growth and replace it with stagnation. In accordance, there was not much left for Greece to spend on meaningful projects that could genuinely promise future growth, the salvation Greece is in most dire need of. Abboushi (2011) also points out that a significant portion of the Greek
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government spending used to go not to stimulate the economy out of recession but to pay for social welfare programs with questionable return on economic growth and vitality, claiming that the Greek government spent about 42.5% on social protection and 19.2% in public services. Without a change in this attitude, there will always be an absence of efficiency in implementation no matter how much rescue fund the Greek government receives.
Labor unions were blamed as adamant opposition to the reforms as well. Originally established to represent labor rights and stand up against capitalists’ exploitations, in many occasions labor unions go towards the extreme and often strongly oppose reforms that endanger their own interests (Jin, 2012). In Greece, reforms of the pension and welfare system, especially those that matter to the huge crowd of public servants, and privatization processes were frequently thwarted by people, organizations, and labor unions who have stakes within.
Some scholars further elaborate that the Greek government is devoid of
implementational strength, which leads to inadequate budget control, employment law reformation, etc., predominantly because of the poor intra-governmental coordination, efficiency and resources, and the lack of information (Featherstone, 2011). Hence, the
government was unable to execute many of the reforms required in the bailout packages. The lack of “de facto executive strength” of the ministers in their own domains, given the internal problems such as bureaucracy and the strong union power, also made things worse.
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In resonance, Zahariadis (2012) points to the fact that the government merely cared about minimizing political cost when conducting reforms. Zahariadis (2012) talks about the complexity and coupling of interactions and how complexity, the nature of interaction between units in a system, hindered bailing out Greece due to the great differences in
economics and ideologies, and how coupling, the strength of their connectivity, increased the difficulty for implementation. Zahariadis also raises the point that SGP has limited
effectiveness under complexity because the problems facing each country and the solutions vary widely. Costs for full implementation of the measures were excessive; targets were constantly missed.